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20 April, 2020

Queensland government hands Virgin $200m lifeline (but there are strings attached)

Onslow Western Australia October 10 2018: Virgin Australia Regional Airlines (VARA) Fokker 100 tail, wing and engine at Onslow Airport in the north west of Western Australia in support of the fly in fly out FIFO mining industry

The Queensland government has called upon the federal government and other states to support Virgin Australia, as speculation continues to swirl around its future.

Queensland’s Minister for State Development Cameron Dick said it was imperative Australia has two airlines to support tourism, jobs and regional investment.

“Queensland has given Australia both our national airlines – we won’t let them go, or let thousands of families watch their jobs go, without a fight,” he said.

“The Queensland government is ready to do its bit to support, offering $200 million towards a national support package to help get Virgin get back in the skies.

“But we can’t do it alone, and nor should we, because all parts of Australia benefit from two national airlines.”

Dick urged the federal government to lead a national effort to keep Virgin flying.

“We also want to keep the air fair. We know that it can cost up to 25 per cent more to fly on single-carrier routes, and we want to avoid that at all costs, when we emerge from this crisis,” he said.

Dick said Queensland government support was conditional on federal government backing, debt restructuring, shareholders and bond holders doing their bit, headquarters remaining in Brisbane, and ongoing regional flights.

“We know other investors are looking at Virgin too,” he said.

“Our message to potential investors is that we are prepared to put money on the line to keep a national carrier based in Queensland.”

The Transport Workers’ Union has echoed the Queensland government’s call for other state and federal governments to financially assist Virgin, with national secretary Michael Kaine saying now is the time for them to decide on the struggling airline’s fate.

“The choice is to save 16,000 jobs and it is about whether to consign Australia to a monopoly by one airline, which will mean the country will struggle to get back on its feet,” Kaine said.

“We welcome the announcement by the Queensland state government, and we urge the NSW and Victorian premiers and the federal government to follow suit.

“Virgin workers need certainty about their futures and the travelling public needs assurances that our economy will not be allowed to fall apart.”

Virgin CEO Paul Scurrah joined trade unions and industry experts in a roundtable discussion on Friday about the future of Australia’s aviation industry, and once again called for Qantas to “put rivalry aside”.

Scurrah has already complained to ASIC and the ACCC about Alan Joyce’s comments on what Virgin deserves in terms of government support.

Qantas and the federal government declined invitations to join the roundtable, according to the TWU.

The wait continues

Virgin has been in a trading halt on the ASX since last Tuesday, having extended the pause on Thursday to buy some more time for either the government or outside investors to come to the rescue.

The company originally proposed a $1.4 billion bailout from the government to help survive the impact of COVID-19.

However, given $165 million worth of funding has just been allocated to help keep Virgin and Qantas flying domestically, on top of the $715 million relief package for Aussie airlines announced last month, as well as a $300 million lifeline for the regional aviation sector, it seems unlikely that the government will offer specific financial support to Virgin.

Also, if the recent comments of Prime Minister Scott Morrison, Deputy Prime Minister Michael McCormack and Treasurer Josh Frydenberg are anything to go by, the government would prefer Virgin be saved by private investors.

Two companies that are continually being speculated as potentially lining up a play for the airline are Bain Capital and BGH Capital.

Right now, voluntary administration seems the most likely outcome for Virgin. It’s major shareholders – Etihad Airways, Singapore Airlines, Nanshan Group and HNA Group – have passed up the opportunity to provide an equity injection, according to media reports.

Richard Branson’s Virgin Group, which owns just over 10 per cent of Virgin Australia, still appears to be undecided as to whether it will help out.

And to make matters worse for Virgin, credit rating agencies Moody’s and Fitch have just issued downgrades for the airline.

In any case, we should have a clearer picture by Thursday.

Featured image credit: iStock/Andrew Hanlon

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Cameron Dick federal government Michael Kaine Paul Scurrah Queensland government Transport Workers Union twu virgin virgin australia