Keep Virgin Australia in the Skies

[rock86]

Am I being naive here or does the fact that the owners didn't want to stump up any extra $$ tell us all we need to know?

Why would they stump up $$ when they're all struggling as well, they also probably thought that the Australian Gov'n would provide some sort of financing given this has been a pretty common theme in the current environment with other international governments and their airline sectors.

I think the Voluntary Administration could also be a blessing in disguise for VA, and it will likely come out in a stronger balance sheet position then it was before this - albeit with ownership structure completely changed (if that's a bad thing...).

 

[Cubiscus]

Perhaps, but better than investing nearly double that and if the market didn't recover to what it was, having to double down and invest some more in a year. I guess it comes down to the same decision the existing owners had to weigh up... do you increase the amount of money invested and hope it recovers, thereby making what you put in worth something, or simply take the hit as it stands.

Its not this simple, there will be the job fallout, which lowers tax take and increases benefit payments, the supply chain impacts, lowering tax take and increasing benefit payments, impact to airports and tourism, lowering tax take and increasing benefit payments and increased costs to businesses including the government who would have much less leverage to negotiate travel costs.

This is all likely to be exponentially greater than the cost of saving it.

On top of that if the government is stopping a company doing business they, in my view, have a moral obligation to support it through that time. This isn't at this time a market failure.

 

[samh004]

On top of that if the government is stopping a company doing business they, in my view, have a moral obligation to support it through that time. This isn't at this time a market failure.

The problem is they have two moral obligations that conflict with each other. They could have chosen not to restrict their business, but potentially thousands would have died. The cost of saving lives outweighs the business struggling, but there's limited money to support both at the same time. A good question would be, what would it cost to support every business, every person, that has been impacted by the shutdowns the government has implemented to save lives... and then, how would we pay that back on the other side, or rather, what would the impact be? Is it possible to just spend money like it's going out of fashion and have no consequences, or does it come back to bite in someway?

As @rock86 notes, this has probably put them in a better position than a simple (if you can call it that) $1.4 billion loan, but of course, time will tell. I'd believe short term pain for long term gain.

I think the Voluntary Administration could also be a blessing in disguise for VA, and it will likely come out in a stronger balance sheet position then it was before this - albeit with ownership structure completely changed (if that's a bad thing...).

 

[33kft]

they also probably thought that the Australian Gov'n would provide some sort of financing given this has been a pretty common theme in the current environment with other international governments and their airline sectors.

It might have been a theme for flag carriers, but that doesn't mean it's a theme for the entire sector.

 

[dajop]

It might have been a theme for flag carriers, but that doesn't mean it's a theme for the entire sector.

In some countries it is, moreso those without a single dominant "flag carrier" (eg USA).

 

[33kft]

In some countries it is, moreso those without a single dominant "flag carrier" (eg USA).

Not really relevant to our position though is it? I would be looking at the position taken by NZ, UK, Canada, Singapore and the like before trying to compare our market to the much broader US, China or India markets.

 

[jakeseven7]

Not really relevant to our position though is it? I would be looking at the position taken by NZ, UK, Canada, Singapore and the like before trying to compare our market to the much broader US, China or India markets.

Exactly, QF is the national carrier and will always be considered with different rules, as it has different rules placed upon it by the Government in return. It is just the way the cookie crumbles.

 

[woodborer]

Exactly, QF is the national carrier and will always be considered with different rules, as it has different rules placed upon it by the Government in return. It is just the way the cookie crumbles.

"National carrier" - such a nice term, but does it legally mean anything?

 

[33kft]

"National carrier" - such a nice term, but does it legally mean anything?

Yes, it is legislated. See Part 3 - Requirements regarding Qantas’ articles of association

https://www.legislation.gov.au/Details/C2018C00091

This also exists the world over, it is not a concept unique to Australia.

 

[woodborer]

Yes, it is legislated. See Part 3 - Requirements regarding Qantas’ articles of association

https://www.legislation.gov.au/Details/C2018C00091

This also exists the world over, it is not a concept unique to Australia.

They have some ownership restrictions but nothing their defines what a "national carrier" is.

Does the term have any legal meaning?

 

[33kft]

Does the term have any legal meaning?

Depends on what you mean by legal meaning. The status does reflect legal significance for the airline. As wikipedia puts it:

Flag carrier - Wikipedia

en.wikipedia.org

A flag carrier is a transportation company, such as an airline or shipping company, that, being locally registered in a given sovereign state, enjoys preferential rights or privileges accorded by the government for international operations.

Historically, the term was used to refer to airlines owned by the government of their home country and associated with the national identity of that country. Such an airline may also be known as a national airline or a national carrier, although this can have different legal meanings in some countries. Today, the term may be used to refer to any international airline with a strong connection to its home country or that represents its home country internationally, regardless of whether it is government-owned.

 

[p--and--t]

have a moral obligation to support it through that time

A few hundred thousand small businesses, pubs, clubs, cafes, gyms et al as well as hundreds of medium sized businesses are all in the same boat with 1M joining the job queue. VA got the same as everyone else, every employee's salary being supported by $1.5K per fortnight (plus various taxes & charges relief and subsidised flights).

Which business is morally more deserving than another?

The gov has a moral responsibility to save lives and save as many jobs as possible on a level playing field and save the economy for all Australians (taxpayers).

 

[openseat]

They may be able to get out of buying the 737 Max. Which would be a bonus.

 

[PineappleSkip]

That wikipedia article lists both Qantas and Virgin as flag carriers, which Australia currently regards any Airline headquartered in Australia as. The Qantas Sale Act was one of a number of changes about Australia disengaging itself from the concept of a single national carrier (Which QF previously was) and adopting a neutral approach that does not preference any Australian airline. For example, for APS official travel, Qantas has been depreferenced for yonks, Currently, Qantas, Virgin and Rex are all on the board, as are a host of foreign airlines.

Virgin derives its flag carrier status under the Air Navigation Act 1920. The definition below is in s11A. You’ll also find it in s7 of the Qantas Sale Act. The concept of Australian International Airline is about Australia recognising other flag carriers under international agreements. The Air Navigation Act had a similar Australian Ownership rule to that in the Qantas Sale Act, but you may recall that it was relaxed - to Qantas‘ chagrin.

Australian international airline means an international airline (other than Qantas) that may be permitted to carry passengers or freight, or both passengers and freight, under a bilateral arrangement as an airline designated by Australia to operate a scheduled international air service.

An example of such a bilateral agreement is the US-Australia open skies agreement. You will find the Australian position on what is a flag carrier in the paragraph at the ed of clause 4 of the memorandum of consultation: headquartered in Australia, rather than the former test of ownership and control. You will also see both Qantas and (then) Virgin Blue in the Australian Delegation. Australia has over 100 treaties in force or being negotiated

cheers skip

 

[odysseus]

A few hundred thousand small businesses, pubs, clubs, cafes, gyms et al as well as hundreds of medium sized businesses are all in the same boat with 1M joining the job queue. VA got the same as everyone else, every employee's salary being supported by $1.5K per fortnight (plus various taxes & charges relief and subsidised flights).

Which business is morally more deserving than another?

The gov has a moral responsibility to save lives and save as many jobs as possible on a level playing field and save the economy for all Australians (taxpayers).

It hasn't been about morally deserving though.

Previously handouts were given to Holden and the major banks locally. None of this was because of being morally deserving, but just the government felt there were economic benefits to retention.

Similarly in the current round there have been handouts to those with <30% revenue hits. Again, that doesn't make them more "morally deserving" just where there has been most impact.

Virgin's position of major employment benefits, tax payments through staff, and Australian supplier provisioning, in addition to the critical economic supply of tourist provisioning and community and business connections and avoidance of monopoly services mean the economic benefits of them are at least as worthy as most, and more than others listed.

 

[p--and--t]

Virgin's position of major employment benefits, tax payments through staff, and Australian supplier provisioning, in addition to the critical economic supply of tourist provisioning and community and business connections and avoidance of monopoly services mean the economic benefits of them are at least as worthy as most, and more than others listed.

There is only one thing on your list that doesn't apply to a horde of other companies - avoidance of monopoly. What about hotel chains, car hire firms, taxi companies, bus companies, freight companies, tourist agents, resort owners. Are their staff and their families of less importance to Australia than flight crew.

Both VA and QF will need to be very different companies at the end of this to survive and just throwing money at them won't solve the issues. Both will need to be leaner and smaller for at least the next 2 years. It is creating false hope that all Virgin staff will be retained if they get a bail out loan. It just won't happen. QF won't be able to retain all their staff.

The government (and many others) are very certain the best thing that could happen to VA right now is a radical shakeup via administration that removes the shackles of an impotent disjointed board, onerous debt and bloated infrastructure to make it rise as a viable long term profitable competitor. Give PS what he needs to make the company fit for the long term.

 

[odysseus]

There is only one thing on your list that doesn't apply to a horde of other companies - avoidance of monopoly.

And it's a very significant one. But not significant of its own e.g. just because you're the last analogue tv repairer in Australia isn't quite the same monopoly justification.

Therefore, in combination with all the other elements, the overall package merits government support.

 

[p--and--t]

And it's a very significant one. But not significant of its own e.g. just because you're the last analogue tv repairer in Australia isn't quite the same monopoly justification.

Therefore, in combination with all the other elements, the overall package merits government support.

I accept your view and sentiment.

Let's agree to disagree amicably on the way to create a viable long term future for the company.

(BTW: I'm not in favour of a monopoly under any circumstances)

Edit: If the restructure & injection from new shareholders is done the right way, ironically, they will have a real chance to give a severely Covid wounded QF a hell of a fright and a run for their money.

 

[Rob.au]

Virgin derives its flag carrier status under the Air Navigation Act 1920.

Section 11A of the ANA does still require majority Australian ownership - you just haven't quoted that section. That's why there is still an awkward and bizarre arrangement from eight years ago where then shareholders in VAH were given near valueless ($0.000001 per share) beneficial interests in Virgin Australia International Holdings Pty Ltd, so that VAIH could continue to maintain majority Australian ownership on paper even when VAH did not.

In most circumstances the VAIH interests were and are non-tranferable, which is why many years after I sold my VAH shares, I'm still technically on the books as an Australian holder of VAIH. This will effectively continue until either the arrangement is no longer necessary or until I die, whichever occurs first.

Still gives me bemusement whenever I log in to Computershare to see the VAIH special interests sitting there.

An Act of foreign ownership trickery has a reasonable summary of the arrangement.

 

[cove]

Looks to me that the current shareholders are toast. The bond holders may need a haircut. The secured creditors have assets they may not really want as the market for planes is slow. The preferential creditors get first dibs. Unsecured creditors are likely to lose quite a bit.
There won’t be many winners if the business sells to the new buyers for way less than 5 billion dollars. At a sale price of half that figure you would have to figure who gets trashed. I think the Government picks up an 800 million wages payout, shareholders get nothing, unsecured creditors get very little.
it will take a while to get sorted after a sale gets done.