Ministers fume over Virgin salvage plans

Morrison government ministers are privately furious with the administrators trying to salvage Virgin Australia.

The Australian understands the government is concerned that there is no guarantee Virgin Australia might not fall over again within six months. Picture: AAP

Senior Morrison government ministers are privately furious with administrators trying to salvage­ Virgin Australia, amid claims the process has been ­botched and concerns that region­al routes and jobs could be slashed by the two US hedge funds vying for the airline.

The Australian understands the government is concerned that there is no guarantee Virgin Australia might not fall over again within six months.

The only serious Australian bidder, which had promised to guarantee regional services through a reduced cost base, has been knocked out.

Sources close to the process claim New York-based bidder Cyrus Capital and Bain Capital, based in Boston, have not been engaged on plans for worker concession­s and entitlements, regional­ services or competitive advantage.

A senior government source said that, just as the government ­refused to bail out Virgin Australia before it fell into administration in April, there would be no commonwealth money to help the airline if it went out of business because the wrong bidder was selected.

Bain Capital, the fund started by US Republic senator and former­ presidential candidate Mitt Romney, and “minnow” fund Cyrus, linked to Richard Branson, are expected to lodge their final bids on Monday.

A government minister said there was “deep frustration” about the process undertaken by Virgin Australia administrator Deloitte. There is also concern about the new ownership structure being put in place before state borders reopen and ­JobKeeper payments wind up in September.

Senior government sources said Virgin’s administrators had miscalculated by leaving two US hedge funds in the race and excluding­ BGH Capital and Aust­ralian Super, which were proposing to inject between $800m and $900m of working capital into the airline.

The government decided not to proceed with a rescue package after The Australian revealed in April that Virgin Australia had requested­ financial support from the commonwealth in the order of $1.4bn. Other Western nations provided bailouts to major airlines, including US giant Delta and Singapore Airlines, which ­received $9bn in support.

Despite promises from bidders that there would be no mass job cuts, the Virgin 2.0 plans are ­expected to streamline the loss-making airline, potentially affecting 10,000 employees and 6000 contractors, many of whom have fallen on to JobKeeper payments, which end on September 27.

Regional government MPs have raised concerns about the potential for a new Virgin Australia owner to revert to a Virgin Blue capital-city model. A previous regiona­l airline investment by Cyrus in Britain ended with the company in administration.

North Queensland Nationals senator Matt Canavan raised concerns ahead of an expenditure review­ committee of cabinet meeting earlier this year about losing control of the process.

“I remain concerned that the Virgin 2.0 that comes out of this may not serve regional Australia,” Senator Canavan said. “That means it’s important we as the government look to support airline services in regional Aust­ralia after this sale process. There’s a variety of ways we could do that — including considering options of supporting a new Virgin in some way, shape or form. Another is establishing a more dedicated regulatory structure, which supports competition.”

Deputy Prime Minister Mich­ael McCormack, who holds the transport and infrastructure ­portfolios, said the government’s preference had “always been and continues to be a market-led solution­ for Virgin”. “We remain confident this solution­ will see Virgin Australia emerge in the best position possible post-pandemic and we continue to work constructively with the administrator and interested parties to understand their progress.”

The Nationals leader, who has announced more than $1.3bn in COVID-19 aviation support measures, said the government continued to support regional aviation networks with up to 164 weekly services on 74 routes, ­accessing more than 100 regional and remote communities. Ahead of the looming deadline for binding offers, Cyrus bid proponents, backed by the Flight Attendants Association of Australia and Australian Lic­ensed Aircraft Engineers Association, pledged to retain Virgin Australia chief Paul Scurrah and senior management.

Scott Morrison’s push to get the states and territories to reopen their borders has been partly motivated by getting the aviation industry up and running.

Deloitte declined to comment.