Virgin Australia loan plea has a familiar ring

Virgin sought a line of credit of about $1.4bn from the government. Picture: AAP

Amid the brinkmanship between Virgin equity and bond holders and the federal government, the $1.35 billion capital injection to Qantas in the lead-up to the airline’s sale in 1993 looks familiar.

Rounded up to $1.4 billion, by chance it is precisely the amount of the letter of credit Virgin chief Paul Scurrah is seeking from Canberra.

In a press release dated February 23 1993 the then finance minister Ralph Willis said “this capital injection completes another integral component of the Qantas sale process”.

“It will significantly reduce Qantas’s operating costs by allowing for lower annual interest payments and thereby enhance the airline’s international competitiveness.

“Qantas is now in a position to seek an investment grade credit rating ahead of the float,” he added.

Mr Willis noted the next leg was the sale of 25 per cent of Qantas to British Airways.

Foreigners are restricted to 49 per cent ownership of Qantas, which has long been a point of contention.

The press release 27 years ago shows clearly that the taxpayers gave Qantas the sort of leg up Virgin wants today.

Granted the circumstances are different because that cash injection was part of the process to dress up the airline to maximise its float potential, but the point remains.

Treasurer Josh Frydenberg has stressed it is up to Virgin shareholders to do something to support the airline. Virgin has made clear they are unwilling to do anything and their equity is worth zero.

The next key group is the bond holders, who speak for some $2 billion of unsecured debt trading between 35 and 50 cents in the dollar.

Frydenberg is seen as supportive while Prime Minister Scott Morrison is in the other camp. The relevant minister, Deputy Prime Minister Michael McCormack, is sitting on the fence.

His National Party members are, however, backing Virgin.

The airline is giving Canberra time to get its line sorted but maybe the company has to pull the trigger by showing its plans to cut costs by scrapping Tiger Airlines, closing international routes, shedding aircraft and other cost saving measures.

That would show the government it is serious.

The debate is over 9000 jobs, 6000 contractors and 25 million people who fly Virgin each year and that message is poignant at a time the government shutdowns triggered the airline’s collapse.

That said, handouts come with serious moral hazards.

That is why the convertible subordinated debt is being pushed as an alternative because Canberra would end up running the airline for a short time and then hopefully sell out at a profit, after the same sort of leg up that Qatas received 27 years ago .

Dangerous liaisons

The Australian Constructors Association has sought ACCC approval to discuss government measures between companies to combat the coronavirus in line with government directions.

The application is yet to gain approval in part because there is some doubt on just why the big construction companies need to discuss with each other ways to conform with government directions. Other industries have complied without discussing measures with competitors.

The association said the talks were needed to provide government with advice and assistance, suggesting the aim is to use the information to lobby government on any restrictions planned for the industry.

The ACCC has granted myriad interim authorisations to other sectors seeking clearance to engage with competitors to ensure supply of key items.

The rush of interim authorisations has prompted some to say the ACCC now stands for the Australian Cartel Co-operation Commission, or Rod Sims Cartel Club. Interim authorisation is granted to clear activity that may otherwise breach the law on public benefit grounds.

Other industries covered include medical and energy companies to ensure supply of key products. As with supermarkets, the big shopping mall owners have won clearance to talk about rent rebate rules, and private health insurers have won clearance to talk about rebates to customers due to low expenses after elective surgery was cut.

The interim authorisations are subject to final rulings after four months.

The Constructors Association said talks with competitors were to make sure the government’s plans were implemented properly, but it smacks of an ­attempt to lobby government.