Virgin Australia administrators call for JobKeeper extension and guarantees to aid sale

Virgin’s administrators have written to Canberra asking for an extension to JobKeeper and a raft of other measures to help get the airline sold.

Virgin Australia staff Marcella Pirritano, Jason Arends and Jessica Turnbull at Melbourne in April. Picture: Aaron Francis

Virgin administrator Vaughan Strawbridge is putting pressure on the Federal Government to provide a series of financial assurances for the airline, including a six month extension of the Job Keeper wage subsidy program for Virgin workers and government guarantees for ticket sales, or risk its sale process coming undone.

A leaked copy of the letter also shows the administrator has also asked the Federal Government to protected Virgin’s landing slots at airports around Australia for 12 months, extend subsidised domestic flights from September to December, a commitment to more Federal Government patronage of Virgin flights and assurances that the Australian Competition and Consumer Commission will keep a close eye on Qantas sales tactics after the Virgin sale.

Mr Strawbridge said in a statement on Wednesday that the administrators had written to the Federal Government asking for clarification of its intentions “regarding future and ongoing support for the industry.”

“It’s important the bidders understand levels of government support for they know how to structure their bids,” he said.

The two bidders – Bain Capital and New York hedge fund Cyrus Capital – only have less than two weeks to submit their final bids for the airline which went into administration on April 21 with debts of more than $7 billion.

The administrator wants to announce his “preferred bidder” by the end of June.

But there are serious concerns among unions representing Virgin’s 9,000 staff that the sales process could collapse at the last minute unless the Federal Government can provide some minimum financial guarantees for the airline.

“We hold serious concerns that these bidders might walk away,” Transport Workers Union national secretary Michael Kaine told The Australian.

The administrator is expected to announced its “preferred bidder” by the end of June.

The union is strong backing calls by the administrator to extend the JobKeeper subsidiary to airline workers for another six months past its proposed end date in September.

Mr Kaine said unions, employees and the two bidders were in a difficult position of not knowing if the JobKeeper allowance of $1,500 a fortnight would be sustained beyond September.

“Without that certainty they (the bidders) don’t know what costs they’re up for,” Mr Kaine said.

“They need to know if their cash burn will be $12m a week or $212m a week.”

Leaked copies of the letter, which was addressed to the Prime Minister, Scott Morrison, the Treasurer Josh Frydenberg, deputy Prime Minister Michael McCormack and Finance Minister Mathias Corman, showed the administrator expressing his concern to the government that the sale process could fail unless he was able to give clear assurances to two bidders.

While he is dealing with two keen bidders, there are worries that they have difficulty finalising their bids if they have no assurances around future financial support for the airline.

The letter asks the government to extend the JobKeeper wage subsidiary, which currently covers some 8,000 Virgin staff, by at least six months from its proposed expiry date in September.

It warns that the airline’s new owners, which could take over as early as August, could be face with heavy redundancy costs if the JobKeeper is not extended beyond September and Virgin’s flight potential is still subject to strict COVID-19 flying limits.

“It was a surprisingly direct approach,” one source told The Australian on Wednesday.

“This is a very serious intervention by the administrator talking about necessary measures.”

The administrator has also repeated earlier requests that the Federal Government be prepared to guarantee tickets bought by the public until its new owners take over.

While Deloitte’s Mr Strawbridge has said publicly that the administrators would be liable for any tickets bought during the time of his administration, which began on April 21, the administrators believe an explicit Federal Government guarantee would make a significant difference in terms of consumer confidence while the airline’s future is still in the balance.

The Federal Government did this in the case of Ansett during negotiations to try to keep it afloat in 2001.

But appeals for this move by Virgin in the past have been rejected by the Federal Government.

A statement by the Federal Government on Wednesday said it would be “inappropriate” to comment on any specific correspondence.

It said the government continued to “engage constructively with the administrators through (former Macquarie Group chief executive) Nicholas Moore and Treasury.”

The TWU has expressed its frustration in dealing with Mr Moore with Mr Kaine describing him as a “sheriff strutting around without a badge.”

Mr Kaine told the Australian on Wednesday that Mr Moore was unable to deliver certainty.

“He’s creating confusion, he’s got no money to pay for anything.”

“He has no authority to make decisions.”

Mr Strawbridge’s letter to the government also called on it to provide assurances that the Australian Competition and Consumer Commission (ACCC) would keep a close eye on the sale tactics of its rival Qantas when Virgin was taken over by its new owner.

He said the bidders needed assurances that the ACCC would make sure it didn’t capacity dump or slash prices in a way that is uncompetitive after the take over.

The letter also asks the Federal Government to extend subsidised flights under the Australian Aviation Financial Relief Package, from September to the end of December, also including New Zealand when flights are opened up across the Tasman.

It also wants to see an extension of waivers of government charges including aviation fuel excise and Airservices Australia fees at least until the end of the year.

It also asks for the Federal Government for clarification around the safety of retaining Virgin’s slots at airports around the country even if it is not able to use all of them in the short term because of the pandemic.

At the moment the airline could risk losing the slots if it cannot keep up pre-COVID flying schedules.

The letter also suggests that the prospects for a sale could be improved if the Federal Government was to provide some assurances that it will give a fairer share of Federal Government its business to Virgin.

The letter also calls on the Federal Government to provide some assurances that it will provide a fair share of business to Virgin rather than focussing its business on Qantas.

Representatives of the two bidders, Bain and Cyrus Capital, have been Bain and Cyrus Capital are meeting daily with unions in an effort to secure their support before the deadline for binding bids on June 22.

Australian Licensed Aircraft Engineers Association secretary Steve Purvinas said his members would be prepared to accept reduced hours for members over redundancies.

But the TWU, which represents a much larger group of workers, is not prepared to make the same commitment.

As representatives of many of the 9000 people still employed by Virgin Australia, unions are considered a major player in the administration process but as yet, have not received the detail needed to choose between the two final bidders.