Our lead story last Monday was about the successful conclusion of the transatlantic joint-venture between Virgin Atlantic, Delta Air Lines and Air France – KLM. The US had finally given its approval to the venture (EU approval had already been obtained) and everything is now primed to go ahead.
As part of this arrangement, although not a legal condition for the JV to happen, Virgin Group was to give up control of Virgin Atlantic. The current shareholding structure is 51% Virgin Group and 49% Delta Air Lines.
The reshuffle would see Air France – KLM taking a 31% stake. Delta would retain its 49% stake, the maximum it is allowed under the EU foreign ownership rules. Virgin Group would have dropped to 20%.
And yet ….
On Friday, a surprising story appeared in La Tribune. You can read it here.
It is a bit complex and of course I am reliant on a translation. However, this is what I believe it is saying:
Virgin Group no longer wants to sell shares to Air France – KLM and wants to retain control of the airline
Air France – KLM has the legal right to force Virgin Group to sell the agreed 31%
However, Air France – KLM is not flush with cash. It would not get anything tangible for its €258m investment in Virgin Atlantic, given that the airline is not paying dividends to shareholders.
Air France – KLM is not in the habit of investing in other companies and has not done anything similar for over a decade
Air France – KLM shareholders believe that there are better things to do with the money, such as investing in new aircraft
The Air France – KLM CEO, Ben Smith, joined in August 2018 and was not involved in the original investment decision (he joined from Air Canada)
Air France – KLM believes that all of the economic benefits of the tie-up with Virgin Atlantic come from the transatlantic joint venture, which is going ahead regardless of the equity investment
Delta Air Lines is happy for Virgin Group to retain its 51% stake, despite spending many years persuading Air France – KLM to invest in the airline
I can see the sense in this for all parties.
I always thought that Virgin Group was selling its shares too cheaply.
€258m for 31% of Virgin Atlantic wasn’t a lot, despite the debt in the business. Virgin Atlantic is due to return to profitability next year, is in the middle of receiving a new fleet of A350 aircraft and has just ordered new A330 planes. The collapse of Thomas Cook should mean that the Manchester operation sees a sharp increase in profitability, and the new facilities and Clubhouse opening in 2020 should improve premium traffic further.
Longer term, Virgin’s campaign to ensure that British Airways does not automatically receive the majority of the new Heathrow slots created by the 3rd runway (which BA would simply use to move routes from Gatwick) is picking up traction. If Virgin Atlantic was to get 20%+ of the new slots it would be transformational.
This is, of course, just one newspaper report – although La Tribune is a respected source. Let’s see what happens. Thanks to Shoestring for flagging this.
PS. La Tribune also states that the transatlantic joint venture will launch in January. This would logically mean that we see Air France-KLM ‘earn and burn’ via Flying Club from the same date.
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