News National Virgin Australia on brink of collapse as government refuses to buy stake in airline

Virgin Australia on brink of collapse as government refuses to buy stake in airline

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Thousands of Australian jobs hang in the balance as Virgin Australia prepares to go into voluntary administration following the Morrison government’s rejection of an appeal to help keep the airline afloat.

An announcement on the future of the beleaguered airline is expected early on Tuesday, with up to 16,000 jobs at stake if it folds.

It comes after Virgin management, including chief executive Paul Scurrah, sought federal help to keep operating. But the federal government rejected pleas for a $1.4 billion bailout.

Finance Minister Mathias Cormann told ABC News Breakfast on Tuesday morning the government wants Australia to retain two airlines.

He believes administrators can find a sustainable private-sector solution to the company’s future.

“The government is not in the business of owning an airline,” he said.

“But we do want to see two airlines continue and we believe that the opportunities [are] there out of the administration process for that to happen.”

The collapse of the domestic carrier, established in the market 20 years ago, might well result in the biggest airline collapse in Australia since the fall of Ansett in 2002.

It’s anticipated that accounting firm Deloitte will step in upon Virgin becoming insolvent, to help it restructure its $5 billion debt and pay off creditors so that it does not go bankrupt.

Travel bans due to the coronavirus pandemic prompted Virgin to ground most of its aircraft and stand down about 8000 workers in March.

Analysts say the federal government will have to ensure Qantas doesn’t exploit any market monopoly left by Virgin’s potential demise, as investors wait to swoop.

Virgin Australia is 90 per cent foreign-owned, with Singapore Airlines, Etihad Airways and Chinese conglomerates HNA Group and Hanshan owning 80 per cent between them. Sir Richard Branson’s Virgin Group owns 10 per cent.

Meanwhile, in an open letter to staff globally, Mr Branson said Virgin Australia was “fighting” for life, after his Virgin Atlantic group, which has 70,000 staff, was refused a $1 billion bailout by the UK government.

He said the airline and others in his group needed government loans to get through “this catastrophic global crisis”.

“We are hopeful that Virgin Australia can emerge stronger than ever, as a more sustainable, financially viable airline,” he told staff,

“If Virgin Australia disappears, Qantas would effectively have a monopoly of the Australian skies. We all know what that would lead to.”

But the Morrison government is holding firm, with Treasurer Josh Frydenberg signalling the airline should be able to stand on its own.

“They have some very big shareholders with deep pockets,” he said on Monday.

So far, none of Virgin’s shareholders have come to the rescue – although it could find new private equity buyers.

Richard Branson hits back at

Mr Branson owes his billionaire status to a conglomerate of businesses bearing the Virgin brand name. That includes Virgin Atlantic which, like Virgin Australia, is at risk of collapse.

Both have been hard hit by the coronavirus lockdowns.

In his open letter to Virgin Group staff, Mr Branson said he was offering his luxury island resort in the Caribbean as collateral in a desperate attempt to rescue Virgin Atlantic from collapse.

The billionaire and his wife are facing backlash in Britain for asking for public funds for Virgin while not living there. He hit back at that criticism and claims his companies don’t pay tax.

“There have been comments about my home,” he wrote.

“Joan and I did not leave Britain for tax reasons but for our love of the beautiful British Virgin Islands and, in particular, Necker Island.”

He said he was investing his personal wealth into holding up Virgin companies but the airline needed government support.

“This would be in the form of a commercial loan,” Mr Branson wrote.

“It wouldn’t be free money and the airline would pay it back (as easyJet will do for the £600 million [$A1.2 billion] loan the government recently gave them).”

Mr Branson has owned Necker Island since he was 29. Photo: Getty

He is seeking £500 million ($1 billion) in commercial loans, saying his Necker Island home could be mortgaged to secure the airline’s survival.

“As with other Virgin assets, our team will raise as much money against the island as possible to save as many jobs as possible around the Group,” he wrote.

“Many airlines around the world need government support and many have already received it,” Mr Branson said, describing the crisis facing airlines and staff as “unprecedented”.

Virgin Atlantic last month asked the government for emergency financial help in addition to the coronavirus package made available to all British companies. A deal has not yet been reached.

“Without it there won’t be any competition left and hundreds of thousands more jobs will be lost, along with critical connectivity and huge economic value,” he said.

Richard Branson on Necker Island. Photo: Getty

Virgin Atlantic is based in Britain and is 51 per cent owned by Mr Branson’s Virgin group. The remainder is owned by US airline Delta.

Virgin Atlantic staff have taken a wage cut for eight weeks. Mr Branson said that was a “virtually unanimous” decision by employees and had not been forced on them by management.

“I’ve seen lots of comments about my net worth – but that is calculated on the value of Virgin businesses around the world before this crisis, not sitting as cash in a bank account ready to withdraw,” he said.

“Over the years, significant profits have never been taken out of the Virgin Group. Instead they have been reinvested in building businesses that create value and opportunities. The challenge right now is that there is no money coming in and lots going out.”

-with AAP