Virgin’s subsidy may be extended

The federal government is considering extending a subsidised domestic flight network, crucial to Virgin Australia’s future.

A grounded Virgin Australia aircraft at Brisbane Airport. Picture: AAP

The federal government is considering extending a subsidised domestic flight network, crucial to Virgin Australia’s future.

Administrators for the airline, which owes creditors $6.8bn, are running desperately short of cash to keep Virgin flying as they try to lock in a buyer by the end of June.

The $165m of taxpayer funds committed to subsidising domestic flights is due to run out on June 11, creating uncertainty about Virgin Australia’s ability to continue to operate.

Without government help, the flights would most likely operate at a significant loss due to ongoing state border closures.

Subsidies for international rescue flights, which have already been renewed once, are due to end on June 7.

A spokesman for Deputy Prime Minister Michael McCormack said the networks had ensured the continued movement of essential workers, medical supplies and agricultural exports.

“The government is continually reviewing these networks and will make decisions on future arrangements as required and before contracts expire,” he said.

At the same time, administrators Deloitte scored another court win on Monday, which should ensure Virgin Australia’s fleet remains intact until a buyer is found.

Deloitte sought an order extending its exemption from personal liability for the $40m monthly cost of aircraft leases until June 16.

By that time, Deloitte hopes to have a binding offer for Virgin Australia, which will include details of which aircraft leases the buyer wants to retain.

Federal Court judge John Middleton granted the order over 142 aircraft and engines in the Virgin fleet that are subject to lease agreements.

In its submission to the court, Deloitte explained there was an aggregate monthly liability under the leases in excess of $40m.

The submission said that in the current COVID-19 environment, Virgin Australia was generating about $25m a month in revenue from aircraft use, before other costs such as fuel, wages, landing charges and navigation fees were deducted.

“The unrestricted cash available to the administrators continues to be used to meet any shortfall in direct costs and is also applied to meet other aircraft preservation costs including maintenance, insurance, storage and overheads,” the submission said.

“Accordingly, there continues to be no surplus available to meet lease and finance costs payable to the aircraft lessors during the administration period.”

Deloitte argued it was in the best interests of the sale process to retain all aircraft and engines that were the subject of aircraft leases, rather than have them seized by lessors.

“It would permit an acquirer of the business and assets of Virgin companies to recommence operations following a relaxation of the COVID-19 restrictions from a moving start rather than a standing start,” it said.

“The cost and time associated with the acquisition, financing and mobilisation of new aircraft would, for a number of reasons, make a sale impractical.”

Virgin Australia went into administration on April 21 after the federal government repeatedly refused its requests for loans ranging from $200m to $1.4bn.

Buyers were immediately sought for the airline, and as of last Monday, four bidders were left in the race, with the list to be reduced to two by Friday.

They include private equity firms Bain and BGH Capital, Arizona-based airline investor Indigo Partners and New York hedge fund Cyrus Capital.

Representatives of each party met with union officials on Monday, after which the ACTU released a list of demands.

President Michele O’Neil said they included maximising the number of full-time and permanent jobs across all aspects of Virgin Australia operations; the protection and payment of all employee entitlements and the development of a sustainable business plan with long-term viability.

“Our No 1 priority throughout the administration process will continue to be protecting these workers and their jobs,” Ms O’Neil said.