A good result from Virgin Blue, but that’s probably the end of
the easy gains. But before they go on, how about explaining what part
of Note 24 means Brett Godfrey?
A good result from Virgin Blue for the year to March, but folks
that’s the end of the easy yards. Next week Qantas rolls the dice and
sends Jetstar off into the skies so Virgin blue. A gamble that
could go anywhere given the unhappy record of low cost start-ups being
promoted by existing full service carriers.

But before a look at the Virgin Blue numbers, there’s something the
board and CEO Brett Godfrey must immediately come clean up about.

Buried deep within the notes to the accounts of a nicely disclosing set
of numbers is a worrying disclosure about an $US18 million (about $A26
million) deal that may or may not benefit Mr Godfrey and others in the
old Virgin Group of Sir Richard Branson.

After explaining that during the year the Australian Taxation Office
checked the company re payment of GST, the directors go on to say in
Note 24 on Contingent Liabilities that:

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“There are other arrangements entered into before March 2002, to which
the CEO and entities within Virgin Group are parties. The company is
not a party to these other arrangements. Under these other
arrangements, the parties could receive payments up to $US18 million,
although there is no certainty that all of these payments will be paid.

“No other arrangements of this type exist. The company has taken advice
on this matter and believes that no adverse consequence have resulted
or will result to the consolidated entity as a result of these
inquiries or the arrangements.”

That’s all a bit mysterious and no doubt easily explainable, so how
about it Virgin Blue? Was CEO Brett Godfrey and others in the Virgin
Group (Branson’s mob) on a series of nice little earners in relation to
certain side deals?

Do these side deals relate to aircraft leases in anyway? Is there ANY
tax liability anywhere for the company. Has the Tax Department said “no

How much could be paid, what were the side deals, when to these
arrangements expire? And these arrangements should be fully revealed in
the proper annual report in relation to the full disclosure of the
CEO’s pay.

Godfrey doesn’t get much. Less than $400,000 in the year to March,
which is peanuts. But he is a major stakeholder in the 8 per cent or so
of Virgin held by “staff” before the float and which ended up being
worth $80 million (a bit less now that the share price has fallen). But
that’s still a lot of money, so what about disclosing instead of being

But the Virgin Blue result was notable also for a new, slightly rubbery
profit measure: EBITDAR, yes EBITDAR. That’s earnings before interest,
tax, depreciation, amortisation and aircraft rentals. Now seeing that
Virgin Blue’s business model was built on renting Boeing 727’s, Crikey
would have thought rental was an essential cost of business. A bit like
a bank or finance company giving a profit before interest charges, when
that’s what they do, borrow money and pay the investor. Although
they did give other profit measures, such as EBIT and Profit Before Tax
and PAT (profit after tax).

Anyway, with four new planes to arrive this year, the fleet of Virgin
Blue will end up around 49. That will probably see the share of the
national market edge a touch higher from the 33% at the end of March.
But Virgin makes it clear that pursuing market share is over and making
sure costs are under control and profits are rising will be the mantra
from now on.

Hence the statement at the start of this piece that the year to March marked the end of the easy times for the airline.

It is now a full-fledged operator, having driven Qantas to adopt its
model in part and to attack costs, Virgin Blue is now looking to repel
the new challenger in Jetstar. And part of that will involve
increasing its appeal to investors.

Although Virgin Blue didn’t pay a dividend, it has franking credits of
just over $91 million. That’s more than enough for an 8 to 10 cents a
share payout now, and maybe a bit more in a year’s time.

With the airline claiming strong cost controls and continuing to
produce that evidence during the year, Franking could easily
accommodate an initial dividend, which will increase its appeal to a
greater range of investors looking for income, such as balanced
superfunds and more conservative investors.

But before that, Virgin Blue has a bit more disclosing to do.