Coronavirus: Virgin Australia may not get $1.4b bailout as it considers closing Tigerair base
Virgin Australia wants a $1.4 billion loan but it will not get it according to reports, as it considers closing its Tigerair base in Melbourne base.
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The federal government has reportedly indicated it will not provide Virgin Australia with a $1.4 billion loan that the airline has requested.
The Australian Financial Review cites sources as saying the government’s stance that the country needs two major airlines didn’t necessarily mean that Virgin was ensured of a bail-out, with authorities instead open to the idea of making it easier for a new company to compete with Qantas.
If Virgin failed, “steps will be taken to get another carrier to enter the market,’‘ a government source reportedly told the newspaper.
Virgin announced last week it was standing down about 8000 of its 10,000 workers and it would cut its domestic capacity by 90 per cent amid a drop in demand for flights during the coronavirus pandemic.
Virgin says it is exploring all options during the coronavirus pandemic, including making pilots redundant.
It is contemplating closing its subsidiary Tigerair’s Melbourne base and is discussing the pilots’ future with their union.
The Australian Federation of Air Pilots said on Tuesday all 220 Tigerair pilots would be made redundant by the end of the week.
However, Virgin says it’s still working through the crisis, which is having a significant financial impact.
“Outcomes of the review include plans to consolidate our domestic and short-haul international pilot workforce and the proposed closure of Tigerair Australia’s Melbourne pilot base,” a Virgin Australian spokesman said.
“Tigerair Australia pilots are continuing to be paid as normal while we consult with union representatives on this proposal.”
Meanwhile, allegations that Qantas spread false or misleading statements about rival Virgin Australia have resulted in a probe by the corporate watchdog.
In late March Virgin chief executive Paul Scurrah wrote to the Australian Competition and Consumer Commission (ACCC) alleging Qantas spread rumours to journalists that Virgin’s cash reserves were running dry and an administrator had been appointed.
The Australian Securities and Investments Commission (ASIC) is now examining the alleged matter which could have influenced moves in the share price of both airlines, Nine Newspapers reports.
Qantas said the claims were “categorically wrong”, according to the media outlet.
Virgin had reportedly been contacted by the ASIC and had provided the consumer watchdog with relevant information.
It comes as both Qantas and Virgin fight over government financial support as the airline industry is rocked by the coronavirus.
QANTAS WANTS $4.2B IF VIRGIN GETS $1.4BN BAILOUT ‘LOAN’
Qantas has told the government it expects a $4.2 billion loan if Virgin Australia is bailed out.
Treasurer Josh Frydenberg declined to comment on any specifics, saying “we support strongly, the aviation industry”.
“I’ve been in close contact with leaders of the business community including the aviation sector (Virgin boss) Paul Scurrah and (Qantas chief) Alan Joyce,” he told ABC radio.
“But we have already illustrated our commitment to having a viable, sustainable aviation sector with more than $700 million in fees being waived.” Mr Frydenberg said the transport of freight and people was important to the economy.
“We’ll continue that dialogue with key stakeholders,” he said. The airline recently cut its workforce by 80 per cent and its capacity by 90 per cent.
Global credit rating agency Fitch on Monday put Virgin Australia on rating watch negative citing a drop in demand in the aviation market due to the coronavirus.
Virgin called on Canberra to come up with a $5 billion rescue package for the Australian aviation industry as it desperately tries to stay in the air and protect the jobs of thousands of employees.
The airline confirmed today it was seeking a $1.4bn loan rescue package to ensure the airline’s survival beyond the COVID-19 crisis, The Australian reports.
Under the proposal, the government would take an ownership stake in the company if it failed to repay the loan within three years.
Virgin CEO Paul Scurrah is understood to have told Canberra that the airline doesn’t need an immediate cash injection - but it would need the loan if the COVID-19 crisis continued for more than six months.
Virgin has suspended all of its international flights until June 14 2020.
It is believed Virgin approached the government for help on the understanding that it would be very unlikely to be able to gain a loan of that size from the commercial banking sector.
Mr Scurrah suggested any rescue package for Virgin should be part of a broader aviation industry package of up to $5bn, The Australian reported.
TWU National Secretary Michael Kaine said the Federal Government should move to take a stake in the airlines and set the following conditions:
* Cap on executive pay, as some European countries operate to this day following the bank bailouts during the financial crisis
* Ban on executive bonuses and shareholder dividends until workers are returned to their jobs and all leave and superannuation is paid back
* Permanent full-time jobs to be maximised
* Direct hire engagement of workers by the airlines, ending the fragmentation of the aviation sectors where multiple companies are pitted against each other
* Workers paid the same rate for doing the same job across the aviation sector
* Contracts at the airports must be scrutinised to ensure safety and job quality are the main focuses, not low cost
Major airlines around the world have been extended multibillion-dollar government bailouts, including US giant Delta and Singapore Airlines which received $9bn.
The Morrison government is believed to be supportive of the need to maintain a competitive aviation market once the economic crisis lifts.
A public spat broke out between Mr Scurrah and Qantas chief executive Alan Joyce when the idea of Canberra coming to the aid of Virgin was first proposed.
The Qantas chief said the government should not “pick winners and losers” and that “badly managed” companies shouldn’t be given a hand by taxpayers.
In response, Mr Scurrah told Virgin staff that Mr Joyce’s comments were “very disappointing” and complained to competition watchdog chairman Rod Sims to investigate “public commentary and an industry-wide campaign by Qantas that is designed to ensure a lessening of competition in the aviation sector”.
Qantas, which has said it could ride out the coronavirus outbreak using cash reserves, and Virgin have stood down a combined 28,000 workers in response to travel restrictions and domestic lockdowns triggered by the COVID-19 outbreak.
Originally published as Coronavirus: Virgin Australia may not get $1.4b bailout as it considers closing Tigerair base