Virgin Australia administrators warn of failure without urgent taxpayer support

The administrators of Virgin Australia is asking the Morrison government for financial help, warning that a lack of taxpayer support is putting the sale of the stricken airline at risk.

In a letter sent to senior ministers, including the prime minister, on Tuesday afternoon, the administrators, partners at accounting firm Deloitte, asked for measures to help Virgin Australia through both an immediate cash crisis and a longer period during which flying is expected to continue to be restricted.

They said the sale of the airline was in the balance unless the government provided clarity and certainty about its financial future.

Virgin Australia faces a cash crisis and is due to run out of cash by the end of the month, but any sale needs to be approved by creditors who could meet as late as August.

With air travel likely to remain heavily restricted for months, it also faces difficult conditions even if administrators, led by Vaughan Strawbridge, can successfully sell the airline to one of the two remaining bidders, Bain Capital or Cyrus Capital Partners.

Two remaining bidders for Virgin Australia face race against time to complete deal

To combat the immediate crisis, Strawbridge and his team have asked the government to guarantee tickets sold to date and for the remaining portion of their administration.

This would give travellers confidence their tickets would be honoured if the airline was to collapse or new owners take over, sources said.

The administrators also want to avoid what economists have dubbed the “cliff” that will occur if jobkeeper payments are turned off at the end of September as scheduled.

They asked the government to extend jobkeeper coverage for Virgin Australia workers for an additional six months.

Other demands made in the letter, which was addressed to the prime minister, Scott Morrison, the treasurer, Josh Frydenberg, the finance minister, Mathias Cormann, and the deputy prime minister, Michael McCormack, who is also the transport minister, were:

  • The extension of a government subsidy enabling Virgin to fly a bare bones domestic schedule to the end of the year, together with New Zealand’s inclusion in the program.

  • The extension of a program waiving taxes and fees associated with flying to the end of the year.

  • The extension for another 12 months of a moratorium preventing airports from taking away take-off and landing slots that aren’t being used.

  • And a commitment to ensuring the Australian Competition and Consumer Commission has enough resources to prevent Qantas dumping cut-price seats on the market and driving Virgin Australia out of business.

The ACCC chairman, Rod Sims, has already expressed concerns over the behaviour of Qantas and its chief executive, Alan Joyce, over statements including that Virgin Australia did not deserve a government bailout.

A government spokesman said that “whilst it would be inappropriate for the government to comment on any specific correspondence, we continue to engage constructively with the administrators through Nicholas Moore and Treasury”.

The government has asked Moore, a former chief executive of investment bank Macquarie Group, to act as its liaison with the administrators.

However, sources close to the sales process said he has no power to take any action.

Virgin Australia collapsed into administration in April after the coronavirus crisis almost completely grounded its fleet and the government rebuffed its repeated pleas for a bailout.

It employs about 10,000 people, who already face an uncertain future even if the airline is successfully sold.

The Transport Workers’ Union national secretary, Michael Kaine, said that if jobkeeper was not extended there would be a wave of redundancies not just at Virgin Australia but also at Qantas and cleaning and catering group Dnata, which employs 5,500 people.

“There’ll be mass redundancies and they’ll have to be supported by the [government] fair entitlements scheme,” he said. “Jobkeeper should be phased out in a staged manner.”

Dnata employees are currently not able to receive jobkeeper because of a Morrison government regulation excluding foreign-owned companies from the scheme.

Potential Virgin bidders ‘nervous’ about lack of government support

Labor, the Greens and a group of crossbenchers are attempting to have the regulation disallowed by the Senate, but the move is set to fail because it is opposed by the One Nation leader, Pauline Hanson. A vote is not likely until 17 June.

“Abandoning these companies is abandoning Australian taxpaying workers,” Kaine said.

The opposition industrial relations spokesman, Tony Burke, said the government had allowed Qantas Catering to be taken over by Dnata.

“It was approved by the government that the foreign takeover could occur and the government is now using that foreign takeover as an excuse to deny the workers the jobkeeper payment,” he said.

“We need to remember that if they are eligible for jobkeeper, the company won’t get to keep a dollar. And yet you have thousands of workers, where we want to keep their relationship with their employer, being left behind.”

Deloitte has been approached for comment.

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