Virgin Australia calls for fair treatment from Canberra

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Virgin Australia’s chief executive John Borghetti has written an open letter to the Australian government asking for fair support, amid claims that Qantas has approached Canberra seeking guarantees for its debt.

Reports carried by Australian media citing anonymous sources claim that the Oneworld carrier has sought debt guarantees or 'letters of comfort' from Canberra as a way of maintaining its investment-grade credit rating.

Moody's has Qantas' rating at Baa3, while Standard & Poor's has it at BBB-.

Borghetti says in his letter that if assistance was given to Qantas as the dominant competitor, “we would expect the same level of support.”

“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,” he says.

Borghetti also took a swipe at Qantas’ pan-Asian strategy, which has seen the flag carrier invest in Jetstar-branded carriers in Vietnam, Singapore, Japan and Hong Kong, while Virgin has been investing in Australia.

“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.”

The comments are the latest in an escalating war of words between the two carriers, sparked when Virgin Australia announced a A$350 million ($318 million) entitlement offer that will result in Singapore Airlines, Etihad Airways and Air New Zealand increasing their combined stakes to close to 70%.

More recently, some politicians have suggested that Canberra should buy a 10% stake in the carrier, and amend the Qantas Sale Act, which prevents Qantas from having more than 49% foreign ownership. Virgin is not bound by such laws.

Borghetti, who was formerly the executive general manager of Qantas, offered support for the latter proposal.

“We have no issue with the Act being repealed,” he says. “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.”

Virgin raised gross proceeds of A$281 million from the institutional part of the entitlement offer, and is scheduled to close the retail component on 9 December.