Qantas wants $4.2b from government to 'level playing field' if Virgin gets bailout

Qantas has complicated the Morrison government's decision on whether to bail out Virgin Australia by insisting it should be eligible for a support package three times as large to "level the playing field" and avoid distorting the market.

The debt-laden and loss-making Virgin wrote to the government last week requesting a $1.4 billion loan to help it survive the coronavirus pandemic, which has devastated airlines globally. Qantas has told the government it does not want further financial support and is confident of seeing out the crisis on its own, according to a well-placed source with knowledge of discussions between the airline and government.

However, the larger airline is insisting that if the government helps Virgin it wants to receive a similar package to avoid distorting the market and to "level the playing field". Qantas says the support should be proportional to the size of each business. Qantas’ revenue is three-times higher than Virgin’s, meaning it would want a $4.2 billion loan, the source said.

The demand complicates the government’s decision of whether or not to help Virgin because it significantly increases the amount it will have to deliver in an industry-wide package.

Last week, Qantas raised $1 billion in fresh debt from the market in a loan secured against aircraft it owns to help it through the crisis. The company has $3.5 billion in other assets it can use to raise more cash.

Qantas boss Alan Joyce has been lobbying against government support for Virgin, saying last week that government should not help companies that "have been badly managed for 10 years" and that helping Virgin and not Qantas would be "completely unfair" on his airline.

Mr Joyce has also highlighted that Virgin is mostly foreign-owned, with 90 per cent of shares held by Singapore Airlines, Etihad Airways, Chinese groups HNA and Nanshan, and Richard Branson's Virgin Group.

On Tuesday morning, it was revealed Virgin had asked for a government loan which could be converted to an ownership stake in Australia’s second-largest airline if not repaid in two to three years, as part of an industry package worth up to $5 billion.

"It is a preliminary proposal and remains subject to approval by the Virgin Australia Holdings board and the Australian government and may or may not include conversion to equity in certain circumstances," Virgin said in a statement to the ASX.


"Support 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."

Virgin, which already has $5 billion in debt, has a market value of $675 million, meaning the government could become a major owner if Virgin cannot repay the loan and the debt is swapped for an equity stake.

The federal government has already announced a $715 million support package for the aviation industry, and over the weekend announced close to $300 million more in assistance for regional airlines.

Qantas and Virgin have between them stood down around 28,000 pilots, cabin crew and other workers in an attempt to cut costs while most of their aircraft are grounded.

Credit Suisse analysts estimated last week that with virtually no revenue coming in, Virgin could burn through most of its $900 million cash balance by June and would require additional liquidity "to be comfortable about surviving the current COVID-19 crisis".

Analysts say the foreign airline groups that own most of Virgin are facing their own financial challenges due to the coronavirus and are therefore unlikely to support it with more funding.

In a statement, Deputy Prime Minister and Transport Minister Michael McCormack said he was "speaking with industry stakeholders and representatives daily, making sure they’re receiving the support they need and listening to what else may be required as the pandemic continues".

"Everything we are doing as a government in response to COVID-19 is focused on saving lives and livelihoods. As a sector that employs tens of thousands of Australians, the aviation industry is a crucial part of that."

Meanwhile, the Australian Manufacturing Workers Union (AMWU), Electrical Trades Union and Australian Workers Union on Tuesday said they would launch court action over Qantas' decision not to pay stood down workers sick leave.

A Qantas spokesman said sick leave entitlements were dependent on there being work for employees, which was not the case during the stand-down period.

The Australian Federation of Air Pilots said on Tuesday that 220 pilots who fly for Virgin's budget arm Tigerair were being told they would be made redundant this Friday - brought forward from the end of April - and that Virgin would not use the government's wage subsidy to keep them on payroll.

This article Qantas wants $4.2b from government to 'level playing field' if Virgin gets bailout was originally published in The Sydney Morning Herald.