La Trobe University seeks lifeline from banks as seven institutions found to be at 'high financial risk'

Seven Australian universities, including La Trobe University, are at “high financial risk” and could face a cash crisis as a result of the downturn in revenue from international students, according to analysis by two Melbourne University academics.

The warnings come as La Trobe acknowledged it was in talks with banks over a lifeline, while also talking to staff about redundancies and pay cuts.

“The Covid-19 pandemic has resulted in the entire higher education sector facing financial shortfall and uncertainty, and La Trobe is no exception,” the institution said in a statement on Wednesday.

Related: Australian universities facing $16bn black hole as Covid-19 student numbers plummet

The university said it was in “productive and on-going discussions” with its three banks on increasing its access to money, which it believes will meet its funding needs in the short term.

It is also taking steps to find cost savings and balance its books in the longer term, including a voluntary redundancy program expected to save $20m in 2020 and $40m each year in 2021 and 2022.

Under a job protection framework drafted with the tertiary education union, La Trobe is also asking ask staff to agree to a 10% pay cut, with the first $30,000 of their salary excluded.

Staff are due to vote on the proposal on 15-16 June.

The Victorian premier, Daniel Andrews, said he was “concerned” and would look at other measures Victoria could provide to the universities sector, which has been largely excluded from jobkeeper.

“It’s too important an institution to have coronavirus undermine what is a very important future,” Andrews told reporters.

The work by Ian Marshman and Frank Larkins, honorary fellows of the Melbourne Centre for the Study of Higher Education, was released last week and paints a dire picture for some universities which do not have sufficient cash reserves to weather a prolonged downturn.

The report highlights the issue for universities: that they have relatively slim cash reserves to weather a major downturn in revenue due to a falloff in international students. Some universities derive up to 36% of their revenues from international students.

The other universities on the high risk list are Monash, RMIT, University of Technology Sydney, Central Queensland, Southern Cross and Canberra universities.

Another 13 universities are assessed as at “medium financial risk,” and include the University of NSW, University of Queensland and University of Adelaide.

The analysis is based on predicted falls in revenue through to 2024, against the cash and investment reserves of the universities.

The academics modelled two scenarios: an optimistic one, which sees the sector’s revenue fall by $11.5bn, and a pessimistic one which sees revenue fall by $18bn by 2024.

The optimistic scenario sees a 40% fall in international student fees in 2020 as international travel is curtailed, but improvements through the following years. The pessimistic scenario sees the pandemic continue, travel curtailed for much longer, and international student revenue cut in 2021 by 55%.

The model assumed that two-thirds of cash reserves of each university would be available to deal with the downturn, because there would be other calls on the reserves as well.

“Even under the conservative assumptions on which the optimistic scenario is based, the sector would exhaust 85% of available reserves, thereby compromising the capacity for major investment in programs or capital works,” the academics said.

“Under the pessimistic scenario, major institutional and sectoral restructuring would be required,” they said. In other words, mergers and possibly closures.

Related: Four private Australian universities allowed to access jobkeeper payments

In the pessimistic scenario, the sector would have a shortfall of $4.6bn by 2024.

The universities are in very different positions and the shortfalls are not evenly spread.

The seven universities at high risk have insufficient available cash and investment reserves to offset predicted losses in international fee revenue for 2020 alone, the academics found.

Of these, Monash University, RMIT and UTS have very large numbers of international enrolments. Revenue from international student fees constitutes 34% for Monash, 36% for RMIT and 35% for UTS.

Central Queensland and Southern Cross University have above average levels of international fee income as a proportion of total revenue but their problems stem from very low levels of available cash and investment reserves “that adds to their financial vulnerability”, the academics said

In the case of RMIT, the academics said: “This university will be one of the most financially challenged universities because of the potential fee losses. It is very dependent financially on overseas fee revenue (at 36%) … and reports relatively modest levels of cash and investment reserves.

“It is facing potentially large short term and longer term shortfalls of $137m for 2020, $505m (optimistic case) and $853m (pessimistic case).:

The academics said RMIT’s vulnerability profile may be mitigated to the extent its offshore programs – it has a campus in Vietnam – which has not been as heavily impacted by Covid-19.

In the case of UTS, the academics said the predicted shortfalls are $77m for 2020, $336m under the optimistic scenario to 2023 (32% of total revenue) and $608m under the pessimistic scenario to 2024 (58% of total revenue).

The analysis explains why the university sector, which was cut out of eligibility for jobkeeper, is becoming increasingly desperate to cut costs.

Deakin University, which has been rated as medium risk by the academics, announced last week that it would cut 400 positions in a multi- staged restructure. The Deakin vice-chancellor, Prof Iain Martin, announced that hundreds of positions would be cut in a multi-staged restructure.

The National Tertiary Education Union took the unprecedented step of negotiating an agreement with Universities Australia to take pay cuts of 5% to 15% in a bid to stave off up to 12,000 job cuts.

But the sector’s exclusion from any government bailouts or assistance has meant that some universities have said they will still need to make cuts and lay off casual staff.

The National Tertiary Education Union president, Alison Barnes, said she was “just astounded” that the sector’s pleas for help had fallen on deaf ears, particularly as re-skilling would be central to the recovery.

‘The universities play a role in finding cures for Covid-19, developing new technologies and re-skilling the workforce,” she said.