Virgin Australia has become the biggest corporate collapse of the COVID-19 crisis as the government stands firm on its refusal to fund an A$1.4 billion bailout of the airline.
It is understood that accounting firm Deloitte has been appointed administrator of Virgin Australia with formal confirmation due this morning.
Deloitte will keep the airline flying while negotiations continue with two private equity funds Melbourne-based BGH Capital and Texas-based TPG Capital.
READ: Leaving the middle seat empty will not increase airfares.
BGH Capital was founded by Ben Gray and Simon Harle who previously led TPG Capital in Australia which was involved with an $11 billion failed attempt to buy Qantas.
Virgin’s largest stakeholders, Etihad Airways, Singapore Airlines, China-based HNA Group and Nanshan have all ruled out any assistance as they battle the savage cost of the COVID-19 shutdown.
However, sources in Canberra told the West Australian that it is possible the government could still become part of a bailout through the administration process.
The administrators will be able to break expensive leases, particularly the airline’s A330s and make sweeping changes with suggestions that a new-born Virgin Australia will be positioned between Qantas and Jetstar in service and pricing.
Under the restructure, it is likely that there will be job losses with the airline’s international division possibly a target.
However, the government is facing a major consumer backlash with fares set to soar if Virgin does not fly out of administration.
In the eight years prior to Virgin Australia entering the market in 2000, airfares rose 8 per cent.
Since then fares have dropped by over 40 per cent.
And on monopoly routes in Australia fares can over 30 per cent higher.
And the ACCC recognizes the importance of Virgin Australia.
Chairman Rod Sims has advocated for the importance of competitive structures persisting after COVID-19 is over.
“In my view, Australia wants to emerge from this crisis with competitive structures as close as possible to those we had going in,” he said at a recent event.
“Competition has a critical role to play in getting the economy running again post the COVID-19 crisis.
It is important that the necessary short-term measures do not give rise to long term structural damage to competition or market concentration,” he said.
Although the Federal Government is now under-writing domestic flights by both Virgin and Qantas to the tune of A$165 million, those services are operating on a break-even basis.
Deputy Prime Minister and Transport Minister Michael McCormack said last week that he is “confident there is a market solution.”
Prime Minister Scott Morrison told the ABC last week that the country’s super funds should come to the party.
“The industry super funds in this country have got $3 trillion dollars worth of assets and here we’ve got a company that needs capital,” he said.
“It’s own workers have been paying into industry funds and there are funds out there, in these super funds, that could be investing in a number of companies.”
While the government has offered some support most of that is related to a waiving of taxes and charges if the airline was flying its normal network.
Virgin is only flying 3 per cent of its normal flights and thus the support package is almost meaningless.
The Queensland Government has offered $A200 million if the airline’s headquarters stays in Brisbane.
