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Rolls-Royce and Airbus support £500m Virgin Atlantic coronavirus bail-out (FT)

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Rolls-Royce and Airbus are pressuring the UK Government to back a bailout of Virgin Atlantic, according to a report in the Financial Times this afternoon.

The transport secretary, Grant Shapps, has been told by both companies that Virgin Atlantic plays a key role both in their operations and in supporting their supply chain throughout the UK.

Virgin Atlantic recently ordered 14 A330-900neo aircraft, pictured below, with a list price of $4.1 billion. 

Rolls-Royce and Airbus support £500m Virgin Atlantic bail-out

The wings for these aircraft are designed and manufactured by Airbus in the UK.  Rolls-Royce Trent 7000 engines will power the planes, and the value of the engines is likely to be around 1/3rd of the total order cost.

Heathrow Airport is also reported to have submitted a letter supporting the arline.

The newspaper reports that the airline has now officially requested a package of commercial loans and guarantees worth £500 million.  The loans are to support day-to-day costs whilst the airline remains grounded.  The guarantees are required to persuade Visa, Mastercard and American Express to release the money they are retaining to cover potential Section 75 claims if the airline folds.

Talks between the airline and the Government will start this week.   The FT quotes a Government source as saying that both Virgin Atlantic and easyJet may be refused support, due to Sir Richard Branson’s historic sheltering of Virgin Group profits from UK tax due to his Necker Island domicile and easyJet’s recent payment of a £170m dividend.  Loganair and Eastern are expected to receive Government funding unchallenged.

Whilst not highlighted by the FT, I should add that there are also questions being asked over the appointment of advisory firm EY who will effectively tell the Government what they should do.  EY has audited British Airways and latterly IAG for over 30 years.

The FT article is behind a paywall but you can read it by clicking through to Google here and selecting the top result.

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Comments (117)

  • Mikeact says:

    Does this mean that Virgin have exhausted all avenues of obtaining further finance ie Virgin themselves and Delta ? Would this be in the public domain or confidential at this stage ? Just interested in the Delta response.

    • philco says:

      One of the news articles I saw yesterday said Delta was willing to put up a $100 million US pending the details of the US bailout.

      • Nick says:

        I reckon Delta would sacrifice Virgin to protect themselves. Not sure how well it would go down in the US to take taxpayer money there and spend it in the UK.

  • Olly says:

    I can fully understand the Government’s reluctance to intervene with what would undoubtedly cause a huge negative public reaction, regardless of the fact it would be classed as a loan. The public will see Branson’s yearly tax dodges and personal profits, and Stelios receiving £170 of dividends reverently as a lack of commitment by both. If they showed willing and put their own money in it might help a little but I doubt if much.

    • jack says:

      To the contrary I think a high profile company like Virgin Atlantic going bust because of the current crisis would be a PR disaster for the government and bad for public confidence. IAG will very soon also need state aid. Lufthansa, Finnair, Air France/KLM and Alitalia are taking state aid. Of course Branson and Stelios should lose equity in return for any state aid.

    • Simon says:

      Did they put their own money in when starting the business? Genuine question.

      • Heathrow Flyer says:

        Stelios put his father’s cash in.

      • @mkcol says:

        I’m sure Richard sold his beloved Virgin Records to fund his investment in VS.

        • Mikeact says:

          I stand to be corrected , but if I remember correctly, one of the early books about him, showed him up in a pretty bad light with his staff when he sold out his music business .

    • mr_jetlag says:

      It would be a PR disaster, “Dick and Stelios given £billions in aid from Tory mates”

      Unfortunately there are no easy answers. UK gov can’t show preferential treatment to one airline so would have to treat with BA on “equal” terms. Taking equity would be a poison pill for both the gov and the business concerned (see RBS/Lloyds).

      I think either no state aid or full nationalisation as with the railways, are the only real options here.

      • Rob says:

        Depends what the terms of the loan are. If IAG can borrow in the markets for less then it won’t take the money anyway. If it does, and given that the UK Government can borrow at effectively zero cost and IAG should repay, the taxpayer makes a decent profit from IAG. The ‘guarantee’ element is effectively free because IAG is unlikely to go bust and so the guarantee unlikely to be called.

    • @mkcol says:

      Stelios did not receive £170M of dividends & he has already said that he’s ready & willing to fund easyJet further.

    • Rob says:

      Stelios has already offered to put his own money in if the company refuses to ask for a bailout.

  • the_real_a says:

    Its a vacuum, and in one people keep making up their own narrative and villains especially the media. What we need is the govt to play its cards and offer a loan based on dilution of shareholders… a do-nothing position for the existing shareholders to then come up with a counter funding package. The solution will be negotiated across all lenders/shareholders and govt at the end of the day but everyone is just “waiting” for the govt before showing their hand.

  • Umba says:

    Is there a set period of time that CC companies hold on to retained funds for S75 purposes or is it until journeys are completed?

    • Rob says:

      They don’t normally keep it. They only keep it if they think the supplier involved will go bust, in which they case – for airlines – it is retained until the flight is flown.

  • marcw says:

    The airline is in a zombie mode. It wasn´t profitable the last 10 years, probably the best 10 years in aviation. Big groups with big chunky profits.t´s not profitable. Virgin failed to provide profits. Unlikely to provide profits in the next 5-10 years, so spending taxpayers money is just a waste. Spend the equivalent money on the local economy.

    • Rob says:

      A loan is not a grant. Where do you think Virgin will be spending the money if not in the ‘local economy’?

      • KINGB says:

        Can you please be more clearly as to where VS is spending on the local economy? Apart from LONDON LHR/LGW (LOL) and maybe the 3 flights outside the M25.

        • ChrisC says:

          I know a number fVS and BA cabin crew who live in Brighton and their spending helps support the Brighton economy

      • Ken says:

        A loan to a continually loss making company, that will lose a huge amount this year, seems unlikely to make a profit for the next 3 years seems pretty much like a grant to me.
        A large part of the costs are either fuel or leasing costs, neither of which are part of the local economy.

        The only value in the 51% stake is selling it to someone else stupid enough to buy it.
        What would you value the equity of Virgin Atlantic at at the moment.
        I’d struggle to make it more than nothing.

  • Heathrow Flyer says:

    Sky News reporting that these letters were sent ‘at the instigation of the British airline’.

    Not exactly surprising, but I think the government is in a bit of a bind here. The US airlines have been hosed with cash, and a lot of European ones also will receive state aid. Just letting British airlines go to the wall isn’t going to look good.

    However, I completely take the point about the tax-dodging exiles turning up at treasury, cap-in-hand.

  • AndyF says:

    I wonder how the (UK) Tax minimising (dodging) economy will change in the future. If covid-19 will help put in place more stringent rules or business as usual. How do companies expect state aid if they are paying no to very little taxes? As spotted on this site the saying private profits public losses come to mind.

    • jack says:

      “private profits public losses” is exactly what happens with the railways – Labour proposed fullscale renationalisation but we know what happened there… Aviation is different to the railways in that genuine competition is possible, so I don’t think state ownership is necessary in normal times. But, giving a private company a monopoly is also a bad idea – so if Virgin go bust, BA should be broken up.

      • Jon says:

        I wonder if there’s an analogy here with the situation between Apple and Microsoft in the late 1990s? Microsoft was the dominant player (90% market share) but facing all sorts of lawsuits and anti-trust investigations etc. Apple was on the verve of going under, which would have left Microsoft with the very monopoly position it was trying to argue to regulators that it didn’t have. The solution: Microsoft bailed Apple out by taking a $150m stake. Is it unimaginable that BA could take a stake in Virgin?

        • Olly says:

          Is it something the UK Monopolies Commission would allow though?

          • Jon says:

            Good point. Maybe not. But if the alternative were Virgin going under and BA being left with a… monopoly? 😉

  • KINGB says:

    Let it fail, tax payers shouldn’t be bailing out failed airlines,Virgin atlantic covered a small market and it leaving wont have an affect on a lot of people in the UK apart from the londoners and maybe a few people in the north.

    I feel the most of the employees of VS. Virgin atlantic failed to take care of them, told them to go on unpaid leave, the billionaire lives on and the rest of the 8000 are now queuing up outside a job centre. A right disgrace on Virgin Atlantic and its management.

    • KINGB says:

      Unfortunately thats business, and its never for the consumer but always for greed and profit only. One mans loss is another mans treasure.

    • Mikeact says:

      Of course competition is good…tell me where BA don’t have competition? And you certainly don’t have to use BA for the biggest of all…across the pond.

    • Mikeact says:

      Tell me more about their ‘ruthlessness ‘.

      • jack says:

        Freddie Laker, dirty tricks campaign against Virgin and the court cases BA lost around that… BA is a private company but has consistently acted like a state owned monopoly (of which it used to be/is the successor to).

        • Ken says:

          How quickly we forget that Virgin were a full a partner in price fixing….just smart enough to admit it first, and cute enough not to hand over all the emails that were relevant.

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