■x■x ♪♪♪ ♪♪♪ [man speaking indistinctly over intercom] paul scurrah: it is by orders of magnitude the biggest crisis the airline industry's ever seen. alan joyce: nobody thought that we'd get to a stage where 95% of all world aviation was essentially grounded.

michael brissenden: covid-19 has thrown economies into recession and overturned modern assumptions about the ease of and access to travel. stephen byron: we had 9,000 passengers a day coming through, and now we're lucky if we get a dozen. it couldn't have fallen off more or more quickly. you know, we've had flights with more dogs on them than passengers in the last couple of weeks. michele o'neil: nothing like this has happened before in the airline industry. the impact has been dramatic, it's been vicious. michael brissenden: around the world, airlines were pushed to the brink, and here in australia, virgin became the first big corporate casualty. elizabeth bryan: the magnitude of the problem just fell on us. the skies were effectively closed. so you have a big capital-intensive industry with a lot of people, and you have no revenue.

our revenue went down to a very, very low number very, very quickly. michael brissenden: the future of flying is now in question. peter harbon: initially, people are goi to be much more nervous about flying. i think domestically we'll probably find in australia-- if we can keep clean, as it were-- that people will get a lot more relaxed fairly quickly. internationally, it'll be a different thing. michael brissenden: ask anyone in this business-- there's something intoxicating about the smell of avgas. but behind the romance and the glamor is a fiercely competitive industry where success is measured not just by profit, but also by power, influence, and connections. virgin has been flying here for nearly 20 years, but within a week of the covid shutdown, it was all but dead. tonbehind the collapsers": whaof virgin australia, why did the government refuse to step in to save it, and what is the future for australian aviation? ♪♪♪

♪♪♪ michael brissenden: in the business world, they call these "black swan events": difficult to predict and widespread and devastating in their impact. from 30,000 feet, the airline industry had a birds-eye view of what was coming. paul: we had, i think, australia's first case of a covid--or someone diagnosed with covid flying on a plane, on one of our tir aircraft. that caused a lot of press, and it just ramped up from there. alan: we were really surprised at how fast this built, because nobody was expecting that by the time we got to march we were going to see borders closing down very rapidly, internationally and domestically.

michael brissenden: the world began shutting down, once-bustling airports emptied, the skies fell silent. paul: i think the "aha" moment for me was watching jacinda ardern announce that they were completing shutting their borders. we were expecting that to happen. off the backf that, our government followed pretty quickly. but then the state government stepped in off the back of advice from the federal government that non-essential domestic travel should be something that people don't undertake. so that was probably the point where i thought we were in all sorts of trouble from a financial perspective. elizabeth: what we immediately did was to pull our costs down, so we stood down about 80% of our staff, we stopped our international flights. we initially pulled down our dostic flights to about 50% of what they were, and then way down to just skeleton flights to try and eliminate all the costs we possibly could.

michele o'neil: you immediately saw the standing down of tens of thousands of workers who were working one day and not the next. it's not just the direct employees of the airlines, there's so many othejobs in the supply chain, so the flow-on effect has been enormous. thousands and thousands of workers have lost their jobs. stephen: aviation is the lifeblood of the economy. it's the arteries of the economy that facilitates the carrying-on of business and the transport of people for work and for leisure, and of all of our goods. so it is--it's an extraordinary thing to now have that shut down. michael brissenden: virgin was extremely vulnerable. it entered the new covid era saddled with billions of dollars of debt. michael mccormack: they were always going to have to-- perhaps restructure, perhaps refinance, their business. they hadonsiderable debt coming into covid-19. and of course, when you've got that lead in your saddlebags,

it is difficult to continue to operate as a company, any company, let alone in a company with a--you know, in an aviation sector where the margins are always tight at the best of times, always going to be difficult. elizabeth: when the board sat and looked at it, and looked at the fact that this was going to be three or four months of revenue, it became very apparent to us that we weren't going to get to the other side of this chasm without some government support. michael brissenden: on march 12, after failing to get extra cash from its shareholders, virgin made its first case to the government for financial help. "i write to you to request the support and assistance of the australian government to enable the virgin australia group to respond to the rapidly escalating impacts of the covid 19 crisis." paul: we wanted to get to government early to make sure that they understood that we had exhausted the discussions with shareholders.

by the time we were talking to government, we wanted them to understand that there were other potential sources of capital, but we'd exhausted the discussions, and we had to go to government for help. alan: four-point-nine billion dollars' worth that we can secure finances-- michael brissenden: qantas had little sympathy for virgin's predicament, publicly urging the government not to bail it out. alan: that's why, when good companies have managed their position very well, the government should let them manage their way through this, and not look after the badly managed companies that have been badly managed for ten years that have resulted in them being very weak. picking winners and losers like that is not what the government is about. it shouldn't be what the australian government is about. it shouldn't be what this economy is about. michael brissenden: why did you come out so hard at that time? alan: so we were talking to the government, i think as all the airlines were, about an industry package, and for-- very much for the government to support the entire industry and not to pick winners or losers. and the government always had a mantra that there were

sector-wide, industry-wide, and economy-wide initiatives. and if you start picking out individual companies, giving them a bigger benefit-- and virgin went asking for $1.4 billion. and that was three times the market cap, it was essentially a nationalization of virgin, that would have led to, and that could distort the market and create unfair competition into the future. it is a moral hazard, people are very reluctant. a lot of companies, a lot of business leaders are very uncomfortable with the government getting involved in industries to an individual company level. sect-wide, industry-wide, is something that we all support. michael brissenden: what did you think of alan joyce's comments at the beginning of this whole process? paul: yeah, look, i've always admired alan's fighting spirit, and why he said those comments, you'd have to ask him. my view here was that, you know, if two afl teams up turned to the mcg and the ground was ruined,

they'd join arms and help fix the ground before they go back on the ground and beat each other up, and that's the circumstances i felt we were in. michael brissenden: virgin promised to repay the $1.4 billion. if it failed to do, so the government could take a stake in the airline. paul: we weren't asking r a bailout, we were asking for an ostensibly australian company-- that did have foreign ownership-- to be rescued and possibly taken back into australian ownership through the mechanism we were talking about. we were asking for something that wasepayable, and that we could find a way to repay. michael brissenden: eightletterl saw the virgin request whittled down to just $200 million. the government was divided over whether or not to bail out virgin. paul: i think there was different levels of support for us around the cabinet table, so i think some of the encouragement came from those who philosophically believed we should be supported. and we clearly didn't have the balance of the vote around the

cabinet table, and so there was some mixed signals coming out. elizabeth: i think probably they ft that there was more than one path, that there was one path which involved government help to bridge the chasm post-covid, and there was another path that says, well, let's throw all the balls up in the air and see what the market does and see what it comes out with. michael brissenden: the airline made a last desperate plea on april 20. "without this support, virgin australia will likely move into voluntary administration during the course of monday 20 april." the government refused to help. josh frydenberg: virgin australia is a very good airline, performing a very important role. and this is a difficult day for its staff, for its suppliers, and for the aviation sector more broadly. but the governme was not going to bail out five large foreign

shareholders with deep pockets who together own 90% of this airline. paul: i knew at that point that we were on our own, and i knew at that poi that had a lonroad ahead of us. you know, we were all tired, we'd all been working around the clock, you know, seven days a week, you know, 15-to-18-hour days, trying to avoid going into voluntary administration. and i think that was sort of the confirmation that any assistance from government wasn't going to be forthcoming. michael brissenden: so, mr. mccormick, why did the government rejectirgin's plea for a cash injection? so, mr. mccormick, michael mccormack: what we did was sector-wide assistance, so, the whole way along-- and of course, the aviation sector was hit through covid-19. but the whole way through, we've always made our assistance sector-wide.

and so, virgin has benefited from the sector-wide assistance that we have provided. matt canavan: so i'll be very quick, i gotta move on. michael brissenden: matt canavan is one regional politician who thinks the government should have stepped in to support virgin and competition across the network. matt: i think it's a potential tragedy for regional australia to not have a viable second alternative for flights. i would have hoped that we could have avoided virgin going into administration. look, we are where we are, though, anmy focus now is on trying to support a viable alternative operator in regional areas because without a viable alternative operator, we face significant increase in prices, effectively a tax on doing business and being a business in regional and country towns. paul: our board made a very courageous decision last night to put the company into voluntary administration, and to do so quickly, with the intent of working

with our administrator, deloitte, to come through and be as strong as we possibly can on the other side of this crisis. michele: so what this tells us is thathe australian government was not prepared to do what is good for this country, because in a country as large as ours, where there's so many people in isolated, regional, rural communities, the notion that it's not good public policy for government to have a stake in an airline-- i completely reject. michael brissenden: the government's decision was seen as a win for qantas. michele: i think qantas have had a strategy for a long time where they want to exert maximum influence in the interest of their airline only. what we have here is a government that seemed to listen far too much to one company that has a direct interest in becoming a monopoly. and that's what's wrong about the government's response. matt: qantas has got a proud place as our national airline,

i support that continuing. i think the idea they uld try and use th as an opportunity to stamp out competition and establish itself once again as a monopoly in some places was a little uncalled for and disappointing, given its proud history as a national airline. i mean, we're talking about a company that was government-owned and supported for many, many years. the position qantas is in is, at least in part, a reflection of long-term government involvement and investment. so i found it a little opportunistic for qantas to be trying to take advantage of this terrible situation. michael brissenden: there are-- clearly there are some critics of you speaking out so hard at that time, as i'm sure you're aware. and a lot of people point to qantas's influence in the market here, and influence with the government, of course. do you have undue influence in the market? alan: no, i mean, we are very much in a very open market here, one of the most open aviation markets in the world.

we never saw that there was going to be a position at's not good for qantas, that's not goodopoly. for our shareholders, that's not good for our customers, that's not good for our employees. ♪♪♪ michael brissenden: virgin entered the tumultuous and fiercely competitive world of australian aviation back in 2000 as a brash, colorful budget carrier. richard branson: right, i'm so sorry-- [crowd applauding] brett godfrey: we were gonna either be a screaming success or a big failure, and so we had to take a punt. and that's why we just looked at how the model was and said, every single element-- as i said--had to be reinvented. john lyons: well, when i first joined virgin, it was virgin blue, and it was a relatively small airline. great place to work, everyone knew everyone,

it was a very friendly environment to work. it was a party culture, but underlying that was a very, very sound foundation for the operation. female: ladies and gentlemen, we're about to finish off the flight with some aerobics, just to get the blood circulating-- brett: people love the culture and the sass about the brand. female: and squeeze the buttocks gently for a few seconds. brett: and so i think, for us it was--the model was very important, the low cost model was exceptionally important, but the brand was a shield. it allowed us to hit the market. as you recall, there was another airline that launched a couple of weeks before us, impulse-- and it was a fine airline, but it didn't have the awareness of the brand, and we didn't have to spend that money coming into the market. michael brissenden: the arrival of virgin blue disrupted what had been a comfortable and complacent industry, a disruption that would contribute to the biggest corporate failure in australian aviation: the collapse of ansett. female: ansett australia would like to welcome

all customers traveling on our last-ever flight to depart sydney and set flight one last time to perth. [passengers cheering and applauding] [passengers talking over each other] ♪ we are the champions ♪ deborah lawrie: i was back in australia visiting family and friends when ansett collapsed, or the day it collapsed. all these people were just absolutely devastated. they were quite inebriated, a lot of them, and very upset and crying and very, very emotional. michael brissenden: deborah lawrie has seen her fair share of turbulence. she was the first female pilot for a major australian airline. she flew for ansett for almost 10 years. its failure would rewrite australian aviation. deborah: there's always somebody out there that's going to try and enter the market, so when ansett collapsed,

i think most people thought that someone or some company would come into that hole in the market. brett: we saw the opportunity, with ansett gone, that we could probably grow to about 25%, maybe 30% of the market over the course of three to five years, and so we genuinely believed that was a good opportunity, and so we pursued it. so that meant we had to change our model a little bit. in the end, we introduced seating up at the front, we launched long-haul carriers, we flew to more destinations, regional centers. so we went away from the pure low-cost model to start to position ourselves to be a second player in the market. we made a billion dollars in ten ars and we gave back probably about 350 million dollars to shareholders and still did pretty well, i think. alan: i think virgin, when they first found that niche, had a really good niche that was very profitable. there's definitely a place here for two operators

to make a lot of money. and we showed that during virgin's initial 10 years, qantas and virgin both made significant returns for their shareholders during that period of time. and there's no doubt in my mind that the market could support two very healthy players here. michael brissenden: qantas responded to the arrival of virgin by launching its own budget carrier, jetstar. peter: it was the genesis of jetstar, because virgin-- virgin blue as it was then-- as a very low-cost operation totally trsformed the australian market, and it really started to hurt qantas. qantas could see that it was going to die, basically, but they very quickly moved to insert jetstar in there and that put a-- stunted the virgin blue growth. michael brissenden: in 2010 a new ceo, john borghetti, came to virgin from qantas with a plan to take on qantas at its own game. borghetti had been in the running to become qantas's ceo.

the board chose alan joyce instead. john borghetti: i feel like i won the olympics. peter: obviously, there was , and john felt that he probably should've got the qantas ceo role. but, you know, a lot of water passed under the bridge after that, and it was much more a focus, i think, on the market itself. i think probably if the antagonism was sort of balanced out, probably alan was more antagonistic towards john as he saw him trying to compete. michael brissenden: the battle between john borghetti and alan joyce came to be viewed as an epic and very personal feud. at virgin, borghetti set about pursuing what he called his "game change strategy" to take on qantas. it would spark an aggressive and expensive capacity war unlike anything the australian aviation industry had ever seen. brett: i think what happened was, virgin wanted to pursue qantas in all segments-- which i disagreed with, still disagree with-- and play, i guess,

duopoly 101 against them on that basis. i wasn't in the board room, i wasn't part of the management for the last ten years, and so i honestly am not going to call out ether it was right or wrong. just saying, there's--it got out of sync somewhere. john lyons: when brett godfrey left the company and john borghetti took over, he had a vision for the airline, and he created a great airline. we've got to give him credit, he really created a great product and a great airline. and with that came a cost, and the cost was the accumulated debt. male: action! ♪♪♪ john: i remember saying, "i want this commercial to be big. i want it big. think big, and then think bigger, because big is not big enough." michael brissenden: a lot's made of the apparent rivalry between john borghetti and yourself. clearly, you got the big job that some say he was after. what do you make of that? how much of that was in play at this time?

alan: well, for us it was never personal. it was always about business. and, you know, we were quite happy for qantas to make money and virgin to make money if that's what a competitive market actually had. but for us, it was also protecting our territory. ♪ i never made it, but i know what it takes ♪ michael brissenden: borghetti pushed aggressively into the top end of the qantas market with more business class and an exclusive club lounge. he leased newide-bodied jets, and in an attet to cleave off some of qantas's market share, dramatically increased capacity-- more planes, more seats. it quickly developed into a price war. peter: he lost sight a bit of the bottom line, the cost line, because he was driven by the desire to-- particularly to attack the corporate market. but again, you know, i guess in retrospect it's easy. he should have perhaps recognized that qantas was going to fight back with every tool at its disposal,

which it did very aggressively. elizabeth: virgin certainly, i think, was hell-bent on getting market share. but, you know, you can't-- you've goto be able to afford it. you have to be able to afford going into those things. and in the end, deep pockets win, and qantas is the deep pocket, not virgin. michael brissenden: the feud delivered cheaper flights but cost the airlines billions. virgin's finances were hemorrhaging. elizabeth: as soon as i started to understand my way around the numbers and where it all worked out, it was very clear to me that the company was over-leveraged and that it needed a capital raise. elizabeth: through these actions, we are targeting sustainable earnings growth. michael brissenden: elizabeth bryan became chair of the virgin

board in 2015, five years after john borghetti was appointed ceo. elizabeth: so thank you for your attention to my address, and i'll now ask our chief executive, john borghetti, to address the meeting. elizabeth: he has been somewhat of a divisive figure, but he also has a lot of supporters. so we shouldn't underestimate that for many, many years, john borghetti was the face of virgin, and john borghetti did build virgin, and he did build a good airline. he did not build a good enough business. and i think it's because of not building a good enough business that he's faced this criticism. people expect those things to go hand-in-hand and life is much easier if they do. john thomas: when i arrived at the airline, a lot of frontline staff said, "look, can we, can we please stop trying to be like qantas?" because you never gonna-- qantas is a great airline.

you're never going to beat qantas at qant's game. michael brissenden: john thomas was virgin's group executive. john thomas: whilst it was great to move up-market into a full-service carrier, we should have done it in a uniquely virgin australia way, rather than necessarily trying to copy qantas toe for toe. michael brissenden: john borghetti left in march 2019. elizabeth: in the end, a ceo runs the operations of a company and not a board. and what the board can do, if they don't like the way the ceo is running the company, is to change the ceo. and that's eventually what the board that i led did. not before--it was not prematurely, it was not done in an undignified fashion. i think all parties, including john, knew that he'd put in long time and long year and long,

long hours running virgin. and i think, you know, i think he'd done his stuff, and the board thought it was time for a change. and so that's when a board changes out its ceo. john: and whilst, at the same time, we were-- michael brissenden: john borghetti would not agree to an on-camera interview, but he did tell "four corners" that he first flagged leaving the company in 2016, but stayed on for another three years at the request of the chair. paul scurrah stepped into the ceo's role last year. paul: the bones of a great airline are here, and i saw that there was a very profitable core. and the plan was to simplify, make us more efficient, clear up duplication in the structure, and come out the other side with a business that would have paid down the debt, would have had a stronger balance sheet, and would have been a stronger competitor. michael brissenden: but the turnaround didn't happen fast enough.

paul: i think what became obvious to me is that the balance sheet wasn't as strong as it should be. it was something that was vulnerable, i think, to a black swan event. we often talked about our plans addressing that balance sheet to get us into a strong position, should something like covid come along. and it came along much sooner than-- well, we'd never want it to come along, but it came along much sooner than we were ready for. michael brissenden: given the unprecedented shutdown of aviation around the world, virgin's foreign shareholders said they were in no position to help bail them out. michael mccormack: there was the opportunity, ofof course, for the foreign owners of various airlines to provide assistance to stump up. it shouldn't just be the taxpayers of australia. elizabeth: our foreign shareholders were all airline companies. they were all facing the same problems. they were all dependent on their own country governments to save their domestic businesses. there was no way they could take any money they had access to

and put it into an invement in australia. thr view was that their country governments were helping support their airline industry, and our country government should help support our ai. but either way, support or not, they were under no illusion that they had any significant value left in their equity. michael brissenden: the government maintains it does want to see a competitive airline sector, and has introduced what it says is a broad support package worth more than $1.2 billion. both virgin and qantas say the assistance package isn't quite as generous as it might seem. alan: there's $715 million that is related to the initial aviation package. the way that was designed, people thought they were going to be flying a lot more, and it was reduction in air services, charges, and fuel excise. and the reality, as we talked about--because the network

became so small, people haven't seen that come true, and we've gotten a very small proportion of that, less than $100 million. paul: you only get that benefit if you were flying. and when we became almost grounded, like qantas did as well, it was of no benefit. michael brissenden: the covid pandemic hasn't been all bad for everyone. in fact, one of the smaller players in the australian skies has done pretty well out of it. while the government refused to entertain virgin's final plea for a $200 million loan, it did find more than $80 million in grants for rex airlines. rex is also substantially foreign-owned, but unlike virgin, it's a small regional carrier with a big political footprint. michael brissenden: can we go back to rex d, you know, what some say has been the favorable treatment that rex has been givenby t? what do you say about that? john sharp: well, i don't see rex as having been given favorable treatment by the government. what i see is the government's given favorable treatment to the regional communities that rex services.

female: the honoree, john sharp, who is the deputy chairman of regional express. john sharp: yeah, allison-- michael brissenden: john sharp is the deputy chairman of rex airlines. he's also a former national party treasurer and a former transport minister. john sharp: in 1997, i privatized these airports, and-- john sharp: it's not john sharp asking the government to give us money. it'sbout the government looking at how to provide a servic-an essential service, in many cases-- to regional communities around australia via regional airlines. and that's what they're supporting, they're not supporting john sharp, they're supporting regional communities. michael brissenden: you will be aware of, obviously, the charges of cronyism, given that john sharp is the rex deputy chairman. he's also a former federal treasurer of the national party. what do you say to those people? michael mccormack: i don't think any inference can be drawn from that. michael brissenden: none at all? michael mccormack: no. michael brissenden: why not? i mean, people look at it and say there are connections, they're getting favorable treatment. do you reject that? michael mccormack: well, i get on well with paul scurrah, i get on well with alan joyce.