Treasurer plays down Virgin rescue as trading suspended

written by Adam Thorn | April 16, 2020
A file image of a Virgin Australia Boeing 737-800 (Dave Parer)
A Virgin Australia Boeing 737-800 (Dave Parer)

Federal Treasurer Josh Frydenberg has played down speculation the government could bail out Virgin, and urged its shareholders to step in.

Speaking to the ABC on Thursday morning, Frydenberg said, “We want to see Virgin continue. We want to see two airlines in the domestic market, but we’re not in the business of owning an airline.”

The intervention came on the morning Virgin Australia Group suspended its shares from trading for another seven days after its initial two-day ASX trading halt expired.

Advertisement
Advertisement

The business is struggling to service its $4.8 billion debt pile with little revenue coming in, and is currently attempting to secure a $1.4 billion government loan to help it survive during the coronavirus crisis.

The government has previously dampened speculation it could help rescue Virgin, but today’s quotes from the Treasurer are the most explicit yet.

He added that the business’ shareholders have “got deep pockets” and “our focus has been on providing industry-wide support”.

In a statement to the ASX announcing the suspension of share trading, the Virgin Australia Group said, “Discussions have continued over the last two days including discussions which remain confidential and are incomplete. The company is not presently in a position to make an announcement to the market with respect to these matters.”

PROMOTED CONTENT

Later, the Association for Virgin Australia Group Pilots, which represents approximately half of the airline’s 1,500 pilots, released a statement arguing that a failure to save the company would be “devastating” for the economy.

VIPA president John Lyons said, “The Morrison government must act now to save Virgin Australia Airlines. More than 16,000 workers are employed directly and indirectly by the airline.

“If Virgin Australia Airlines collapses the cost of travel for all Australians will skyrocket. We must have a healthy and competitive airfare market to keep the air fair for all travellers.

“Virgin Australia Airlines services many rural and regional areas. The Morrison government cannot turn their back on Australians living in these areas and leave them unable to access flights.”

On Wednesday, The Australian Financial Review reported that four of the airline’s biggest shareholders, Etihad, Singapore, Nanshan Group and HNA Group, opted out of pouring in extra funds to recapitalise the business.

The Guardian, meanwhile, speculated the business is even considering administration.

The move would also allow it to disclaim uneconomical contracts, thereby freeing the company from its more onerous obligations.

However, to succeed, a deed of company arrangement would require support from 50 per cent of its creditors by amount owed and number.

The dash to find extra funding comes after the company announced it was suspending all regular commercial flights, bar services between Sydney and Melbourne, just before the Easter weekend.

The airline has already stood down 8,000 employees since the coronavirus crisis took hold and its lobbying push for aid has included placing a full-page advert in The Daily Telegraph warning of the dangers of a Qantas monopoly.

Did you know that Australian Aviation Magazine comes digitally? Subscribe to Australian Aviation’s digital magazine for just $59.95 a year! Our app is available on mobile, tablet and PC devices! Subscribe now at australianaviation.com.au.

30 Comments

  • Phil

    says:

    If Virgin collapses the government should at least try and rescue the regional branch. So many regional and rural towns rely on air services as a means of getting to the large towns and capital cities. When Ansett folded the government at the time assisted their regional branch which became what we now know as Rex. Same should be for Virgin Australia’s regional branch.

  • Ed

    says:

    Spending $1.4 billion to save 8,000 jobs when we’re heading towards at least a 10% unemployment rate just doesn’t add up. It won’t be the Morrison govts fault when virgin collapses, it will be a decade of mismanagement and an abandonment by its major shareholders.

    • Dan

      says:

      Well said Ed. Nailed it

  • Alex S

    says:

    It’s really disappointing to see Josh’s response. Pretty obvious he failed to see the big picture. His comment that Virgin Australia’s shareholders have “deep pockets” just shows how ignorant he is – those shareholders are also airlines which are hit as hard by Coronavirus. Not to mention, letting Virgin fails will have broader impact on employment and other industries, particularly tourism.

    I also can’t help but thinking that the Liberal is deliberately letting Virgin Australia fly on its own because it is majority owned by foreign shareholders. It’s no secret that the Liberal party has always tried to make multinational/foreign companies look like a bunch of bad corporate citizens and tax dodgers. I hope he is aware that the majority of Qantas’ shares are owned by foreign banks.

  • Lucas

    says:

    16000 people did work there directly or indirectly but that is definitely not the case now. Over 450 pilots have been made redundant via Tiger and NZ operations and over 800 cabin crew, not to mention the 750 staff from head office at the start of the year.
    If Virgin magically survives this they will be a fraction of the size it is today so many more staff will be let go. So if the government gives in and supports Virgin financially don’t think for a second that jobs will be spared.

  • Vincenco

    says:

    Maybe Virgin Australia’s shareholders including Richard Branson wouldn’t knock back interest from Air New Zealand if they offered to buy the company for the same price Virgin paid for Tiger! Never say never!

    • JT

      says:

      AirNZ has been there done that. They knew the investment was sour.!

  • Hayden

    says:

    Goodbye Virgin Australia.

  • John Phillips

    says:

    Virgin were on the ropes well before COVID-19 hit. COVID-19 now a convenient excuse for them.

    We don’t need government intervention here; creeping socialism.

    The major shareholders have refused to chip in; they know Virgin is a hopeless case.

    And no way Virgin could ever generate enough free cash flow, to pay back to loan.

  • Peter

    says:

    YES we do need two airlines to keep Qantas honest. BUT why should our government prop up an airline that has not run a profit for a long time when it has MANY other needs for OUR money. Maybe someone else might buy it and make it profitable, a MUCH better way to go.

  • Jason Taylor

    says:

    The Prime Minister and Treasurer are in a bad predicament here. If it assists Virgin and not QANTAS this represents inequality and QANTAS should rightly be unhappy. The government doesn’t provide direct assistance to both by providing financial assurance by taking an equity share, and we have inequality when compared to the vast majority of the airline industry. The government lets Virgin sink as it is near guaranteed its big airline shareholders won’t be in a position to help due their own financial concerns, then we have a monopolistic situation with dramatic loss across several routes akin to the ANSETT collapse. The government provides funding assurance equally to both to ensure a viable aviation industry (say 25% each), then this is money not available for other commitments and provides an opportunity for other industries to claim inequality in support. Huge conundrum whichever way you look at it.

    In my opinion, government to take 25-50% equity holding in both equally (and similarity REX plus others as deemed appropriate) at current low prices, then sell off shareholding across all equally in stages (eg. 5% per year) at what would likely be higher prices hence proving to be a profitable investment – this being a condition of the arrangement and advertised up front. Should airlines then struggle it’s fair to say their business models is inappropriate.

  • Don Mercer

    says:

    This is typical Liberal/National Party ignorance.
    Seriously the economic management, or should I say the lack of it, as shown by the current bunch of politicians is absolutely disgusting!
    Are they taking a pay cut??????????????? No!!!! Just deferring their pay rise until they can just sneak it in when the pressure eases a bit. And I am disappointed in the Labour response!
    Australia NEEDS to fully support their airlines! They are the lifeblood of the country for heavens sake…are ALL our politicians so dumb or seduced by their own self importance they cannot see that!
    They should all get of their fat, inebriated butts and support business.

    • JT

      says:

      What relevance does this have to the article MR Mercer? This is not a political party slagging forum!

  • K

    says:

    They didn’t support Ansett… they sold off Qantas… why should they bail out Virgin??

  • Paul

    says:

    The last 10 years Virgin shareholders have poured in good money after bad. The prior CEO has accummulated $1.7b in losses which has eaten up the majority of the shareholders investment. The current CEO has done some restructuring and after standing down 8000 threw 1000 to the unemployed line by getting rid of Tiger.
    Etihad and Singapore are backed by massive investments as are the Chinese shareholders. They have money. But with $4.8b in debt and shareholders equity almost nil why would anyone invest or pour in more money. Even if the virus was not here the balance sheet looks extremely shaky for this organisation.

    • JT

      says:

      Maybe the TWU could invest in this company, considering how very vocal they are regards bailouts to look after their members. I’m all for looking after workers, but if the very cash up union who represents them won’t invest then why should they have the right to criticise a government that won’t, especially considering I want my near on $40k per year in taxes to go to something worthwhile. I for one would agree to a budget repair levy when all is said and done, but not to bailout was is in effect a poorly run company.

  • Craigy

    says:

    From the reports in the Australian, Virgin have not been totally honest in their public statements. When the loan was first raised, it was said that the funds are to be used if needed post pandemic to help the airline recover. Now I hear that if they can’t find a solution within the next 4 weeks, game over.

    @Alexs. Two of the shareholders are owned by their respective governments.

  • Trevor Long

    says:

    I don’t see why the Government should bail out Virgin when their shareholders have abandoned VA! They have not made a profit (or paid taxes) for ages, I realize we need two airlines to maintain competition but not at the cost of taxpayers $!!

  • Grahame Cross

    says:

    What happens after the crisis, one airline whether it is Qantas or who ever cannot serve the needs of the Australian travelling public . How quickly for instance we forget that the Melbourne Sydney corridor was in the top ten busiest route in the world which was served by four airlines with flights every 30 minutes. One point from Phil’s comment Rex did not come from Ansetts regional but from Hazeltons etc .

  • Mark

    says:

    Let’s not lose sight of the fact that Virgin Australia and all other airlines in Australia are in a precarious position simply due to the government imposed shutdown of the airline transportation system due to a global pandemic. All the airlines in the world are in the process of being destroyed. Airlines are infrastructure not companies. They cannot spring up out of nowhere and start again. Other nations governments understand this and are providing financial assistance to their airlines. It’s about time the Australian government does the same thing. A pledged $715 million in exempted fees won’t cut it when planes aren’t flying. Give the industry real assistance. The whole industry.

    • JT

      says:

      Don’t however repeat history with ongoing bailouts not tagged with conditions such as the money down the drain car industry bailouts of the past. This is where a temporary government capitalisation approach via an equity injection including a X% per year exit strategy would work.

  • Paquita Lee

    says:

    Has Virgin Australia been trading insolvent?

    • JT

      says:

      No, due to its cash reserves, cashflow and trading liquidity, but you could argue it might not have been too far off,,

  • T.J.Oates

    says:

    As Richard Branson is reputed to hold £4.5 Billion in his tropical paradise, what’s his problem? He could support his airline from his own resources & not penalize the working class in UK.

    • JT

      says:

      But why would he? It’s not making money so it would be a bad investment for him. He has no legal obligation and even so only a marginal morale obligation to inject coin. That’s the cold hard facts of corporate land, as unfortunate as that may seem

  • Resolute.

    says:

    I was on their Inaugral flight

    I simply love – Virgin Australia !

    The opposite for Qantas and its toxic culture . I know how they operate from within and influence governments etx and I dont like it.

    Resolute.
    45 years in travel industry. Air NZ / Qantas / Ansett also Commercial pilot.

  • john

    says:

    Amend the licencing system to allow foreign airlines to pick up passengers in Australia and fly them to an Australian city for example fly into CAIRNS pick up pax and onto BRISBANE drop off / pick up pax for passage to SYDNEY and so on this would be true competition.

    • Anthony

      says:

      John that is a horrible recommendation. There is a good reason why we don’t have cabotage in this country.

      You obviously don’t work in the industry that employs and supports so many people. I don’t work for VA, I work for the other mob but I have family members who work for them. It’s a horrible time for them. Opening up the skies won’t help VA get back on their feet or hopefully proposer as a trimmed but agile operation in the future.

      It’s great that your obviously interested in the industry but opening up the skies like you have suggested just to see big foreign carriers fly their shinny jets around the country doesn’t help anyone.

      Fingers crossed for our colleges at VA.

    • JT

      says:

      and let the foreign government owned airlines kill off Virgin, and QANTAS, and REX and their subsidiaries and affiliates – good strategy John!

  • Scott

    says:

    Do you honestly think a foreign carrier will “drop in” wide bodies to Cairns and pick up 50 people after burning 5T of fuel descending and climbing back to Cruise Altitude, along with terminal, landing, catering, crew duties hour restrictions, landing fees ??? Seriously that would last 3 weeks if that! No idea ….
    What competition will exist on Rockhampton, Emerald, Gladstone, Mildura, Alice Springs, Albury, Launceston, Kalgoorlie , Darwin, Port Macquarie , Mackay, Broome etc etc etc etc – come up with real ideas like supporting a carrier that offers competition for ALL Australians ALL over Australia, any other suggestion is politics.
    Google prices on Brisbane – Moranbah since Virgin is off the route.

Leave a Comment

Your email address will not be published. Required fields are marked *

Each day, our subscribers are more informed with the right information.

SIGN UP to the Australian Aviation magazine for high-quality news and features for just $99.95 per year