The current investigation of a potential investment in Virgin Australia will be a defining moment for the Queensland Investment Corporation (QIC). On ABC radio yesterday morning, I told host Bec Levingston that QIC needs to show it can act as a fund manager which only makes commercially-sound investments, and it is not unduly influenced by the desires of the Queensland Government. You can listen to my conversation with Bec while the audio stays on the ABC website here (from the beginning of the audio):
Without being involved in the discussions with potential private sector bidders for Virgin that QIC’s people are, it is difficult to judge whether it might be possible for QIC to make a sound investment in Virgin. I strongly suspect it isn’t, given Virgin’s financial troubles and high debt load (around $7 billion in total liabilities) even before the corona-crisis, but I have an open mind.
I recognise the Government is concerned about what a collapse of Virgin could mean for our regional communities and tourism industry. That said, it would be a poor start to the Queensland Future Fund which QIC is managing, and a bad result for Queensland taxpayers, if one of its major investments, of at least $200 million and very likely more, is in a struggling airline doomed to perpetual second place and continuing to lose money. QIC would need to have a very high level of confidence the airline can be turned around. Virgin Australia would be a very risky investment for QIC.
Finally, as I emphasised in my conversation with Bec yesterday, the debate over an investment in Virgin reinforces the need for the state government to provide a budget update in the near future, within the next month or two ideally, and certainly well before the state election on 31 October.
Image courtesy of Virgin Australia media gallery.