Virgin Australia Group has asked the government for a $1.4 billion loan, according to reports that sparked a pause in trading on the ASX just before 10am on Tuesday.
The proposals would apparently see the government able to convert the package into ownership if it is not repaid in the next two to three years. The Sydney Morning Herald said a formal request was made last week, which also called for a broader $5 billion bailout for the industry.
However, Qantas has hit back with a “well-placed source” telling the government that, if its rival were to be bailed out, then the carrier would itself insist on a $4.2 billion loan to “level the playing field”.
So far, the Deputy Prime Minister has unveiled a relief package for national and regional carriers worth more than $1 billion, though this is mostly a waiving of fees and levies.
A spokesman for the business told the SMH that while it would not provide details of the letter, a bailout would be “necessary for the industry if this crisis continues indefinitely, to protect jobs and ensure Australia retains a strong, competitive aviation and tourism sector once this crisis is over”.
The Virgin Group later confirmed the speculation in a statement to the ASX at midday, saying it “continues to explore a range of options” including requesting financial support from the government “in the order of $1.4 billion”. It said it “may or may not” include conversion to equity.
A package of help would be controversial as the group is 90 per cent owned by foreign interests such as Etihad Airways, Singapore Airlines and the Virgin Group.
Last Wednesday, Virgin Australia announced it was standing down 80 per cent of its staff and would increase domestic capacity reductions from 50 to 90 per cent. The next day, it confirmed 1,000 of the 8,000 suspended employees would be made permanently redundant, including all 220 Tigerair pilots.
On Friday, credit rating agency Standard and Poor’s downgraded Virgin Australia Group for the second time in a fortnight after its staff and capacity cuts.
S&P lowered the airline from B- to CCC, which it blamed on “cash flow and liquidity pressures”. However, it maintained the business was “fundamentally well managed”.
S&P said in a statement explaining its decision, “Virgin Australia’s previous $900 million unrestricted cash buffer is likely to materially reduce in the very near term.”
A bailout is likely to infuriate Qantas, which has loudly urged the government to give the same help to both rivals.
So much so that Virgin Australia’s chief executive wrote to the competition watchdog to formally complain about Qantas’ recent attacks on his airline.
In the letter, Virgin’s Paul Scurrah said Qantas’ actions “could cause immediate and irreparable damage to a competitive Australian air passenger transport industry”.
Scurrah continued, “Virgin Australia has seen widespread reporting of public comments from Qantas and its executive team questioning directly or indirectly Virgin Australia’s financial viability and encouraging [the] government to refrain from extending any government support for the aviation industry to Virgin Australia.”
He accused Qantas of falsely briefing journalists that Virgin Australia’s cash reserves were running low.