Virgin Australia seeks $A1.4bn to survive COVID-19

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March 31, 2020
Virgin aid

Virgin Australia is seeking a $A1.4bn government loan rescue package as part of wider aviation industry assistance to ensure it survives the COVID-19 crisis.

The airline confirmed the substance of a story in The Australian Tuesday that said it was asking the Australian government for a $A1.4 billion loan instrument that could be converted into equity if it was unable to meet its debts.

Recent public statements suggested the airline had about $A900m in cash but it is looking at a protracted downturn with major investors tackling their own coronavirus problems and unlikely to be in a position to help. Its credit ratings were also recently cut.

READ: Air New Zealand to axe up to 3500 jobs, shrink by 30 percent.

“We have been in ongoing discussions with government about the support the whole industry will need if this crisis is prolonged,’’ a spokesman said.

“Companies like ours are taking a range of measures to respond and manage the financial impact.

“However, the support we’ve proposed will be necessary for the industry if this crisis continues indefinitely, to protect jobs and ensure Australia retains a strong, competitive aviation and tourism sector once this crisis is over.”

The airline also confirmed the figure in an Australian Stock Exchange release after it was put in a trading halt.

The statement said it was a preliminary proposal that remained subject to approval by the company’s board “and may or may not include conversion to equity in certain circumstances”.

It continued to be in compliance with its continuous disclosure obligations and would update the market as required.

The airline group stood down 8000 staff, 1000 of whom face redundancy, cut flying by 90 percent and is reducing other costs in an attempt to preserve cash.

However, it was downgraded last week by rating agencies S&P Global rating and Fitch Ratings on worries about its liquidity if government support was not forthcoming.

“Despite management initiating decisive measures to preserve cash, we nevertheless believe the scale of the COVID-19 exogenous shock has created an immediate and sizable cash outflow,’’ S&P said in its analysis.

“We estimate that up to half of Virgin Australia’s operating costs are fixed and that a reduction in variable costs will not offset the collapse in revenue.”

The Australian said there was sympathy within the Morrison government for the argument that Australia needs to maintain a competitive aviation market after the crisis.

A Virgin collapse would leave Qantas the monopoly player in the market.

The bigger airline has been lobbying to ensure the government does not favor Virgin and its tactics prompted Virgin chief executive Paul Scurrah to complain to the competition watchdog about anti-competitive behavior.

Qantas subsequently told media it thought it should get $A4.2 billion in government support if Virgin netted $A1.4 billion because of its relative size.

However, Qantas has arranged more than $1 billion in finance and is reportedly not seeking a government handout.

Separately, Regional Express said it would shut down all Queensland routes from tomorrow. This was despite a recent government aid package aimed at regional carriers.