John Borghetti Says Virgin Should Get Exactly The Same Government Assistance As Qantas

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Virgin boss John Borghetti says his airline should get whatever financial assistance the government offers Qantas.

He has released an open letter, in which he says a number of points in the current debate over the future of the Australian aviation industry need to “clarified.”

“If any Government support was given to the dominant player, we would expect the same level of support,” Borghetti writes.

“There have been media reports that the Government offered comfort letters to Qantas’s credit rating agencies, prior to our capital raising.

“I would also note that if Virgin Australia had been afforded the benefit of such a letter, it would have enabled us to achieve superior outcomes from both the recent debt bond issue undertaken in the US market and the capital raising that is underway.”

There is speculation the government could buy up to 10% of Qantas, or secure its debt in order to protect its credit rating. The national carrier already holds the lowest possible investment grade rating, and a downgrade would see its debt “junked.”

Fairfax Media revealed earlier that former transport minister Anthony Albanese wrote Qantas the “comfort letter” which proved to credit ratings agencies that the national carrier would be supported by the government.

Here’s the full letter:

To ensure a strong future for aviation in this country, I felt it was important that I write on behalf of Virgin Australia to clarify a number of points raised in the current national debate and to clearly outline the position of our airline.

1.

Virgin Australia’s strategy is, and always has been, to bring strong competition to all sectors of the Australian market, not to destroy the competition. We have always stated that we want to operate in a competitive environment. We have been pursuing our strategy of bringing real competition to all sectors of the market, including regional monopoly routes, for last three years. This is despite our competitor publically stating that “if a competitor puts one [plane] in, we’ll put two in as a group”1, in order to maintain a 65 per cent share of the Australian domestic aviation market at all costs. In our view, this is a strategy that prevents competition including the possibility of new entrants. We strongly believe that a level playing field should include a full and proper investigation of this 65 per cent “line in the sand” policy and ask the Australian Government to divert attention to this important issue that is crippling competition and is not sustainable financially for anyone in aviation in this country.

2. The Qantas Sale Act is a matter for the Government and Qantas. We have no issue with the Act being repealed. Furthermore, we have no issue with any amendments to the legislation which would allow Qantas to mirror the current structure of Virgin Australia by separating its international and domestic operations.

3. If Australia truly wants a “level playing field”, then any measures that the Government plans to take to support Qantas should be offered to Virgin Australia. We believe that this country needs at least two strong airlines, in order to ensure the travelling public are not faced with high airfares and restricted choice. Virgin Australia has succeeded against the odds, in a very difficult marketplace with a major and dominant competitor three times its size that appears intent on flushing it out of the market. If any Government support was given to the dominant player, we would expect the same level of support. There have been media reports that the Government offered comfort letters to Qantas’s credit rating agencies, prior to our capital raising. I would also note that if Virgin Australia had been afforded the benefit of such a letter, it would have enabled us to achieve superior outcomes from both the recent debt bond issue undertaken in the US market and the capital raising that is underway.

4. Virgin Australia is a proud Australian airline and, as an ASX-listed company, our aim is to create a long-term sustainable and profitable business for all our shareholders – our airline shareholders, our institutional shareholders and our retail shareholders. Any suggestion that we, or any of our shareholders, are deliberately running the company at a loss is absurd. The concept that our major shareholders have endless money to put into this airline is also completely unfounded. We are currently in the process of a capital raising, which is a standard way that publically-listed companies raise funds. As a publicly listed company, Qantas also has the capacity to undertake capital raising activities. Qantas has regularly raised equity capital from global investment markets – in fact it has done so nine times over the past decade, generating funds of over $1.2 billion. Large globally-focussed institutional investors represent over half its share register, which have tens of trillions of dollars available to invest in debt and equity markets. The proposition that Virgin Australia has access to cheaper capital by virtue of our shareholder base is false.

5. Virgin Australia has invested in growing aviation in this country. We employ around 9,500 staff, an increase of more than 3,000 over the past three years. We have opened new routes, launched new bases, and grown tourism through joint campaigns with the state tourism bodies and Tourism Australia. We fly around 20 million passengers annually and we have injected over $11 billion directly into the Australian economy over the last three years. We have also purchased Skywest and 60 per cent of Tigerair Australia, with a view of strengthening their ability to compete. Importantly, we will not be investing in starting new airlines offshore.

Lastly, I feel it important to outline that my team of 9,500 staff around Australia have worked tirelessly over the last three years to set this company up to effectively compete in all market segments despite the competition.

Together they have grown the Virgin Australia Group fleet to 148 aircraft, lowered airfares for all of Australia to benefit and transformed the customer experience for domestic travel in this country. I am immensely proud of what they have achieved and look forward to working together with them to serve the interests of Australia.

Sincerely,
John Borghetti
CEO Virgin Australia

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