UPDATE: Reuters reported today (17 April) that two private groups are considering making approaches for Australia’s Virgin Australia Holdings. The Australian Financial Review reported the story first, citing sources. The carrier is about 20-per cent owned by Singapore Airlines. A private equity investor has partnered with a “a strategic airline investor” to make an offer for the airline and the second potential buyer could be an investment bank which has allied with an Australian infrastructure investor, the newspaper reported. Virgin Australia on Thursday suspended trading in its shares to continue talks on financial aid and restructuring alternatives to help it weather the coronavirus crisis.
As airlines around the globe battle for survival due to the COVID-19 coronavirus pandemic that has brought passenger aviation to a virtual halt, the union representing Virgin Australia Airlines pilots made a plea on 16 April for the government of Australia “to bail out the airline to save more than 16,000 jobs and keep the Australian airfare market fair”. The Association for Virgin Australia Group Pilots (VIPA) is supporting Virgin Australia’s request for an A$1.4 billion injection of funds to keep the airline afloat during the coronavirus pandemic. A failure to meet this request will see thousands of workers lose their jobs, and airfare costs rise dramatically for all Australian travellers, the union said.
The bailout request is less than the combined cost of redundancy pay, entitlements, and unemployment benefits payable should Virgin Australia fail.
VIPA President John Lyons said the government “must act now to save Virgin Australia Airlines. More than 16,000 workers are employed directly and indirectly by the airline.
The economic effects of these job losses would be devastating to the Australian economy…If Virgin Australia Airlines collapses the cost of travel for all Australians will skyrocket. We must have a healthy and competitive airfare market to keep the air fair for all travellers.”
The issue of bailing out Virgin Australia is a tricky one for the government because of opposition from flag carrier Qantas, which opposes any bailout.
Qantas remains in better financial shape than Virgin Australia having made record profits over rent years. It has furloughed most of its staff, and used its planes as collateral to build up a US$1.8 billion cash reserve. Virgin Australia has been unprofitable for seven years and is asking for the loan, which amounts to US$880 million.
The feud is further complicated by allegations that Qantas has been spreading false rumours about Virgin Australia which may have influenced the share prices of both airlines.
The government has said it wants two viable national airlines to provide competition in the marketplace and has already announced an aid package of A$1 billion while airlines say more is needed.
Some analysts say the failure of Virgin Australia could cost travellers A$50 billion over 10 years if the Qantas Group was left with no competition and was able to use its monopoly power to increase airfares.
Both airlines will undoubted need some form of government assistance if either is to survive should the pandemic continue through the end of the year and international routes remain basically closed off as nations restrict entry.
Other arguments include the fact that Virgin is mostly foreign-owned but Qantas also has a substantial foreign ownership stake. Analysts also pointed out that Qantas is where it is today because it was government-owned from 1947 to 1993 and then protected from foreign competition until 2000.
The International Air Transport Association (IATA) is backing Virgin’s call for support and is asking other countries to support their airlines. IATA forecasts for Australia that passenger numbers will be down by 35 million, revenue for the country’s airlines will sink by A$18 billion and the impact on the country’s GDP will be A$44 billion.
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