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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.

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 (350)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • lee says:

    Is booking with a Virgin partner Airline a Possiblity ? or Does the partner airline get paid at time of the Flight Or when you make the Booking ?

    • philco says:

      This gets asked again and again (including at least once today already in the comments). Award tickets are paid by the ticketing carrier (VS in this case) to the flying carrier *after* you have flown. Obviously if VS goes under before you have flown then the flying carrier isn’t going to be paid so by default your ticket will not be honored. Now there have been some exceptions in the past that I won’t go into detail here so there is *some* possibility that some tickets might be honored though I wouldn’t bet on it. Note VS’ frequent flyer program is actually a separate company so theoretically doesn’t go under if/when VS does but most folks believe this effectively doesn’t make much difference since it is unlikely funded to the degree necessary to pay out all currents tickets.

  • Cod stew says:

    All this talk of people saying the government shouldn’t bail out VS is misguided. VS is on the brink due in large part to government mandated travel restrictions which have imploded the economy. Government is therefore partly to blame for this mess. Government should therefore bail out any and every company which is being screwed by said government actions.

    • Brendan Hannan says:

      Although an interesting argument, and it has merit, it is flawed. Of the Government did not act in such a way, we would be in a worse situation than we are. A case of cutting off the had to save the arm.

      I agree fully that the Government – indeed the people – owe it to our economy to bail out businesses and companies in times of need – if only to ensure our own economy.

      But when a man who is withing the top 200 richest in the world, and who refuses to pay tax while hiding it behind doing charitable acts – although well recieved a bit empty still – asks for a bail out, it still rankles with most. And with good reason. We are all told ‘save x amount of your wage, have three months wage saved for emergencies’ and the such all the time. The rich have no excuse I’m afraid.

      • David Turner says:

        I agree with you, he will profit out of this either way he should be able to pay his way, it’s the small airlines I feel sorry for and other small businessess.

    • Nick_C says:

      The UK Government isn’t preventing anyone from flying abroad. Just advising against it. VS mainly flies to the US, which is no longer admitting most Brits.

      The UK government, or rather the taxpayers, is bailing out companies by paying the wages of furloughed staff and other measures.

    • Marcw says:

      Hello? you can count with the fingers of one hand (left or right, doesn’t matter) which countries are allowing British citizens to enter their borders.

    • Lady London says:

      Virgin wasn’t making me money anyway for the last 10 years and that included the boom times. Profits in the very few years any were reported, were miniscule related to their turnover it was clearly a voluntary choice to report them. In those odd years too it was such a close run thing.

      So either Virgin was incompetent, wasn’t able to make money given even boom market conditions – or profits were being manipulated to avoid paying tax.

      Since there is a lot of concern about many companies doing the same thing – feasting off the workforce and safe environment in the UK and its market – since it looks like Virgin was doing the same thing as Amazon, Google and Apple in not paying their fare.share an awful lot of us see no reason why we should support them now.

      • Chrisasaurus says:

        +1

        Fundamentally a business doesnt have to make large profits to be a worthwhile operation- plenty of business exist to provide a living for their staff and theres no rule saying lifestyle business cant be large.

        But nobody believes VS are innocent party here, as LL says there is a suspicious (almost calculated) ability to make minimal profits even when the market is doing well which combined with SRB’s decision to live some which which is purely by coincidence a tax haven, makes us all a little suspicious that those profits are hiding something.

  • Brendan Hannan says:

    I am sorry, but Richard Branson has money. Save your company sir. Sell off your precious Island, sell off assets if you need too.

    There are many small businesses within the UK who are suffering without your assets. Many who have paid tax. The drama is that if Virgin Atlantic don’t get saved, how many thousands are going to depend on support like benefits?

    I believe the Government should offer Branson a deal. He sells all his shares to the government. The people then own the company, and can bail it out. He may buy back his shares down the line including a decent percentage. This to cover inflation, the bail out, and the fact he’s not paid tax. Then the government owns a majority in an airline service, and can be used for future epidemics such as this if people need transport back or for aid relief etc.

    If Sir Branson cannot stomach that, then tough.

    • Rob says:

      The level of business insight here is impressive, Brendan 🙂

      1. What do you think British Airways would say if the UK Government took full control of its major UK long-haul competitor?

      2. The equity in the airline is worthless already. It was only valued at £600m last year when Air France KLM was planning to pay £200m for a third. It doesn’t matter who owns it. Branson will give you 49% for £1 if you ring him up, as long as you promise to loan the company £500m.

      • mvcvz says:

        Definitely not much going on up top. But he’s still way smarter than Shoestring.

      • James says:

        But will he also agree to relinquish royalties/licence fees?

  • Steships says:

    If Branson can’t be bothered to stump up the cash, then why should the UK taxpayer. Especially as he doesnt pay too much as he enjoys his Tax Haven in the BVI…..

    Let’s not forget he is valued at 4.2 billion, I for one am disappointed that he has chosen to view his personal wealth as his whilst his staff have been thrown to the wolves….

    Poor show Richard, hang your head in shame.

    • TGLoyalty says:

      He’s not worth 4.2bn cash. What’s 4bn of shareholding’s in businesses that are about to go bust actually worth now…?

  • Jason Hindle says:

    I’m not against bailouts but I think the government needs to avoid throwing good money after bad. The fundamentals, prior to the COVID-19 emergency, should probably be taken into account. If Virgin were strong, then it follows they should receive help.

  • SSS says:

    Comments regarding Virgin Atlantic “not required” and there being more smaller businesses’ that need help. True on the latter, but you might be more dependant on VS that you think… 36% of food arrives in the belly of an aeroplane. Whilst there might be space in the competitors cargo hold, expect the price of of food to go up. Add to that, the reduction in competition… so enjoy paying £2000 for an economy ticket to JFK. Personally, I see the survival of VS more important to the UK economy than Betty’s cupcakes down the road.

    As for Branson… do you think he actually has $4.6Bn liquid? Course not. And whilst he might not UK tax on his personal income, his business’ (VS) pay UK tax on their incomes, and so do their employees.

    What gets me the most is that EasyJet (and BA?) have secured £600m of government funding – yet how many of their shareholders are millionaires paying zero UK tax? Stellios was paid a £60m dividend earlier this year yet the irresponsible UK media isn’t targeting him or the rest of the EasyJet shareholders. Branson is a single shareholder so an easy target… if only he ran some charities too.

    • Marcw says:

      You must be joking. VS survival more important to British economy… UK airports moved around 290 million passengers. About 6 millions were transported by VS. In essence, VS is negligible… And remember, numbers don’t lie!

    • J says:

      Good reasoned analysis. Much of the comment here seems to be motivated by people with a dislike of Branson based on what they’ve read in the tabloids or by people who simply don’t like Virgin as an airline very much because they prefer the ME3 or Cathay Pacific – none are good reasons to throw away a British company struggling during an unprecedented crisis. As has been pointed out many times too, BA will also inevitably ask for state aid too (they just want VS to go out of business first).

      • Lady London says:

        I’m against aiding BA too. For different reasons. They have a history of dirty tricks and they haven’t got clean hands on the way they’ve organised themselves and their website deliberately so as to deny customers refunds they are entitled to.

        I literally don’t care if BA goes bust as well as VS. I doubt BA will though. I’ve changed my mind on this over time and listening to people here to reach this conclusion now.

        • J says:

          But as you know there is no chance of a BA or Lufthansa, Air France etc going bust. So VS goes and that just leaves BA with all their history of misbehaviour and poor service more powerful.

          • Sean says:

            Not necessarily as any bailout of BA may well require the break up of IAG – UK Govt would not support a spanish company.

          • Rhys says:

            Unless UK and Spanish governments co-operate as the Dutch and French have done for AF-KLM.

          • Rob says:

            If Virgin goes bust, the AA/BA joint venture is toast. That will be a big enough blow.

          • Lady London says:

            We’ll find other ways to limit abuses by BA.

            Funding an airline that has a consistent long history of near-faikure and hasn’t made any effort to pay a fair rate if corporate tax is not ever going to achieve this.

            Have you ever put an old dog to sleep when he developed a new condition which meant no hope, when he already before that had been struggling and barely making it for years? It’s the humane thing to all parties.

            We’ll deal with British Airways later if the government and its advisers have any sense.

            The issues in Australia are different. Here in Europe we have a bigger market with more supply options.

          • J says:

            What like the German govt has with Lufthansa? They get away with more than BA.

    • insider says:

      Virgin is a tiny part of capacity into the UK – it wouldn’t make much of a dent on cargo (which is overcapacitied in normal times anyway) and just how many competitors are there on New York?

      Easyjet has accessed money because it was investment grade pre-Covid. Virgin didn’t have such a rating, presumably because it couldn’t, so therefore in the eyes of the government, it’s a much riskier bet to lend money to. This money is just a short (1-year) bridge to normal financing I believe, so understandably, the government wants to minismise its exposure.

    • Reeferman says:

      The assertion that 36% of UK food arrives in the belly of an aircraft is very wrong.
      In terms of tonnes, I would estimate that it is less than 1% – with sea freight and then trucking (including short-sea) being the main transportation methods

    • Ken says:

      36% of food arrives by air?

      What utter bollocks.

      My guesstimate would be you are out by a factor of 100.

      • Lady London says:

        perhaps by value. 36% could just be caviar for Lufthansa, fresh airfreighted Spargel for London-resident Germans and very out of season strawberries and a few dried guavas.

    • Ken says:

      Dividends are paid out of taxed corporate profits.
      EasyJet paid £57m in corporation tax in 2017/18 alone.

      This is more than Virgin Atlantic have paid in their entire history.

      No apologist for Stelios but he wasn’t born here, and has never been tax resident here.
      His companies largely don’t appear to use convoluted tax avoidance measures courtesy of the British Virgin Islands.
      I’d be confident of EasyJet making profits in 3 or 4 years time.
      VS – well history shows us they are unlikely to reap long term consistent profits.

      • Rob says:

        Come on Ken, time to ‘fess up. Are you paid by BA to post anti-Virgin stuff on social media? Many big companies do pay people very quietly to disparage their competition online, it is very common (and quite a cushy job by all accounts).

        Virtually all of your HFP contributions have been knocking Virgin. Only one comment, consisting of the word ‘Yes’, could be classed as not complaining.

        You also disguise your IP address for no good reason which means that we cannot identify exactly where you are.

        • ken says:

          No

          • ken says:

            And to expand, the service on Virgin Atlantic was great, and domestic competition in Australia was dire 30 years ago.

            Equally the West Coast Virgin train service was brilliant for almost 20 years (after a couple of years teething problems).

            I just think government support should always be a safety net not a hammock.

            If Branson loaned Virgin say £300m and the government matched it, I probably wouldn’t have too much of a problem – as long as $200m didn’t go straight into Delta’s paws.

            If IAG/BA come begging, I expect the shareholders to get tapped up first.
            Whatever you say about the various bank bailouts, we can’t say that the shareholders didn’t bare any pain.

            A couple of questions for you.

            1) Do you think £500m is enough ?

            2) Do you think RB couldn’t raise £300m against various other stakes or royalty streams ?

            3) Do you think there is a place for Virgin in a sea of ex flag carriers, middle east 3 & low cost airlines. My gut feeling is that they have had their day.

          • Rob says:

            The banks were insolvent and the shares were worth nothing without Government support – the shareholders were bailed out because they should have received nothing. The big slump happened before the bailout.

            Look at Lufthansa now. It is insolvent. The Citi report from last week, which I summarised on Saturday, made it clear. It probably shouldn’t even still be trading under Company Law. However, it still has a market value of €4 billion as opposed to nothing. This is purely because the market expects a bailout and that bailout is, implicitly, supporting the shareholders now to the tune of €4 billion.

        • Doug M says:

          I like to slate Virgin. Part of it is an irrational dislike of some of its customers, a very rational dislike of billionaires, and that really annoying flip over seat which so many give a pass to whilst being merciless to the CW seat. It’s also that so much about Virgin, and the reporting of it, appears smug and very pleased with itself. It think it’s the Manchester United of airlines, when really it’s QPR.
          A lot of that maybe the Branson inspired image/marketing, which of course is now massively biting it in the arse.
          Where does one get a social media rubbisher job, because for companies I don’t like I’ll do it on the cheap, rubbishing telecom companies I’ll do for free.

        • avstar says:

          haha chapeaux rob!

          to quote finance speak, there’s a fair amount of commentators who BTL are talking their book too

        • Alex Cruz says:

          Rob, it seems we both have an equal dislike for our customers, or as I like to call them, ‘self loading freight’. I like how you also rightly think you are God’s gift to the world, and your readership are just ignorant plebs. Fair play on catching my plant though, we all know Branson is paying you so I thought I had to balance the books.

          Also I see you’ve started surveillance on your readership, congrats! I hadn’t thought of that, but you’ve obviously read more about the true virtues of the Chinese state.

        • Binks says:

          Lol …. time to own up 😎

          Has someone been rumbled 🎈

  • Andrew Mew says:

    In January I paid for a flight to South Africa.
    Will I get my money back if Virgin goes into administration Or is bought will my tickets still be valid.

    • Doug M says:

      No one can answer the question because administration could mean several things. If you paid on a credit card as you should have then they’re jointly responsible and have to either refund you, or buy you a comparable ticket on another airline. This protection is usually referred to as S75.

      • Lady London says:

        I’m feeling quite miffed. I’ve done a much better job of bashing Virgin than Ken has and yet he’s the one being accused of being a professional :-(.

  • Brian says:

    Like a lot of business directors once the money stops comming in to their pockets. They take the bonuses and cut and run without a care for their staff and customers.

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