Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Tuesday, 21 April 2020
FRAN KELLY: The coronavirus pandemic has claimed its biggest corporate victim yet with Virgin Airlines to be placed into voluntarily administration. In what would be one of the biggest aviation collapses in Australian history, up to 16,000 jobs are at great risk after the Federal Government knocked back repeated requests from Virgin for a $1.4 billion lifeline. But in calling in the administrators, Virgin does have a chance to re-emerge as a scaled down budget airline once the skies reopen post-COVID-19, whenever that may be. Finance Minister Mathias Cormann joins us in our Parliament House studios. Minister, welcome back to Breakfast.
MATHIAS CORMANN: Good to be back.
FRAN KELLY: Virgin has crash-landed because the Australian Government won’t let it fly. Do you accept responsibility for the collapse of this airline and the thousands of jobs that could be lost in the process?
MATHIAS CORMANN: No. Virgin had serious challenges prior to the coronavirus pandemic. The Australian Government has provided substantial support to the economy and to businesses, but we have done so on an economy-wide and sector-wide basis, including to the aviation sector. Whether that is fee relief, whether that is providing financial support for domestic and international routes during this period, or some other support that has been provided along the way. In relation to Virgin, we do want to see two airlines continue. There is a clear public interest in competition in the aviation sector in Australia. But the first responsibility to bail out a company rests with its shareholders and Virgin has some very substantial foreign shareholders. Singapore Airlines and Etihad own 20 per cent each. There is a 40 per cent shareholding by two major Chinese investors. Now iff those owners of the business are not prepared to step in, there is a process here now to test the market to see who else might be prepared to come forward and that is now the opportunity in front of us.
FRAN KELLY: I’ll come back to that, but isn’t this at odds with the Government’s hibernation strategy to keep businesses afloat during this crisis? This is a very high profile sinking we’re looking at here and the Government could have saved Virgin, not with a grant, not with a handout, but with a $1.4 billion loan or line of credit or equity stake could have kept the airline out of administration. You were prepared to do that for Rex, which is majority foreign owned. Why not for Virgin?
MATHIAS CORMANN: There are some other issues at play here. Clearly, there were some substantial problems that needed to be resolved. In the context of administration the business will continue. There will be an opportunity for potential buyers to come forward. There will be an opportunity to restructure the business, to refocus the business on its performing parts and, indeed, to recapitalise the business. The Government never wanted to end up in a position where we end up owning an airline. We very much want to see a private sector, market-led initiative here and we do believe there is opportunity for that. We will engage with whatever process follows from here and if there is an opportunity to provide sensible support in an appropriate fashion, we would of course consider that.
FRAN KELLY: Sure, but the Government never wanted to be in the business of owning an airline, that’s true, but the Treasurer told us just 10 days ago there are no ideological constraints during these times of economic crisis. Obviously, there are limits to that position.
MATHIAS CORMANN: There sensibly of course are limits to that position, because we are dealing here with taxpayers’ money. $1.4 billion is a huge amount of money and you have to make sure that the decisions you make are principles-based and that you are making the right decisions for the right reasons. In all of the circumstances, we didn’t believe that it was appropriate to provide specific support of that size to one individual business, setting a precedent across the economy. We have stuck to an economy-wide, sector-wide approach, rather than to bail out individual businesses and we don’t believe that all of the private sector opportunities have been exhausted here and we believe they should be.
FRAN KELLY: It’s high stakes though, and you keep telling us, as you have again today, that the Government is committed to having two full service airlines flying domestic routes. Are you confident that by putting the company into voluntary administration there will be a route out from this? Is that privately what you’re hearing from Virgin or the administrators, that there are buyers, investors out there, that it won’t be the Government required to put in?
MATHIAS CORMANN: We do believe that this gives us the best possible opportunity to flush that out. Obviously, an administrator would go into the market and explore interest either from buyers or from new shareholders that might be prepared to contribute to a restructuring and a recapitalisation of the business, refocusing the business on its performing parts. There are parts of the Virgin business that have been performing well and there are other parts that have caused the problem. There is a significant level of debt that will have to be dealt with moving forward. These are all issues that will be able to be resolved through this process, to ensure that we have the best possible chance of a viable airline on the other side.
FRAN KELLY: Listening closely to you Minister, does that mean there could still be some money on the table for Virgin if it restructures without debt or less debt and without foreign owners? Is that what you’re saying?
MATHIAS CORMANN: I am not going to pre-empt any of this. The Government will, as we have done so far, we will continue to engage in the process. We will continue to talk to all of the relevant stakeholders and if there is appropriate opportunity for the Government to provide sector-wide support as we have in the past, then of course we would consider that. I am not going to pre-empt any of these things. In the first instance now, it is a matter to test the market to explore and assess any private sector interest to help restructure and refocus this airline into a successful venture on the other side of this process.
FRAN KELLY: If that private sector interest was a Chinese airline, would the Government allow it?
MATHIAS CORMANN: I am just not going to speculate. There is now a process to go through. There is a job to be done. We will engage positively and constructively with that process as we have done so far and we will make appropriate judgements along the way.
FRAN KELLY: What kind of guarantee can you offer or reassurance to the 16,000 people who rely on Virgin for their livelihoods, 9,000 of them directly?
MATHIAS CORMANN: We understand that this is an anxious time for employees at Virgin, but what we can say right up front is that during a period of administration, they continue to be eligible for our JobKeeper program, which of course is helping millions of Australians to remain in their jobs as we go through this crisis. A $130 billion, very substantial program. That is the support that will continue to be available to them through this process and this process does offer us the best possible opportunity to have a viable, sustainable second airline for Australia on the other side. The Government getting in the way of genuine private sector investment into this business would have actually made it harder for us to have a genuinely viable airline on the other side.
FRAN KELLY: Can I ask you more broadly about the economy? The Government is working on the road out, it’s banking on an aggressive pro-business investment strategy to try and reignite the economy, but the Reserve Bank governor, Philip Lowe, is expected to warn today investment might struggle to recover given the higher debt and unemployment. Is that a clear message to the Government that it needs to do more to help business invest?
MATHIAS CORMANN: We have worked very closely with the RBA governor through this unprecedented challenge. What he’s saying is a reflection of what we also have been saying and that is what we need to have a deliberate pro-growth, pro-business growth strategy, to ensure that we maximise the strength of the recovery on the other side… interrupted
FRAN KELLY: What does that look like, a pro-growth and pro-business strategy?
MATHIAS CORMANN: We have delayed the Budget. The Budget will be delivered in early October and in that Budget we will be delivering a whole package of initiatives to encourage increased investment by business and to encourage business to hire more Australians again so that we can maximise the strength of the recovery on the other side. We will be presenting our economic plan based on lower taxes and an aggressive deregulation agenda and the like, to really ensure that businesses have the best possible opportunity to be successful on the other side and to hire more Australians on the other side.
FRAN KELLY: Okay. Lower taxes, aggressive deregulation, does that mean coming to the Budget with cuts to company taxes and more pro-business IR reform?
MATHIAS CORMANN: We will be announcing the Budget when the Budget is delivered. I am not going to pre-empt… interrupted
FRAN KELLY: But you still remain committed to lower company taxes?
MATHIAS CORMANN: We are committed to lower taxes. We are always committed to lower taxes, because we understand that that will help us strengthen the economic recovery on the other side. That is what we went to the last election with and that is also what continues to be part of our DNA. We will make careful judgements on how we can best incentivise business to invest more and to hire more Australians, so that all Australians have the best possible opportunity to get ahead again on the other side of this crisis.
FRAN KELLY: Finance Minister Mathias Cormann is our guest. Mathias Cormann, Malcolm Turnbull speaks with us after eight. In his memoir, he says that you texted in the lead up to the 2016 election and said that we have a Treasurer problem, it was a reference to Scott Morrison. He also said that you regarded Scott Morrison as emotional, narcissistic, and untrustworthy. Is that true?
MATHIAS CORMANN: Firstly, I have a very strong, positive and productive relationship with Scott Morrison, both as Prime Minister and indeed had a very strong… interrupted
FRAN KELLY: Do you trust him?
MATHIAS CORMANN: I absolutely trust him. I have had a very strong, positive and productive relationship with Scott Morrison for a very long time. We have been involved with each other in six Budgets, three Budgets directly as Treasurer and Finance Minister. Everybody knows that we have worked together very well. Malcolm has presented his version of history. It differs substantially from my clear recollection of events, but look I am not going to get distracted by all of this. I wish Malcolm and his family all the very best for their future.
FRAN KELLY: I know you don’t want to get distracted by it, but it is important that the relationship between the Finance Minister and then-Treasurer, now Prime Minister, was Malcolm Turnbull not giving an accurate account? Was he telling a lie when he said you have a Treasurer problem, talking about Scott Morrison as Treasurer then leaking to the media?
MATHIAS CORMANN: I am just not going to get into all of this. It is a distraction. We are in the middle of a pandemic. We are dealing with a pandemic with significant public health and economic consequences. That is what I am focused on. That is what the Prime Minister and every one of my colleagues is focused on right now and that is what the Australian people would expect us to focus on.
FRAN KELLY: Mathias Cormann, thanks very much for joining us.
MATHIAS CORMANN: Always good to talk to you.