“Virgin Group wants to retain control of Virgin Atlantic and cancel the deal to sell 31% to Air France-KLM” – report

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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 ….

Virgin Atlantic to not sell 31% to Air France KLM

On Friday, a surprising story appeared in La TribuneYou 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.

Virgin Group to no longer sell 31% to Air France KLM

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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Comments

  1. Funniest story of the month (well, the past one) 🙂

  2. Patrick says:

    If anything the price of 258mm is too high. Given that everything in VA is pledged to lenders including the staplers….

  3. First time this month I’ve asked this question…

    But still no news on redeeming with VS & FlyBE on a single ticket?

  4. David T says:

    Anyone got any theories on the reason for the Virgin Group’s change of heart?

  5. “Virgin Atlantic is due to return to profitability next year”

    i wonder how many times that has been written in the last decade ?!

  6. I just don’t see Virgin achieving much, of any of the growth they claim. They have had multiple chances to acquire slots, airlines and remedy slots – each time they claim to want them, but never made any real attempt. They already lease out slots and DL use some too. As a poster pointed out they have no realistic way to finance the aircraft they need for those slots.

    • and i fear that FlyBE will become a drag on their financial performance … without providing much in the way of feeder traffic at LHR or LGW

    • Oh! Matron! says:

      Manchester may provide an opportunity for limited growth: You’d be surprised at how much Virgin scalp northeners, especially during school holiday time.

      I waited until the very second the flights were released to get tickets and they were already at over £1000 for economy MAN-Orlando. No reward tickets every came available.

      So, I think there’s some opportunity there

  7. memesweeper says:

    AF/KLM have appeared on the Virgin website as ‘earning only’ partners in Flying Club:

    https://www.virginatlantic.com/gb/en/flying-club/partners/airlines.html

    • The small print
      Earning miles:

      This is only applicable to Codeshare services that are marketed by Virgin Atlantic and operated by Air France.

      Miles may only be earned on flights operated by Air France which is marketed under a Virgin Atlantic flight number

    • That has been in place for a while – we covered it.

  8. David T says:

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