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Virgin Atlantic to ask for state aid to avoid bankruptcy

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The Financial Times has reported this afternoon that Virgin Atlantic is about to submit an official request for state aid to avoid bankruptcy.

The article is behind a paywall but you can see it by clicking here to trigger the correct Google search and then clicking the top result.

As we covered on Monday, the Government has ruled out offering a sector-wide package of support for the aviation industry.  The letter from the Chancellor – there is a PDF of the letter in our article – said that the Government would only be willing to open discussions as a ‘last resort’.

Virgin Atlantic to ask for state aid

The FT claims that easyJet, Loganair, Eastern and Norwegian are considering a similar request.  Loganair and Eastern are considered more likely to be successful given their role in supporting the UK regions – although this logic didn’t help Flybe when it requested support.  I imagine that Loganair would get support from the Scottish Parliament if it came to the crunch.

(The strategy of trying to end up as ‘last man standing’ before asking for support, because you can’t let the last man collapse, does work as you can see.)

Part of the problem is believed to be the diverse ownership base of UK airlines.  British Airways is part of a Spanish company whose dominant shareholder is the state of Qatar.  Virgin Atlantic is 49% owned by a US airline.  Wizz, Norwegian and Ryanair’s UK operations are subsidiaries of Hungarian, Norwegian and Irish airlines.  Even easyJet, which is UK headquartered and listed, is 36% controlled by Sir Stelios Haji-Ioannou who is based in Monaco.

The article also contains some interesting cash burn figures:

Ryanair has enough cash to not fly for 18 months, and could do a sale and leaseback of its aircraft which would support it for an additional 30+ months

easyJet has enough cash to last for 10 months and could do a sale and leaseback on 70% of its fleet to gain a further substantial extension (easyJet’s actions in recent weeks do not necessarily fit with this claim – it is not acting like an airline with enough cash in the bank to weather a 10 month shutdown)

Virgin Atlantic had cash of £489m at the end of 2018 but net debt stood at £1.5bn.  It only owned 25% of its fleet outright, giving it minimal flexibility to raise funds via a sale and leaseback

You can find out more in the full Financial Times article using the link in the second paragraph.

Comments (296)

  • Freddy says:

    Hmmm to cash out or not to…

    • Shoestring says:

      50p on the pound or nothing

      hard choice

      • avstar says:

        even if VA survive – there will have to be a devaluation of redemptions (at the very least implicitly)

      • philco says:

        Yeah it is not 50P or 0p. It is some probability the the points make it to Hilton x 50p vs some probability VS goes under and takes FlyingClub with it x 100p (or whatever you value you place on these currencies). We can all take our best guess as to what the outcome will be but nobody really knows at this point. While I wouldn’t but a huge amount of stock in this happening Delta did takeover Pan Am’s FF program when the airline went under some decades ago. And as I recall Delta owns some the Virgin Loyalty program. Obviously this is VERY different environment than then. All we can do is take our best guess and roll with it.

        • jack says:

          Be lucky to get 50% value cashing out for Hilton – admitedly depends what you want to redeem for. At a Hampton or some out of the way Doubletree 50% or even higher might be possible, but not anywhere I’d want to go. Happy in my decision anyway to hold tight and keep my virgin miles… based on some of my own information, I am quietly confident some people are going to be kicking themselves for cashing out. We will see very shortly.

  • The Original Nick says:

    I’m rolling with nearly 200k but I’m very tempted to transfer!

    • Mac D says:

      Even with a bailout, there is little chance that anyone would be happy to send money to Hilton from that so the reward option will likely demise

  • Tom says:

    I am sure this has been answered lots before but i cant see it.

    I have 180,000 Virgin points. If i book a redemption and put the taxes on a credit card am i covered for the total value of the redemption if Virgin go under? And am i able to cancel redemption like you can with BA if they come out of it the otherside?

    Thanks in Advance!

    • Rob says:

      A few people seem to believe that this is possible. I have never seen it done in any other FF scheme collapse although those

  • Ken says:

    Does anyone know best way to exchange for Hilton or IHG – I can’t get through to VA on the phone. Any assistance/signpopsting greatly appreciated