Virgin Atlantic’s initial proposal for a £500 million bail-out has been thrown out by the Government, according to a Financial Times report, although it has been encouraged to make a new submission.
The report suggests that the Government did not believe that the airline had done enough to exhaust other potential funding routes.
This will clearly always be a difficult hurdle for Virgin Atlantic to clear, given that it is 51% owned by Virgin Group and 49% by Delta Air Lines. Delta received its own multi-billion dollar bailout package from the US Government last week, most of which is not repayable, despite spending over $3 billion on share buy-backs and dividends in 2019 alone.
Sir Richard Branson has injected $250 million into Virgin Group businesses as emergency funding in recent weeks, of which around $100 million is believed to have gone to the airline. Virgin Voyages, his start-up cruise company, is also likely to have needed substantial support after the initial sailings were cancelled.
The FT also suggests that the Government feels that the Virgin Atlantic business plan underlying the loan request is too optimistic. It implies that the airline is forecasting a pick-up in air traffic between the UK and United States which is seen as unrealistic. The airline has said that it supplied two-year and five-year business plans as part of its submission.
The £500 million request is believed to cover a commercial loan as well as a Government guarantee to the major credit card issuers to encourage them to release funds for pre-paid tickets. The card companies are not releasing this money as they are legally liable to repay it under Section 75 rules if the airline fails.
(It is worth noting that the Government does not need to actually provide the bank loan requested. It can simply agree to provide a guarantee for 90% – 100% of the sum with a commercial bank funding it. This means that no money actually leaves the Treasury unless the airline fails.)
The full Financial Times article is behind a paywall but you can read it by clicking here to bring up a Google search and then clicking on the top result.
(Want to earn more Virgin Flying Club miles? Click here to see our recent articles on Virgin Atlantic and Flying Club and click here for our home page with the latest news on earning and spending other airline and hotel points.)