Virgin Australia: fresh call for government bailout as stricken airline's cash reserves dwindle
Virgin Australia’s fast-dwindling cash reserves have rekindled union calls for a government bailout of the stricken airline ahead of a meeting of key creditors on Thursday.
The administrators, partners at big accounting firm Deloitte, say they are likely to require “interim funding” from the end of next month and have been discussing options with the federal government.
They have also spent the past week obtaining court approval to avoid personal liability for the debts the airline continues to run up under their stewardship, in a bid to keep it alive long enough to sell it.
In late March, as passenger bookings plunged due to the coronavirus crisis, Virgin Australia sought $1.4bn in government funding to stay alive until the end of the pandemic.
But on Friday, the lead administrator, Vaughan Strawbridge, told Guardian Australia he had more than $100m on hand, which would be enough to see the airline through to a sale by mid- to late-June.
“Cash has been unlocked within the business and cost reductions have been achieved,” a Deloitte spokesman said on Wednesday.
He said the administrators expected that “there will likely be a need for interim funding from the end of June, to when the new owner takes control of the business, and they have been developing a range of options accordingly and continue to keep the federal government informed”.
Michael Kaine, the national secretary of Virgin Australia’s biggest union, the Transport Workers Union, said he would use a meeting of the airline’s committee of inspection on Thursday to renew his calls for government intervention.
He also raised concerns about cash outflows at bigger rival Qantas, which has raised billions by mortgaging its fleet and on Tuesday alarmed health experts by announcing it would reopen domestic flights without social distancing.
He said some Virgin Australia workers had concerns “about any gaps in cashflow”.
“Cashflow is an urgent problem for any airline in the current environment where government restrictions have brought a halt to usual flying schedules,” he told Guardian Australia.
“For Virgin, the administrators are confident that there are cash reserves to see the airline transition to its next phase.
“But the government needs to step in to do more to guarantee Virgin’s survival and the future of aviation.”
On Wednesday, the federal court granted Strawbridge and the administrators orders exempting them from personal liability for overpayments under the jobkeeper scheme.
The administrators told the court that more than 8,000 of Virgin’s 10,000 employees appeared to be eligible for jobkeeper but they were concerned that there might be errors in the airline’s system that created overpayments for which they would be personally liable.
Wednesday’s orders were the last in a series absolving the administrators of responsibility for most of the debts the airline continues to rack up despite the almost complete grounding of its fleet due to the pandemic.
The administrators sought the court orders to try to maximise the sale price of the airline by keeping as much of it operational as possible.
Virgin Australia’s board appointed administrators on 20 April, after the federal government rebuffed a final plea for $200m in assistance.
Four groups lodged bids to buy the airline before a deadline of 6pm on Friday: US investment group Bain Capital; private equity group BGH Capital, run by Australian Ben Gray; specialist aviation investor Indigo Partners; and Cyrus Capital Partners, a $4bn fund that specialises in investing in companies in financial distress.
As part of the bidding process, they have been asked to set out what assistance from government they will be seeking.
They have also been asked to explain how they propose to deal with a debt pile totalling almost $7bn.
Kaine will represent the TWU at a meeting on Friday of a 36-strong committee of inspection formed by the airline’s creditors to liaise with the administrators.
Other members include pilot and engineer unions, airports, aircraft leasing companies and representatives of unsecured noteholders owed $2bn.
Kaine said the federal government lacked a policy to ensure that Australia continued to have two airlines.
“Other aviation businesses are struggling with cashflow while Qantas is running to the markets every few weeks to mortgage its planes,” he said.
“Aviation is not an industry which the government can simply choose to let die and yet there is a stark absence of any policy to ensure its survival.
“A government plan must address immediate cashflow issues and develop a plan based on equity stakes, regional routes, decent jobs and ensuring that aviation can move away from the erratic boom-and-bust mode which for too long has defined it.”