ABC RADIO ADELAIDE DRIVE
TUESDAY, 21 APRIL 2020
SUBJECTS: Support for Australian aviation industry during Covid-19; Virgin Australia administration.
JULES SCHILLER, HOST: Virgin Australia called in the administrators last night, Deloitte. And now they’re trying to work out how the airline can service its debts and fly again after COVID-19 forced the grounding of most of its fleet and starved it of cash. The administration puts about 16,000 jobs in doubt and raises questions about whether Australia will have a domestic airline monopoly controlled by Qantas. 1300 222 891 – do you think the Federal Government should get involved in a bailout of Virgin? Are you worried that we’ll see another Ansett situation or do you think that this is very different and we should let the administrators take care of the airline and try and find some investors and we’ll just see what happens. The Labor, actually before we get to the ALP, this morning on breakfast with Allie Clark and David Bevan, Federal Trade and Tourism Minister Simon Birmingham said there were no guarantees over the future of Virgin.
SENATOR SIMON BIRMINGHAM, MINISTER FOR TRADE, TOURISM AND INVESTMENT: I can’t provide guarantees David, it’s not a case where Government is waving around a blank cheque to assure that we have two airlines in the sky. But it is a case that we will engage thoroughly with the administrators. It was very clear in the objectives of what we want to see. And we know the voluntary administration process is an opportunity for a business like Virgin to work its way out of this. Labor’s approach is irresponsible and reckless when it comes to taxpayer dollars. Why on earth you would have wanted to volunteer to bail out the foreign-owned equity holders of Virgin Australia. Our priority is on saving the jobs of the employees, not the equity of the foreign owners. And our priority is on ensuring that we have two airlines, after COVID-19 restrictions are lifted.
SCHILLER: That was Federal Trade and Tourism Minister Simon Birmingham on the Breakfast Show. I’m joined now by the Shadow Minister for Infrastructure, Transport and Regional Development Catherine King. Welcome Catherine.
CATHERINE KING, SHADOW MINISTER FOR INFRASTRUCTURE, TRANSPORT AND REGIONAL DEVELOPMENT: Good to talk to you.
SCHILLER: Catherine, since Virgin Australia is 90 percent foreign-owned, Singapore Airlines Etihad Airlines and two Chinese conglomerates, why should the Australian Government bail them out?
KING: Well, the first thing I do want to say in response to Simon Birmingham is of course the Australian Government already is bailing out foreign-owned airlines. It has offered $100 million to regional airlines, that Rex is eligible for and it is 59 percent foreign-owned. So the Government is actually already doing that and has already intervened in the market in that space.
The reason that we think it’s important to preserve two strong competing airlines in Australia is to ensure that we have competitive airfares and that we can continue to have competition on our routes within Australia. It’s part of our economic recovery that is going to be crucial. Tourism was the first sector to be hit, hit already in the bushfires, already saw a massive downturn. You talk to people up in Far North Queensland, they had droughts, floods, the impact of bushfires as well in Queensland and now with Coronavirus. Tourism is going to be really important for recovery. And of course aviation is very much part of our tourism story.
SCHILLER: Catherine, Deloitte have said that more than ten parties are interested in investing in Virgin at this stage. Surely that’s worth exploring first.
KING: Well, obviously now with the company going into voluntary administration, there will be a number of interested parties and not all of them benign, I would have to say. When you see private equity come to the table with those matters they do pick the bones out of…
SCHILLER: What do you mean? What do you mean by not benign?
KING: So often what you see with private equity, I mean they are obviously in there to quickly make profit and what you do see is that they often pick the bones out of the company, so they say – “what are the most profitable parts of it, how do we strengthen those and how do we divest ourselves of the least profitable parts?” Often that means staff redundancies, it means routes being cut, particularly in regional areas as well. So we’ve been concerned that without government intervention, and I suspect, as we go through this voluntary administration period, and the fact that the Government has now appointed Nicholas Moore to liaise between the Government and the administrator, it’s actually an admission that they do believe there is a role for government here that you’ll start to see that without some injection, of either cash or guarantees of lines of credit, that they will simply not be able to operate at the level that they have been and certainly won’t be able to compete with Qantas in a way that they have been.
SCHILLER: So you think a private equity company will be looking at the Melbourne-Sydney route, which I think is the third or fourth most profitable route in the world and thinking “We’ll get involved in that but say…”
KING: “Yes, but why would we go to Townsville? You know, why would we keep going to Cairns?” They’re the sorts of decisions – “why would we go to some of the smaller country towns that we currently go to?” So they’re the sorts of things that we’re concerned about. And that means you have reduction in routes, reduction in staff. And then, obviously the sort of issue around competition is you have no other strong player in the field and Qantas, who’ve been enormously successful in Australia, basically dominating the market.
SCHILLER: Isn’t the Government already bailing out Virgin in the sense that their staff can go on the JobKeeper subsidy until potentially the airline can get back on its feet again?
KING: Well, basically that that is paying staff that are incredibly important to keep a connection with their workers, but that’s not actually dealing with the really substantial issues that Virgin and Qantas have had where you’ve seen a reduction in income. These companies have leased aircraft, they’ve got obligations to airports in order to pay fees and charges. The Government stepped in with small amounts of money to pay the Government fees and charges such as to Air Services Australia. But when you’ve got a company that has had such a substantial loss in income, not because of its own fault, not because of something that it has done, it’s obviously been necessary to just shut down domestic and international tourism.
We’re in pretty extraordinary times. I think if you want to save 16,000 jobs and not just close to 16,000 jobs, but jobs and all of those industries associated with tourism and freight, then we do think it is important. What Virgin asked for was in fact a guarantee on a line of credit to enable it raise more debt, so that it could continue trading.
SCHILLER: So you’d rather that than the Government having equity in Virgin. You’d rather the line of credit.
KING: So that’s what Virgin asked for. And then what we said from the Labor point of view, the value to the taxpayer is obviously in saving jobs, but we also think it could look at then taking an equity stake in Virgin and then when things recover you then sell that stake down and you actually recoup your money that way. So we’ve been saying that. Obviously that’s a matter now for the administrators to look at to see what is the best value for taxpayers and how do you actually make sure we keep this airline because it’s in the national interest.
SCHILLER: Catherine King, the ALP has been pretty bipartisan to this point with the LNP, you know, when dealing with COVID-19. Why have you become less so during the Virgin issue? What is it about this particular issue that you’ve said, “Look, we’re going to go public here, we don’t agree with your approach to Virgin and we’re going to say it, we’re going to say it loud.”
KING: Bipartisanship doesn’t mean that you stay silent or that you don’t point out when you think the Government’s got it wrong. We’ve been pretty clear that you know, in a range of matters, we think the Government’s been too late. Do you honestly think the Government would have actually done the wage subsidy without Labor and the trade union movement, and the business community, putting their hands up and saying, “We’ve got a problem here.” Parliament wasn’t even due to sit, they stopped us until August. So that’s been part of our role is to say, yep, we’ll support you, we’ll facilitate through the Parliament, things that we need to get through quickly in order to help people both health-wise and economically. But where we think you’ve got it wrong, where we think costs it will jobs in this country, we’re going to say so. I think this has been a mistake and a lack of leadership, frankly, from the Government.
SCHILLER: That’s the voice of Catherine King. She’s the Shadow Minister for Infrastructure, Transport and Regional Development. We’re talking about the situation that Virgin Airlines finds itself in, it’s gone into administration. Catherine King and the ALP are saying that we should have guaranteed them a line of credit at least and possibly bought equity in the airline to prevent it from getting to this situation and save 16,000 jobs.
Let’s go to Mark Sedgwick first, he’s the President of the Australian International Pilots Association. He works for Qantas but obviously he’s got a lot of skin in this game when it comes to aviation. Hi, Mark.
MARK SEDGWICK, PRESIDENT OF THE AUSTRALIAN INTERNATIONAL PILOTS ASSOCIATION: Hi Jules, how are you?
SCHILLER: Good. What do you think of the ALP stance on this? Guarantee a line of credit, buy some equity, don’t put Virgin at the mercy of private equity companies.
SEDGWICK: Look, there’s no doubt much anxiety currently in the ranks of Virgin. We’re certainly very empathetic to what’s occurring particularly with the pilot group over there at the moment. So certainly from one pilot group to another, we certainly hope they pull through this. We’ve seen anxiety in the past and aviation is a very tough industry. It is very much feast or famine. So we certainly empathise with what’s going on over at Virgin at the moment. I can’t really comment on the commercial and political position that’s going on. I’m not privy, probably to all the detail that Catherine has. So I’ll let her comment on that at this point.
SCHILLER: But Mark, what would you say, it does make sense that if private equity get involved with Virgin they will concentrate on the most profitable routes.
SEDGWICK: I’m not privy to what private equity will do at this point and obviously if there’s ten investors, there may be different viewpoints that they’re taking. I’m certainly glad to say that there’s at least a lifeline that Virgin that’s been thrown at this point. So it looks like at this point, which will be good for jobs over there, that there will be a lifeline from the investment community at this point. And certainly, the government support we’ve seen so far with JobKeeper at Qantas and Virgin has been quite welcome. That’s been quite beneficial, will be beneficial to the Qantas pilots that I represent and I trust that will be good for the Virgin people as well going forward.
SCHILLER: Wouldn’t your pilots be concerned that if there was a less vigorous competition, say, to Qantas, then wages would be depressed?
SEDGWICK: It’s important to have a competitive market certainly, and we have one today. I actually think we’ll have a competitive market as we come out the back of this period. I think what we’ve had is a rational domestic market up to this point. I think Virgin was just on the verge of getting itself restructured when it was hit by this pandemic and it has been a deeply unfortunate turn of events. But I think as we come out of this, we’ll see a rational market across the domestic network. And we’ll return to what is over a billion dollar EBIT pull across the airlines. And I think that Virgin will come out of this. That’s my personal view on what I’ve seen and some of the advice we’ve received along the way on the Virgin question. So we certainly think there’ll be competition coming out of this. And certainly, that’ll be good for Virgin pilots and Virgin jobs going forward. And that’s definitely what we want to see.
SCHILLER: Beverly has called on 1300 222 891. Welcome, Beverly.
CALLER (BEVERLY): Hi Jules, how are you?
SCHILLER: Good. Where do you stand on a potential Virgin bailout?
CALLER (BEVERLY): Well, I don’t think the Australian taxpayers should bail them out. I believe that the current owners of the airline probably have plenty of money to support their own business. And in that case, they should be doing that. If a foreign entity comes in and does strip the business, the unprofitable parts of the business. Well, that’s just business. That’s what businesses do. They make money. And if they’re not making money, they run into trouble.
SCHILLER: But I guess Beverly, the ALP might say, well, Adelaide to Melbourne isn’t as profitable. So we’re going to have less flights from Adelaide to Melbourne or Sydney, which means that you might have to pay $60 to $70 more one way.
CALLER (BEVERLY): If that’s the case, that’s the case. The Government should not be propping up private industry to make it viable. Why don’t why don’t the Australian Government have their own airline? If that’s the case, and put our taxpayers money into something that we own? Instead of continually sending our money overseas?
SCHILLER: Thank you, Beverly. I’ll put that to Catherine King who’s been listening. She’s the Shadow Minister for Infrastructure, Transport and Regional Development. Catherine, there is a theme on the text line that is concerned that this is a foreign-owned company and we would be bailing them out and why don’t Singapore Airlines and Etihad and the Chinese conglomerates reach into their pockets before the Australian taxpayer has to? How would you reply?
KING: Well, the first thing is when we talk about the Australian Government taking an equity stake in Virgin Airlines. That’s exactly what it means, the Australian Government would own part of Virgin Airlines. That’s exactly what we’re suggesting, that rather than just giving money, to get taxpayer value you actually take a stake in the airline that when the airline recovers, you then sell, and that’s to the benefit of the Australian taxpayer. So that’s why we’re saying we should actually take an equity stake in the airline.
Equally, we are in such extraordinary times. Aviation has just shut down across the globe. And what that’s meant is that the owners of Virgin which are Etihad Airlines, Singapore Airlines, owned by their own governments, and it’s extraordinary that we’ve got other countries that do own airlines who’ve got investment in Australian airlines while the Australian Government doesn’t own any part of an airline anymore, that they are in trouble. What their governments have done is they’re bailing out their government-owned airlines because they’re not getting any income in, because they know it is going to be really critical to economic recovery. But what we’ve got here, unfortunately, in Australia, is the Australian Government saying, “We’re just going to sit back, we’re going to see what the market does, thinking that the market is operating as it normally would, and we’re just going to basically, leave this up to the market to try and sort it out.” We’re saying that it can’t afford to, there are 16,000 jobs and our economic recovery on the line, if the Government doesn’t actually do something more serious than just sitting back.
SCHILLER: If we get involved with Virgin Airlines as equity partners, don’t we also have to take on their $5 billion debt?
KING: Well, at the moment, they’re in administration. So let’s see what happens in relation to all of that. Who would have ever thought that we would have had a government basically taking over private hospitals. That’s in essence what’s been happening in other countries. But we’ve seen some pretty amazing things happen. Now it’s not unusual, the Government already uses equity. The Government owns Western Sydney Airport, it has equity in that. The Government owns Inland Rail. This is billions of dollars building a railway across the country. It has done this in the past. On Inland Rail for example, the Government’s probably not going to recoup any money for probably 40 to 50 years yet it’s spending billions of dollars in equity in that.
It’s not unusual for the Government to do that. Not too long ago, we owned a private health insurer ourselves. So it’s not unusual for the Government to do that, and what you’re trying to do, you’re trying to keep competition in the market. But really, at the moment what we know is we’re trying to keep 16,000 jobs, but we’re also trying to say what are we going to need for economic recovery, particularly in tourism, and particularly in our regions? And two strong competing airlines are going to be pretty important to that. Not just one weaker player and one bigger player. We’ve got to have two strong competing airlines.
SCHILLER: We’ve got time for one more call. Mark joins us on 1300 222 891. Hi, Mark.
CALLER (MARK): G’day Jules. How are you?
SCHILLER: Good. Where do you stand on Virgin?
CALLER (MARK): Well, the Shadow Minister’s just said it again, two strong airlines. Virgin has not made a profit, sorry I’ll rephrase that. In the last 10 years Virgin’s made about two profits of less than around about $50 million a year. If they haven’t been strong in the halcyon days of domestic aviation, which has been, for the last 10 years, and you look at Qantas who have made $850 odd million in the first half of the current financial year, there’s no way they’re going to be a strong airline going forward. They had the opportunity again and again and again and they just haven’t done it.
And you know, the four international airlines who’ve had their shares in it, Air New Zealand, you may remember was a partial owner they pulled out because they just could not see any benefit. I used to be in the international airline game. So the internationals could not make a go of it so there’s something inherently wrong in the business model that Virgin’s been running if they can’t make a profit compared to other domestic airlines?
SCHILLER: Well, I’ll have to just let Catherine King answer that quickly before we end this discussion. Catherine, Mark seems to know what he’s talking about. I mean, if the Government does take equity in Virgin, you’d have to, I mean, could a Government rejig the business enough to make it profitable and like you say, and then sell their stake at a profit?
KING: Yeah, look, two things. One, Virgin has just gone through a massive period of restructuring, both its finances and its management structure. It also has gone through a period of extraordinary growth where it has been competing pretty actively with Qantas and that’s been part of what it’s been doing, investing its money on new routes, expanded services, and those sorts of things. So what you are starting to see under the new management structure, and it’s not for me to excuse poor decisions in the past, but what you are starting to see is an aviation player who actually is competing pretty strongly with [Qantas], now whether they turn a profit and start to, that’s up to the management team, it’ll be up to the voluntary administrators to work out how, and if that’s possible to do.
I think it’s in the national interest to have competition on routes, competition on airfares, and that means consumers benefit. The benefits and the cheaper flights, the travel you can do, being able to connect for work and for family and for social reasons. That actually then sees money flow through the economy. That’s really what this is about, is about how we’re going to come out of this crisis as strong as we possibly can, and how do we make sure, particularly in the regions and in our tourism sector, that we can recover. And to do that we need those airlines competing with each other to be able to do that.
SCHILLER: Catherine King, thank you so much for your time this afternoon.
KING: Good to be with you.
SCHILLER: Catherine is the Shadow Minister for Infrastructure, Transport and Regional Development, and thank you, to Mark Sedgwick, he’s the President of the Australian and International Pilots Association. Lots of texts coming through, “that’s what banks are for not for governments”. People are saying “Virgin is a basket case of a business model, should be avoided by the Government”. So many of you worried about Virgin’s business model. But as Catherine said it wasn’t really Virgin’s fault that their business model has collapsed just like Qantas’. I guess it’s the COVID-19. So we’ll see what comes of the ALP proposal and of the administrators.