The Sunday Telegraph reports that Sir Richard Branson has abandoned plans for a Government bailout of Virgin Atlantic and is now desperately seeking a trade buyer.
The airline will be put into administration at the end of May if this cannot be achieved. Accountancy firm EY is reportedly already lined up to act as administrator.
The airline is reported to have hired investment bank Houlihan Lokey, which specialises in distressed debt situations, to approach potential investors. 50 parties are believed to have asked for financial information.
Interestingly, none appear to be trade buyers. Names quoted included hedge fund Lansdowne Partners, Singapore’s sovereign wealth fund, US private equity group Centerbridge Partners and distressed debt investor Cerberus.
(EDIT: Lansdowne Partners later issued a statement denying that it is in active discussions to invest in the airline.)
Potential bidders are expected to form consortia to submit bids. It is important to remember that a 51% shareholding must remain with UK or European Union entities under EU aviation law. Only Lansdowne Partners, of the names listed above, has a qualifying domicile.
Delta Air Lines, currently a 49% shareholder, has already said that it will not commit further funds to the airline as it deals with its own financial crisis. Delta is keener to take money out of Virgin Atlantic, with the airline currently owed $200m which was due as a transition payment to reflect the addition of Air France and KLM into the Delta / Virgin transatlantic joint venture.
Delta’s CEO Ed Bastian is quoted as telling MSNBC that it supported administration, believing that there would be bidders for the assets. Any solution is likely to see Delta’s shareholding wiped out, but this is unlikely to be a major problem as the real value for the airline is in the joint venture agreement. Virgin Group may be reduced to a minority stake unless there is an issue over hitting the 51% EU quota.
Is this really the last throw of the dice?
It is possible that the airline will return to the Government with a request for aid before putting the airline into administration. As we covered, the original bail-out request was rejected because the airline was not believed to have exhausted all other potential options. This new process may be a way of proving to the Government that no other alternative is possible.
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