Virgin Atlantic abandons plan for Government bailout, has five weeks to find a buyer (Telegraph)

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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?

Not necessarily.

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.

The Sunday Telegraph article is here.

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Comments

  1. mr_jetlag says:

    Public Service Announcement:

    VS [may] / [may not] go bust [this year] / [this month] / [next Tuesday].
    Moving your miles from VS is [a bad idea] / [a good idea] / [an idea you probably should have had last month, as it’s too late to do anything].
    The government definitely [should] / [shouldn’t] bail out Virgin Atlantic because [insert well reasoned argument others have made before on previous articles] / [I’m secretly afraid of losing my miles balance]

    Sorry, it’s been a long day trying to look interested on Zoom…

  2. Novice says:

    Can’t believe ppl are still arguing about this 😂

  3. ChrisC says:

    I see there are still “tax-dodger” posts

    VS as a company pays all the taxes it is due to pay under UK law so corporation tax, VAT, employers NIC, business rates etc etc etc

    What tax Branson pays on any dividends or royalty payments he may get from VS is a totally different matter.

    • Johnny Tabasco says:

      Well let’s just sweep that under the carpet where it belongs…

    • They are likely the same people harking on about “suing the NHS” and who would love to have “free nationalised broadband”.

    • Let’s go through those taxes.

      Corp Tax – Unlikely to be paying much over the past 10 years given lack of profitability
      VAT & APD – If people didn’t fly with VS, they’d likely fly with another airline, so its the spending driving that not VS
      NIC – If there was really that much demand for the flights VS runs, another airline would pick up the slack and hire more people (maybe not as many sure, but hardly a big contribution)
      Business Rates – Yeah I accept this.

      I very much doubt VS contributes enough to the UK economy by way of taxes/employment/competition for BA that it merits a £500m loan which may not be paid back if the business collapses and also may not even make a dent in what they need given this lockdown may last longer and air travel demand may be affected for quite some time.

      • TGLoyalty says:

        If people don’t fly X they are likely to fly Y is an interesting argument.

        Less competition = higher prices could = less people using the services. Perhaps people would use BA AA United KLM AF etc etc or perhaps they would go somewhere else instead of the USA.

        If they used anyone except BA that’s likely to mean less people in uk employed directly and indirectly which means less NI, less Income tax And less VAT as there is a lower GDP.

        • Considering VS transport only only ~5 million people I don’t really think prices would increase that much. NYC for example is served by a few airlines, admittedly some being in partnership. Maybe to places such as Cape Town where BA is the only alternative but a large amount of VS’s destinations are tourism spots, or covered at least by BA and the national carrier of that country.

          Also just searched and found air travel is 0 rated for VAT so no direct impact

          Perhaps we would lose out on NI, Income Tax, perhaps not, that’s speculation based on whether people would fly if prices did indeed increase and then if they would use BA or a foreign airline.
          If people end up not flying then the money they’d have spent on flights may just be used to buy other things such as physical goods, helping other businesses.

          Hard to tell what would happen I guess, but I just don’t think the UK gov should bail out a company owned by a tax dodger who likely uses every trick in the book to pay as little taxes as he can personally and from the companies he owns and then has the cheek to ask his employees to take unpaid leave.

    • It isn’t really another matter. VS has rarely made a profit but has happily been paying royalties every year, so whereas there has been little corporation tax paid, there might have been substantial taxes that would have been payable on the royalties, had the beneficiary of those royalties not chosen to structure affairs in a way that starves HMT of those taxes. When the company shows even less prospect of making a profit, given reduced demand, it’s really only the royalties that are being protected and it’s no surprise that Beardy wants to protect those. It’s not for HMT to bail him out. VS was barely viable in good years.

      • TGLoyalty says:

        The royalty is paid to VHG which is a UK ltd company.

        • Are you sure the royalties are paid to VHG and not the holding company the whole of the Virgin Group come under (which is based in BVI)? Actually interested to see.

  4. luckyjim says:

    *its

  5. doug terry says:

    I feel sorry for VA’s 10,000 staff and probable another 5,000 who support VA cleaners baggage handlers and outside catering firms.

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