Virgin Australia, Country's No. 2 Airline, Enters Bankruptcy Amid Virus Woes; Airline hopes to recapitalize and emerge in stronger financial position

Wall Street Journal; New York, N.Y.; 21 Apr 2020.

SYDNEYAustralia's second biggest airline, Virgin Australia Holdings Ltd., said Tuesday that it is entering voluntary administration, one of the first big airlines to seek bankruptcy protection as the coronavirus pandemic upends global travel.

The airline's move comes after it failed to secure the required financial assistance from state and federal governments in Australia. It appointed members of Deloitte to serve as voluntary administrators, and hopes to recapitalize the business and emerge in a stronger financial position

You are the CEO of a US-based airline which is a leading global provider of cargo airline, passenger charter airline, and aircraft leasing services. The airline currently has no branch or business operated in Australia but has an intention to make a takeover bid for Virgin Australia and becomes the potential new owner of Australia's second major carrier. The airline first needs to set up a proper business in Australia to accommodate the dramatic risks in this business. Before the airline makes the takeover bid, the management teams decide to spin off its aircraft leasing business and focus on cargo and passenger charter airline.

REQUIRED:

(a) Identify the appropriate business structure for the airline with reasons.

(b) Briefly explain any two pros and cons of your proposed business structure.

(c) Define horizontal, vertical and conglomerate acquisition and identify the type of acquisition for the airline with reasons.

(d) What is your expectation of the market reaction to the announcement of a spin-off? Justify your answer.