Virgin Atlantic may receive a lifeline bailout under the Government’s new ‘Project Birch’

Another window of opportunity has opened for Virgin Atlantic.  The Treasury revealed, via the Financial Times this morning, that it is about to launch ‘Project Birch’ to bail out ‘strategic’ businesses.

‘Project Birch’ is an admission by the Government that the country will suffer disproportionate damage if key businesses in specific sectors collapse under the weight of coronavirus. Aviation, aerospace and steel are amongst those expected to benefit.

The Treasury is quoted as saying:

“In exceptional circumstances, where a viable company has exhausted all options and its failure would disproportionately harm the economy, we may consider support on a ‘last resort’ basis. …… We are putting in place sensible contingency planning and any such support would be on terms that protect the taxpayer.”

The key point is whether failure would “disproportionately harm the economy”.  Whilst you may suspect that Virgin Atlantic would not necessarily be included here, it is known that the scheme is likely to include Jaguar Land Rover which has a similar niche market position and which is seeking £1 billion.

What both companies have in common are large high-tech supply chains with UK manufacturing, which in the case of Virgin Atlantic is primarily Airbus, via its sites in Wales, and Rolls-Royce.

Tata Steel is also rumoured as a beneficiary of ‘Project Birch’.  Tata is believed to have approached the Government for a £500 million bail-out over recent days.

Whilst the scheme could include the Government taking equity stakes, it is believed that the preference is for carefully targetted loans.

Meanwhile, it was revealed over the weekend that Virgin Atlantic’s debt holders have appointed Deloitte to advise them and to help co-ordinate a joint response to any proposals.  Attempts to put the airline into a pre-pack administration, where it is immediately bought back debt-free for £1, are being hampered by the rules surrounding airport slot ownership during insolvency and the fact that Virgin’s Heathrow slots have been used to guarantee a loan.

Sir Richard Branson has recently raised funds by selling down part of his stake in Virgin Galactic, with much of this money earmarked for Virgin Atlantic.  49% shareholder Delta Air Lines is blocked from providing additional support under the terms of its own bailout by the US Government.

The FT article is behind a paywall but City AM has a summary here.

We are also expecting confirmation of the €9 billion bailout of Lufthansa by the German Government over the next 24-48 hours.  It is believed that the package has hit a stumbling block due to the insistence that existing orders for €5 billion of new Airbus aircraft are met, despite the airline no longer having any need for them, and concerns that the EU will block the proposal.

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