-Updated
Morrison defiant as Deloitte warns Virgin sale could fail.
Lucas Baird and
Phillip Coorey Updated Jun 10, 2020 – 5.33pm, first published at 12.22pm
Prime Minister Scott Morrison has slapped down a plea for extended JobKeeper support for Virgin Australia after the stricken airline's administrators Deloitte warned that its sale may still fail without further government intervention.
The administrators' concerns over JobKeeper come as the government looks to scale back the program. AAP
In a letter to Mr Morrison, Deputy Prime Minister Michael McCormack, Treasurer Josh Frydenberg and Finance Minister Mathias Cormann, Deloitte said bidders
Bain Capital and Cyrus Capital Partners could withdraw without more certainty around financial support.
The administrators primarily wanted clarity on the future of the JobSeeker wage subsidy program
as the government looks at winding it back, but also proposed a guarantee on Virgin's ticket sales and other measures.
Without this support, Deloitte Partner and lead administrator Vaughan Strawbridge warned in the letter that the ability for the bidders to launch binding offers by the June 22 deadline would be significantly more limited.
But Mr Morrison rejected the suggestion that JobKeeper be extended for Virgin, saying the best medicine for the airline was for it to start flying again.This, the Prime This, the Prime Minister said, would require the states to meet their collective commitment to relax all interstate travel bans by July, under the three-stage lifting of restrictions agreed to by the National Cabinet on May 8.
"If we're concerned about Virgin employees ... it is very important that we open up the domestic borders in this country,'' he said.
"We need to get planes flying around Australia and if you want to see planes flying around Australia ... we need to open up these domestic borders."
Mr Morrison had aimed his comments at South Australia, Tasmania, Queensland and Western Australia.
"That is in Virgin's interests. It is in Qantas' interests. It's in the aviation sector's interest that we move to opening up travel in Australia as soon as possible."
Neither Bain or Cyrus would comment on Wednesday.
When asked whether it remained committed to launching a bid for the airline if further government support was not forthcoming, Bain directed
The Australian Financial Review to previous statements.
The private equity firm and its local managing director, former Olympic diver Mike Murphy, emphasised
Bain's strong capital base and desire to be a long-term partner for a relaunched Virgin late last month.
Mr Strawbridge confirmed he had written to the government while not divulging the specifics.
"We are entirely comfortable with the process we have in place and the sale we are pursuing," he said. "Last night, we wrote to [the] government asking for clarification of their intentions regarding future and ongoing support for the aviation industry."
"It's important the bidders understand levels of government support, so they know how to structure their bids."
Mr Moore, former chief executive of Macquarie Group,
was appointed the government's emissary to Virgin's administration
when the airline tripped under a nearly $7 billion debt pile, a situation magnified by the COVID-19 pandemic, in April.Redundancy concerns drive letter
The
Financial Review understands there were six key points to the communication.
The first was JobKeeper. As the government looks to wind back the scale of the payment as the economy recovers from the pandemic, most notably through the early removal of childcare operators from the subsidy, Deloitte warned against doing the same for the aviation sector.
Deloitte warned such action could mean thousands of Virgin staff are hit with redundancies before a new owner takes the reins, potentially saddling either Bain or Cyrus with a significant unexpected bill and spooking them out of the race.
The administrators also said
a guarantee on Virgin's ticket sales could renew consumer confidence in Virgin, luring travellers back to the airline despite fears of liquidation and staving off a sluggish relaunch.
Plus they asked for an extension to airport slot protection measures and a further continuation of the domestic aviation network support to the end of the year.
The government had already extended the latter to September 30 over the long weekend.
Deloitte asked the government to ensure the
Australian Competition and Consumer Commission had the requisite powers to ensure a relaunched Virgin is not killed at birth by an aggressive rival in Qantas as well.
And they requested a commitment to a more equitable distribution of federal flight services tenders
after Qantas raked in around $4.3 million in government contracts between 2017 and 2020.
In comparison, Virgin earned just $35,400 from the government over the same period.
The theory administrators put to the government were that such changes would shore-up Virgin's immediate future, so Bain and Cyrus were encouraged to stay in the race until the very end.
Related
The letter emerged after
Department of Infrastructure, Transport, Regional Development and Communications officials told parliament they had EY investigate Virgin's financial position after it first requested a $1.4 billion government loan in May.
The EY report informed the department's advice to the government on whether to provide a bailout or loan to Virgin.
Transport Workers' Union members also took to the lawns of Parliament House in Canberra to campaign for changes to the JobKeeper program on Wednesday, as some aviation companies were excluded from the subsidy due to their foreign ownership.
"This is a warning to this federal government – what's needed now is JobKeeper in aviation until the borders reopen," TWU national secretary Michael Kaine said.
"We need AviationKeeper because unless we get it, the aviation sector will crumble. There is a cliff coming in September; there are tens of thousands of jobs in aviation that will not be there in September if this government does not act."