Qantas defends move that crushed Virgin

 

Qantas CEO Alan Joyce has defended his public remarks urging the government not to bail out Virgin Australia, saying to do so would have been a "moral hazard".

Australia's flagship carrier showed little sympathy when Virgin made its first plea to the government for financial help in March, publicly urging the federal government not to bail it out.

Now in an exclusive interview with the ABC's Four Corners showing the inner workings of the crisis, Mr Joyce said bailing out Virgin would "distort the market".

"We were talking to the government I think as all the airlines were - about an industry package, and very much for the government to support the entire industry and not to pick winners or losers," he told the program.

"And the government always had a mantra that there were sector-wide, industry-wide and economy-wide initiatives.

"And if you start picking out individual companies, giving them a bigger benefit and Virgin went asking for $1.4 billion, that was three times the market cap, it was essentially a nationalisation of Virgin, that would have led to. And that could distort the market and create unfair competition into the future."

"It is a moral hazard," he went on. "People are very reluctant. A lot of companies, a lot of business leaders are very uncomfortable with the government getting involved in industries to an individual company level, sector-wide, industry-wide, is something that we all support."

 

Virgin Australia CEO Paul Scurrah said they never asked the government for a “bailout” to save the airline. Picture: John Feder/The Australian.
Virgin Australia CEO Paul Scurrah said they never asked the government for a “bailout” to save the airline. Picture: John Feder/The Australian.


The episode reveals how just six months ago, the aviation industry was gearing up for a bumper year.

Fuel costs were low, demand was high and Qantas and Virgin Australia were both set to launch a string of new routes to get us further and faster abroad than ever before.

Then, turbulence hit. As COVID-19 swept the world, demand for travel took a nosedive before stock prices soon followed.

Today, the aviation industry is struggling to survive through a storm no one was prepared to weather.

Within a matter of weeks into the COVID-19 lockdown in Australia, our second biggest airline raised their hand for help. By April, Virgin Australia went into administration with close to $7 billion owed to creditors.

Qantas CEO Alan Joyce has defending his public remarks about urging the government not to bail out Virgin, saying doing so would have been a “moral hazard”. (AAP Image/Bianca De Marchi)
Qantas CEO Alan Joyce has defending his public remarks about urging the government not to bail out Virgin, saying doing so would have been a “moral hazard”. (AAP Image/Bianca De Marchi)

Weighed down by seven consecutive years of annual losses, and failing to receive a bailout from the federal government, Virgin CEO Paul Scurrah had entered uncharted territory with a multi-billion dollar cloud over his head.

He said as soon as he knew the government weren't going to save the airline - he was on his own.

"It is the biggest crisis the airline industry's ever seen," he said.

"We went to the government early, to make sure they understood that we had exhausted the discussions with shareholders. By the time we were talking with government, we wanted them to understand that there were no other potential sources of capital.

In late March, Virgin Australia sought $1.4bn in government funding to stay alive until the end of the pandemic. But the money, Mr Scurrah says, was never meant to be a "bailout".

Asked about Mr Joyce's comments, Mr Scurrah said he's "always admired Alan's fighting spirit", but that one would "have to ask him" why he made those public remarks.

"We weren't asking for a bailout," he said of Virgin.

"We were asking for an ostensibly Australian company, that did have foreign ownership, to be rescued and possibly taken back into Australian ownership, through the mechanism we were talking about. We were asking for something that was repayable, and that we could find a way to repay."

 

According to the investigation, Mr Scurrah made a final plea to the Federal Government in writing on April 20, which essentially fell on deaf ears when Treasurer Josh Frydenberg said the airline's "foreign shareholders with deep pockets" should be the ones to step in.

"I knew at that point that we were on our own," he explained.

"And I knew at that point that we had a long road ahead of us. We were all tired. We'd all been working around the clock, seven days a week, 15 to 18 hour days, trying to avoid going into voluntary administration. And I think that was sort of the confirmation that any assistance from government wasn't going to be forthcoming."

Going into voluntary administration, the airline brought on Deloitte as administrator to find a buyer for the bankrupt airline.

It wasn't until June 26 that Virgin Australia was thrown a lifeline, with American private equity giant Bain Capital taking on the airline as its new owner.

Virgin Australia CEO Paul Scurrah and administrator Vaughan Strawbridge of Deloitte announced on Friday that the airline had been bought by Boston-based private equity firm, Bain.
Virgin Australia CEO Paul Scurrah and administrator Vaughan Strawbridge of Deloitte announced on Friday that the airline had been bought by Boston-based private equity firm, Bain.

 

It is understood that the private equity firm, who will complete the sale in August, plan to strip back the Virgin's offering to be between that of Jetstar and Qantas

"I think one of the consequences of going through the process we're going through, and ending up with new owners in a leaner form, is that we will fly to less places," Mr Scurrah said.

"There is zero doubt about that. And where we've withdrawn from those routes, it's likely to create in those circumstances, specifically for those routes, a monopoly situation. So we're conscious of that. We'd rather not have that impact on the travelling public."

Four Corners Grounded: Australia's aviation crisis and the future of flying aired in full on the ABC on Monday 29th June at 8.30pm.

Originally published as Qantas defends move that crushed Virgin


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