Borghetti attacks Qantas 'leg-up'
In an attempt to head off what he described as a "significant leg-up" for Qantas, Mr Borghetti has sent an open letter to the government in which he said the country needed two strong airlines.
"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," he said.
He took exception to the Labor government offering a so-called "letter of comfort" to Qantas in August, which helped the airline reassure credit rating agencies. Qantas was at risk of losing its investment-grade rating, which threatened to raise its cost of borrowings by more than $100 million.
"If Virgin Australia had been offered the benefit of such a letter, it would have enabled us to achieve superior outcomes," he said in reference to raising fresh capital.
Mr Borghetti said financial support would make the "playing field even more distorted", warning it would return Australia to the months after the collapse of Ansett when Qantas had a near monopoly. "What it means is that they are able to pursue continual attacks on us without fear of financial detriment with the loss of their rating," he said. "I have never believed in handouts from the government."
He described the likely response from the government to Qantas' request for assistance as "very fluid".
Qantas has been emphasising to senior ministers the urgency of its predicament, but Coalition sources say the airline's hopes of a resolution before Christmas appear optimistic.
The most likely options involve the government offering Qantas a similar debt guarantee to that which it gave the banks during the global financial crisis, or buying a stake of up to 10 per cent in the airline.
While Qantas believed it was at a disadvantage, federal Transport Minister Warren Truss said on Friday the government did not want to be in a "position of being bankers for airlines, nor are we prepared to fund a market-share battle between our major airlines". Mr Truss stopped short of revealing whether the government would give Qantas the same level of backing as the previous government gave Australia's banks during the global financial crisis.
After calling for a national debate, Treasurer Joe Hockey insisted the government would "carefully consider all the options" but would not be drawn on whether it would pump money into Qantas.
Macquarie Equities analyst Ian Myles said a guarantee would improve the quality of Qantas' balance sheet but would also highlight in investors' minds the challenges the airline faced in domestic and international markets.
Frequently Asked Questions about this Article…
Virgin Australia, led by John Borghetti, is asking for the same level of government support as Qantas to ensure a level playing field in the airline industry. Borghetti argues that both airlines need equal support to maintain healthy competition and prevent Qantas from gaining an unfair advantage.
The government has offered Qantas a 'letter of comfort' to reassure credit rating agencies, which helped Qantas avoid losing its investment-grade rating. This support is seen as crucial in preventing an increase in borrowing costs for Qantas.
Government support, such as debt guarantees or equity stakes, could significantly improve Qantas's financial stability. However, Virgin Australia argues that such support would distort the competitive landscape, allowing Qantas to operate without fear of financial repercussions.
The government is considering options like offering a debt guarantee similar to those provided during the global financial crisis or purchasing a stake of up to 10% in Qantas. These measures aim to stabilize Qantas's financial position.
Federal Transport Minister Warren Truss has stated that the government does not want to act as bankers for airlines or fund market-share battles between major airlines. This suggests a cautious approach to providing financial support.
John Borghetti warns that the current situation could lead to a repeat of the post-Ansett collapse era, where Qantas had a near-monopoly. He emphasizes the need for balanced support to avoid such market dominance.
Treasurer Joe Hockey has called for a national debate on the issue and insists that the government will carefully consider all options. However, he has not committed to any specific financial intervention for Qantas.
Analysts like Ian Myles from Macquarie Equities believe that a government guarantee would improve Qantas's balance sheet quality. However, it would also highlight the challenges Qantas faces in both domestic and international markets.