Virgin Australia has gone into a trading halt, following reports the airline has asked the Morrison government for a $1.4 billion loan to help it through the coronavirus crisis.
The company on Tuesday confirmed it was seeking financial help but did not give details about the amount of the potential bailout and what it could include.
Virgin went into a trading halt shortly before 10am on Tuesday, pending a market announcement.
It is understood that further support for the airline would be part of a wider industry package.
Both Qantas and Virgin have grounded their international fleets and slashed their domestic routes during the coronavirus outbreak.
Qantas has temporarily stood down 20,000 of its workers, while Virgin has temporarily stood down about 8000 staff.
“We have been in ongoing discussions with government about the support the whole industry will need if this crisis is prolonged,” a Virgin Australia spokeswoman told ABC News.
“Companies like ours are taking a range of measures to respond and manage the financial impact.
“However, the support we’ve proposed will be necessary for the industry if this crisis continues indefinitely, to protect jobs and ensure Australia retains a strong, competitive aviation and tourism sector once this crisis is over.”
There is speculation a bailout could involve the government becoming a part-owner, but Treasurer Josh Frydenberg has not ruled that in or out.
Mr Frydenberg said the government strongly supported the sector, already announcing $715 million worth of measures, which includes waiving certain government fees and charges on the airlines.
“I’ve been in close contact with leaders of the business community, including the aviation sector, [Virgin boss] Paul Scurrah and [Qantas chief] Alan Joyce,” Mr Frydenberg said.
“We have already illustrated our commitment to having a viable, sustainable aviation sector.”
Mr Joyce has warned against federal government assistance for Qantas’s competitor, saying help should not be offered to businesses that had been “badly managed”. He has repeatedly said it would be a case of “survival of the fittest” in the airline sector.
But Virgin chief executive Mr Scurrah wrote to Australian Competition and Consumer Commission chairman Rod Sims alleging Qantas was engaging in anti-competitive conduct, designed to damage Virgin.
Mr Sims has urged restraint and cooperation, arguing, “we really need companies working together during this crisis and talking about the survival of the fittest could be seen as quite unhelpful”.
Ratings agencies downgrade their outlook on Virgin
Virgin Australia is 90 per cent owned by offshore airlines, including Etihad Airways, Singapore Airlines, Nanshan Group, HNA Group, and Richard Branson’s Virgin group, which are all facing their own cash-flow challenges amid the coronavirus pandemic.
Credit Suisse analysts estimated last week that with virtually no revenue coming in, Virgin could eat up most of its $900 million cash balance by June and would require additional liquidity to survive the crisis.
Rating agencies S&P Global and Fitch also last week downgraded its outlook on the company after Virgin announced it would slash domestic capacity by 90 per cent and ground its budget airline Tigerair indefinitely.
S&P said its position had not factored in federal government support for the airline, but the agency believed “that the government may have an incentive to support Australian carriers given the temporary nature of this crisis”.
“We nevertheless believe the scale of the COVID-19 exogenous shock has created an immediate and sizable cash outflow,” it said.
“We estimate that up to half of Virgin Australia’s operating costs are fixed and that a reduction in variable costs will not offset the collapse in revenue.”
S&P said the benefit provided by forward bookings and the Velocity Frequent Flyer business was now likely to partially unwind.
“As a consequence, Virgin Australia’s previous $900 million unrestricted cash buffer is likely to materially reduce in the very near term,” it said.
A “default or distressed exchange appears increasingly likely over the next 12 months, absent timely government, or other support, and/or a swift reversal of the COVID-19 outbreak”.
Fitch Ratings is a little more optimistic in its outlook on Virgin, taking into account the government’s support package so far.
But on Friday, Fitch also argued Virgin’s “liquidity could come under pressure quicker than we previously anticipated”.
It said the company would “experience significant working capital outflows for the remainder of FY20 as customers seek refunds and forward bookings fall significantly, alongside cash outflows for aircraft rent, staff costs and other charges”.
“Should the travel restrictions remain in place and demand remain subdued for longer than we currently envisage, and if additional funding is not secured over the next few months, this would lead to further negative rating action,” it added.
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