Govt rules out nationalising Virgin Australia

Yes to financial support but no to nationalisation, says the Deputy Prime Minister and Transport Minister.

By David Flynn, March 30 2020
Govt rules out nationalising Virgin Australia

While the Federal Government has now committed over $1 billion in support for Australia's aviation sector, which was first and hardest hit by the coronavirus, it has ruled out nationalising any airlines.

Speaking at the unveilling of a new $298m package for regional carriers, Deputy Prime Minister and Transport Minister Michael McCormack (pictured above) said "it is not the government's intention to nationalise airlines."

"We want them to continue to be commercial operations. We want the aviation sector to come out the other side as best it can."

McCormack's decree follows speculation that the Government might initiate a taxpayer-funded bailout of Virgin Australia, which – following seven straight years of losses, with an $88m loss for the most-recent half-year of July-December 2019 –  lacks the deeper pockets of Qantas when it comes to riding out the COVID-19 storm.

How long can airlines remain in business?

While Virgin had an estimated $1.1 billion of cash on hand at the end of 2019, Credit Suisse analyst Paul Butler has advised clients that Virgin could burn $860 million of that cash stash by June and could need a further $829 million next financial year.

In comparison, Qantas can fall back on reserves of $2.95 billion – with an additional $1 billion if needed – following a 10-year 'debt funding' loan worth $1 billion against seven of its Boeing 787-9 Dreamliners.

While there's broad support to keep the challenger flying in the name of competition and choice, Qantas CEO Alan Joyce has stressed that the Government "can’t pick winners and losers. Whatever aid is given to one particular company … has to be given to everybody in that sector."

All or none

Joyce subsequently doubled-down by saying that no lifeline should be extended to companies "that have been badly managed for 10 years”, later adding on a staff conference call that "governments are definitely not there to support a company that’s owned by Singaporeans, Chinese, Abu Dhabi and a British billionaire" (a poke at Virgin Australia's key shareholder regsiter which comprises Singapore Airlines, China's HNA Group, Etihad Airways and Richard Branson).

After Virgin Australia CEO Paul Scurrah complained about Joyce's comments to the Australian Competition and Consumer Commission, ACCC chairman Rod Sims noted that "we went into this crisis with two full-service airlines and we need to come out of this crisis with two full-service airlines."

McCormack's refusal to nationalise airlines is intended to put to rest ideas that the Federal Government could effectively take over Virgin Australia, whose share price now languishes at a low 7.2c.

However, with no end in sight for the coronavirus crisis, and a protracted recovery even when airlines do return to the skies, additional funding and support measures beyond the current $1bn bill can't be ruled out.

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

QF

11 Jul 2014

Total posts 531

Nationalisation should be a last resort, as long as there is competition after Covid 19. Hopefully that gets the most amount of people back to work.

24 Oct 2010

Total posts 2431

Readers are reminded to keep their comments on topic and add value to the conversation. This includes making sensible comments, one way or the other, regarding the issue of Govt support for airlines.

22 Jan 2018

Total posts 88

So covid could wipe out both VS and VA

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 450

Ironic the Qantas should object to the possibility of having to compete against a Government owned airline! If the owners of VA do not want to fund the business and it needs Government funding to survive, then the people of Australia should earn equity for that funding.

SQ

23 Oct 2015

Total posts 22

Why wouldn't they? Then float it off in 3-5 years and use the stag to repay the tax coffers

Qantas - Qantas Frequent Flyer

21 Jan 2014

Total posts 280

I don't have an issue with funding to ensure Virgins survival, but I think conditions need to be applied, like VA concentrate solely on the domestic market and maybe NZ, that would ensure QF had competition on the domestic services, this would leave QF to battle the govt owned airlines of the world on the international front, something that will need a great deal of resources

02 Dec 2019

Total posts 1

I wouldnt mind to have 2 airlines in Australia as we need to have 2. if qov needs to bailout VA then the Gov needs to put in ownership towards it then sell it off at another time.

we need to fight to have 2 airlines active at the end of this.

Air New Zealand - Airpoints

21 Jan 2016

Total posts 195

Australia needs to have 2 major domestic airlines and a network of regional airlines to maintain 'competition', regional growth and employment. There is no reason why the Australian government shouldn't provide bail out funding with the right to take over the airline, if things go pear shape financially and sell it at a later date. Its about saving key strategic assets and employment.

The New Zealand government, despite being the major share holder, provide loan financing up to NZ$900 million to Air NZ to keep it going when the banks refuse to do so.

Qantas - Qantas Frequent Flyer

19 Aug 2011

Total posts 161

Ansett collapsed and Australia survived, and the gap was quickly filled. The same would happen if Virgin collapsed, albeit under the current environment, enthusiasm for investing in airlines will be slow. Singapore Airlines regards access to the Australian domestic network as important, and of course Air NZ does too (notwithstanding the cozy relationship it now has with Qantas).

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 258

Singapore would be more concerned with keeping themselves afloat, they're losing plenty of money each day due to COVID-19. They may be interested in the future, but not in the current situation.

Having said that, it's more than likely a group of investors will set up a second airline from VA's assets should VA file administration.
This is also taking SQ's 'mediocre' record in the Australian domestic market thus far (1st strike: NZ/Ansett (Bankruptcy debacle and NZ being bailed out by their government), 2nd Strike: Tiger Airways Australia (Maintenance debacles) and 3rd Strike: Virgin Australia (Capacity War).

29 Mar 2017

Total posts 9

With a war chest of SGD 12 billion equity (underwritten by Temasek), debt financing of SGD 4 billion from DBS bank and the government paying 75% of laid off airline workers' salary during this crisis, the question for SQ is not survival but in what form SQ will expand post COVID 19 world where Singapore wants to retain its role as the region's transportation and SQ to be dominant player in this hub. I think the Australian government is praying that Virgin has a role to play in Singapore's plans and for them to rescue Virgin. I have my doubts about that.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 258

@Andycc, the "bailout" money SQ raised through their government owned parent is likely to be used to keep themselves and their subsidiaries (Scoot, Cargo, Silkair, etc) afloat while the COVID-19 pandemic is ongoing. They'd be losing millions per day during the pandemic. Whether they'll actually have enough money for investment when the pandemic subsides is another question entirely.

We also heard the recurring ""So-Called Saviour" SQ to rescue VA" theme 100000+ times over the past 5 years and in cases they've been "fake news" everytime.

Also to add SQ's mediocre record at managing their investments (NZ/Ansett (bankruptcy debacle), Tiger Airways Australia (maintenance debacle), Virgin Atlantic (selling out to DL at a huge loss) and Virgin Australia (Capacity War & CapEx losses)).

Not really a good investment record for a "so-called saviour" of VA.

SilkAir - KrisFlyer

07 Dec 2017

Total posts 8

The nerve of Alan Joyce. Do you not remember in Feb 2014, he was lobbying the Federal Government to offer a public guarantee of its debt to secure its credit rating. Now, he is first off the blocks asking the Federal Government not to consider the option for Virgin Australia!!

06 Feb 2014

Total posts 119

Going into bankruptcy should be exactly what Joyce should fear (for Virgin). The best thing for Virgin given its diabolical share register is for them to rid themselves of self interested shareholders who also have representation on their board. Clean out the Board, the share registry and this enables new equity investors to join their register who care about the viability of the airline, not how the airline can help their broader strategy.. also stop paying ridiculous licensing fees to Branson to use the Virgin name..Air Australia or Australian Airlines (subject to Qantas giving up that name) would be just as good. An interim step to reaching this goal is government taking some form of equity, or a debt deal.

On the back end is a leaner more effective airline, one that Joyce is actually worried about. A mortally wounded, but alive Virgin (or the status quo) suits Qantas' interests just fine.

23 Oct 2014

Total posts 186

That won't happen, Virgin WILL come out of the pandemic downturn, and it will be transformed due to wholesale internal changes, and it won't be in the current form internally , but improved for the customer exactly what AJ fears.

16 Jan 2018

Total posts 106

It's not an all time low of 7.2c, 2 weeks I bought in at 6.4c, and they went down to 5.5c a day later. They've been training today at over 8c as well.

Qantas - Qantas Frequent Flyer

30 Aug 2017

Total posts 18

While I like VA, appreciate the better service and lower pax and more space in the cabin, how much cash needs to be put in to keep them airline going even if they do recover? Isn't it a 5+ year horizon? A lot of money for a business that may have already needed significant reinvention to achieve profitability not just the penny pinching observed. It just seems that people are so rusted to Qantas that VA will always be a poor second and struggle as a full service airline - lounges and schedule frequency in particular. How can a step change in marketing, customer experience and costs be achieved while faced with uncertainty and continual money bleeding? Qantas may have a monopoly for 5 years or so but not forever.


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