Ministers fume over Virgin salvage plans
EXCLUSIVE
SIMON BENSON GEOFF CHAMBERS
Senior Morrison government ministers are privately furious with administrators trying to salvage Virgin Australia, amid claims the process has been botched and concerns that regional routes and jobs could be slashed by the two US hedge funds vying for the airline.
The Australian understands the government is concerned that there is no guarantee Virgin Australia might not fall over again within six months.
The only serious Australian bidder, which had promised to guarantee regional services through a reduced cost base, has been knocked out.
Sources close to the process claim New York-based bidder Cyrus Capital and Bain Capital, based in Boston, have not been engaged on plans for worker concessions and entitlements, regional services or competitive advantage.
A senior government source said just as the government refused to bail out Virgin Australia before it fell into administration in April, there would be no commonwealth money to help the airline if it went out of business because the wrong bidder was selected.
Another government source said a commitment to guaranteeing regional services could end up being a condition of approval of sale under the Foreign Investment Review Board.
Bain Capital, the fund started by US Republic senator and former presidential candidate Mitt Romney, and “minnow” fund Cyrus, linked to Richard Branson, are expected to lodge their final bids on Monday.
A government minister said there was “deep frustration” about the process undertaken by Virgin Australia administrator Deloitte. There is also concern about a new ownership structure being put in place before state borders reopen and JobKeeper payments wind up in September.
Senior government sources said Virgin’s administrators had miscalculated by leaving two US hedge funds in the race and excluding BGH Capital and Australian Super, which were proposing to inject $800m-$900m of working capital into the airline.
The government decided not to proceed with a rescue package after The Australian revealed in April that Virgin Australia had requested financial support from the commonwealth in the order of $1.4bn. Other Western nations provided bailouts to major airlines, including US giant Delta and Singapore Airlines, which received $9bn in support.
Despite promises from bidders that there would be no mass job cuts, the Virgin 2.0 plans are expected to streamline the lossmaking airline, potentially affecting 10,000 employees and 6000 contractors, many of whom have fallen on to JobKeeper payments, which end on September 27.
Regional government MPs have raised concerns about the potential for a new Virgin Australia owner to revert to a Virgin Blue capital-city model. A previous regional airline investment by Cyrus in Britain ended with the company in administration.
North Queensland Nationals senator Matt Canavan raised concerns at an expenditure review committee of cabinet meeting earlier this year about losing control of the process.
“I remain concerned that the Virgin 2.0 that comes out of this may not serve regional Australia,” Senator Canavan said. “That means it’s important we as the government look to support airline services in regional Australia after this sale process. There’s a variety of ways we could do that
— including considering options of supporting a new Virgin in some way, shape or form. Another is establishing a more dedicated regulatory structure, which supports competition.”
Deputy Prime Minister Michael McCormack, who holds the transport and infrastructure portfolios, said the government’s preference had “always been and continues to be a market-led solution for Virgin”. “We remain confident this solution will see Virgin Australia emerge in the best position possible post-pandemic and we continue to work constructively with the administrator and interested parties to understand their progress.”
The Nationals leader, who has announced more than $1.3bn in COVID-19 aviation support measures, said the government continued to support regional aviation networks with up to 164 weekly services on 74 routes, accessing more than 100 regional and remote communities.
Ahead of the looming deadline for binding offers, Cyrus bid proponents, backed by the Flight Attendants Association of Australia and Australian Licensed Aircraft Engineers Association, pledged to retain Virgin Australia chief Paul Scurrah and senior management.
Deloitte declined to comment.