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Virgin Atlantic reportedly seeking a stock market listing – would you invest?

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According to a report on Sky News, Virgin Atlantic has begun presentations to institutional investors to assess their appetite for a stock market listing of the airline.

The story was written by Mark Kleinman who has consistently broken every major Virgin Atlantic news story over the last two years. You should therefore assume that the report is credible.

Citi and Barclays are believed to be leading the IPO process.

Virgin Atlantic seeking a London stock market listing

The current shareholding structure is Virgin Group with 51% and Delta Air Lines with 49%. Despite the numerous injections of new capital that the airline has received over the past 18 months, none have involved taking equity.

Part of the reason is that the airline needs to remain 51% under European control to retain many of its landing rights. The other reason is that, frankly, the equity wasn’t worth having.

A cynic might argue that an IPO is the only way to get new third party capital into the airline. Virtually everything that the airline owns has been mortgaged over the last 18 months, and it was relatively asset-light before that. Virgin Atlantic even mortgaged its Heathrow landing and take-off slots, and this was pre-covid.

With no security left to offer to debt lenders, a cash injection from new shareholders is one of the few ways left to raise capital.

Virgin Atlantic seeking a London stock market listing

The airline may not be looking to raise new capital. A flotation does not necessarily need to inject new money – it can simply be a method to make the existing shares more easily tradeable, and to open up a route to raising money quickly via a rights issue in the future.

The current block shareholdings make any new shares which are issued less attractive. Unless Virgin Group and Delta sold down their stakes to under, say, 30% combined, the new investors would effectively have no power due to the Virgin Group and Delta block vote.

It is more likely that Delta would sell down its stake rather than Virgin Group. If Delta retained 49% then it would be virtually impossible for non-European investors to buy shares in the airline, and this would depress the price. There needs to be headroom for non-European investors to come in alongside Delta and remain under 49.9% combined.

You would also need to question the wisdom of selling new shares in an IPO at the moment. Despite almost halving its workforce in the last 18 months, Virgin Atlantic has very little chance of returning to profitability until the US market is back to its historic levels. Meanwhile, the end of the UK furlough scheme in September means that tough questions need to be asked about how many pilots and cabin crew should return to the payroll.

If the number of bankers flying on fully flexible Upper Class tickets never recovers, Virgin Atlantic will struggle to make money. It was not profitable even in the years before covid. At the same time, if new shares are sold as part of the flotation, Virgin Group and Delta would be diluting their stakes at the bottom of the market which makes little sense.

You can read more about Virgin Atlantic’s reported IPO plans on the Sky News website here.

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Comments (98)

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

  • J says:

    Slightly surprised they’d go for a London IPO given how much Branson loves his SPACs.

    • Sloth says:

      I think it’s pretty telling that they are considering an IPO when supposedly there are so many spac’s waiting to invest in pretty much anything…

      • Samuel says:

        I am not that knowledgeable about IPO vs SPAC. Why would an IPO be worse than a listing via a SPAC? I thought IPO’s have much more scrutiny than a SPAC.

        • Rob says:

          The SPAC route is a joke for established businesses. You are basically giving away 20% for free purely to avoid full scrutiny of your activities – and once you are listed you get the scrutiny anyway.

          Bit like your mate offering you a mortgage with zero paperwork or affordability checks but insisting you give them 20% of your house for free as part of the deal. Terrible deal but if you are self employed with a covid hit, have unpredictable earnings etc you may feel you have no choice.

          • Samuel says:

            I didn’t know they took 20%. That is a shitty deal indeed.

        • Sloth says:

          Sorry I was being facetious. I meant even spac’s with billions to burn, supposedly have no interest in virgin atlantic, hence their only option is an ipo.

    • ChrisC says:

      What’s a SPAC?

      Not every HFP reader works in finance so don’t assume.

      • Dominic says:

        Not every commenter on HfP assumes that everyone else needs to understand their comments…

        • Rui N. says:

          And anyone that doesn’t understand and is interested can either ask or Google it.

          • ChrisC says:

            I did ask and basically got insulted for asking!

          • Chas says:

            “I did ask and basically got insulted for asking!”

            I don’t think you got insulted for asking, more for the following comment “Not every HFP reader works in finance so don’t assume” which came across a bit brusque and critical. You may have meant it sarcastically, but in my opinion it didn’t come across that way, so I thought the responses from Dominic and Rui N were justified.

      • J says:

        @ChrisC: How would you have written my comment to make it accessible to all? I assume you’ll also be writing to sky news to ask them to extend the penultimate paragraph in the linked article.

      • AJA says:

        @ChrisC SPAC stands for Special-purpose acquisition company, a shell corporation listed on a stock exchange with the purpose of acquiring a private company, making it public without going through the traditional initial public offering (IPO) process.

        The trouble with Virgin is that it needs cash. The SPAC route doesn’t add any new cash although it does make it easier to raise more in the future.

        • Bagoly says:

          “SPAC route doesn’t add any new cash”??
          The SPACs have raised lots of cash already.
          Just as with an IPO, that cash may go to the business (issue new shares) or to existing owners (buy existing shares)

  • Aristeides says:

    I’d sooner invest in a listing of HfP

  • Dev says:

    May be worth a punt… £1000 investment. See where it goes!

    • Blenz101 says:

      Consensus is generally that retail investors have no business buying individual shares and all evidence points towards holding a passive low cost index funds.

      Even if you did still like to gamble on single shares when you look at the fundamentals of VS as mentioned in the article this would be a terrible choice. There are plenty of ways to bet on the recovery of the airlines fortunes but a £1k punt on VS would be one of the last places a retail investor should look!

      • Paul pogba says:

        Index funds distort price discovery and will exacerbate the next crash. They’re fine if you’re content to accept average as your upper and lower limit.

        • Blenz101 says:

          Well given index funds have consistently beaten those which are actively managed over the long term so my point remains valid. i.e. over a long enough period those low cost holding index funds will return more than those gambling on individual stocks themselves or paying a fund manager to do the same. The same £1k invested in an index over enough time will on average return more.

          It would be almost irresponsible for VS to target retail investors with perks as a source of funding as they are almost certain to lose their shirt in the medium term (debt heavy, saturated market, cyclic, post-pandemic, capital-intensive, highly regulated). Given neither IAG or Delta offer perks it isn’t even a current market offering.

          • JDB says:

            You have swallowed all the index fund marketing! Yes, it’s important to keep costs low, but with index funds you are a) doomed slightly to underperform the market and b) always fully invested when that may not be the right thing to do. Also, getting asset allocation right i.e. having exposure to the right markets, sometimes less equities, more bonds, right currencies etc. is critical to making money long term. There are also a whole raft of excellent regularly outperforming funds, a,though there are also a lot of rubbish ones and many closet indexers. The argument re low costs saving £x can also be turned on its head, as it isn’t so difficult to invest with higher fees and outperform the index fairly consistently and ironically the herd investment of the indices makes this easier. You need a decent adviser, usually not the person who is good at financial advice, but someone who just manages investments. I have worked in the markets for 30+ years albeit not for private investors and the thought of index funds makes me quite ill!

          • Lady London says:

            The only point I would add to this is that even if the private investor gets it right transaction charges (+platform/fund as well if used) wipe out a lot of gains.

            I read somewhere the regulator has trying to make charges (and access to good new issues) a more level playing field between institutional and retail investors but I suspect it’s way down the list.

          • Char Char says:

            Looking at the FTSE 100 since 2000 its basically up 10% which I would be especially annoyed at if i had money tied up in it for 20 years.

          • bobby says:

            annoyed you didn’t reinvest the dividends?

          • Char Char says:

            @bobby annoyed I hadn’t invested outside the UK

          • Blenz101 says:

            @CharChar Nobody was advocating investing in tracking the FTSE 100.

            The evidence is that it is better long term to invest in a globally balanced index, i.e. circa 50 percent US stocks, roughly 20 percent European stocks, 15 percent are Pacific stocks, and about 10 percent emerging market stocks. This type of fund/ETF held alongside an appropriate percentage of bond holding depending on risk appetite / stage in investment life is where the smart retail investor looks.

          • Erico1875 says:

            Baillie Giffords Scottish Mortgage Trust has over 20 years returned nearly 2000%, out performing even Warren Buffet over that timeframe.
            No tracker even comes close

          • Genghis says:

            @Erico1875 It’s easy to pick the winners after the race. Did you invest 20 years ago? If so, how did you detect they were a sure thing then?

        • JDB says:

          I’m glad to read some common sense re index funds here as one only hears about the wonders of index funds on HfP. I think people have got rather complacent about index funds/markets as 1987, 2000 internet crash and 2008 financial crisis seem rather distant for many and leaves them at higher risk than they may appreciate.

          • Lady London says:

            +1 could have a massive correction quite soon that will take tens of % off anyone solely passively invested whether funds or platforms.

            This may not actually matter if someone’s investment horizon is, say, 10+ years or more – the worst thing to do would be to crystallise the loss if this happens. Given long enough cycles most things right themselves. Obvs need to have some nous to recognise fundamentals shifts but you’d prob not just be a passive investor if you are in the minority that can work that way.

          • Blenz101 says:

            Nothing to do with any index marketing but the evidence over the long term (investment lifetime) backs up that being invested in a broad range of asset classes balanced across global markets (HSBC world etc) consistently beats an actively managed portfolio in the LONG term.

            I have no particular dog in the race anyway as I am offshore so my circumstances, tax considerations and access to markets is different to most.

            But reading “worth a punt” on VS for £1k made me just as ill as index funds do you.

          • Scott says:

            Lol, you’re not biased at all by dint of the industry you work in! Care to recommend some ‘decent advisers’ who have a proven track record of consistently beating the market and will continue to do so for the next thirty years?

          • Rob says:

            These stats are publicly available and will show that they don’t exist.

            You need to see investment management as like a game of darts, throwing blindfold. Get enough graduate trainees in a room together and one of them will hit Red 5 times in a row. In the darts world you would call them lucky. In the investment world you’d give them £2 million per year and all the unused darts from the other players.

          • Char Char says:

            I think the idea of a massive correction after all the money thats been printed is unlikely as that money has boosted the stock market and where else is it going to go

          • Ken says:

            I like Terry Smiths quote on market timing….

            “When it comes to so-called market timing there are only two sorts of people: those who can’t do it, and those who know they can’t do it”.

            If you have a long enough timescale then investments should be in equities & mainly cheap worldwide index funds.

            My personal opinion is that people ‘investing’ in currencies, precious metals , crypto and exotics are mugs.

        • Genghis says:

          By definition, all participants are the market. So only half can beat the index, half can’t (like most drivers think they are better than average). But then after costs, only something like 15% of managers outperform the index (check out the annual SPIVA report). And those are managers for whom it’s their job. As an individual, I don’t have a chance. Then on timing, I think most people are not able to time the market. If you sell, when are you going to buy back in? Buy and hold is the only way. There will be a market crash again, 10%, 50%, 70%, I’ve no idea. But when? Doomsters have been saying the US is overvalued since 2010.

          I accepted all of this ages ago. I have no special ability to pick particular securities nor to pick certain managers, not to time the market. I’m happy being average: buying an index every month requires little investment of time and I’m able to spend my time doing other stuff.

          I’ve thought about the price discovery point and discussed with others. We concluded that if the world was 100% passive but the price of an individual security was getting way out of sync with fundamentals, then someone would pop up to profit from that and bring the price back in line, at least over a longer time period.

          Happy for others’ thoughts on this?

          Now if you’re able to pick your own investments and profit over the long term – then great – but realistically most can’t.

          The SPIVA report notes

          • John says:

            Exactly – tracking the world will gives you the average of the aggregate decisions of all other investors who think they can beat each other, and you don’t need to think about anything else. Fees for Vanguard’s fund are 0.23%.

            However, given that companies generally go into business to make money, the average is likely to be up over a long enough timescale.

      • Rob says:

        Could be a shareholder discount …

        • Oh! Matron says:

          Buy 10k shares, get gold… I’d be all over that like a cheap suit

          • Super Secret Stuff says:

            Would have to be a lower amount to be appealing

          • Blenz101 says:

            WOW! Given that here in the Middle East a HSBC Black card (just need to be a Premier customer) for a £300 annual fee will get you Oneworld Sapphire status, let’s call that a ceiling value for buying status, you may wish to consider the true value of a shiny Virgin card!

      • LS says:

        Assuming this is not the OP’s main investment, but a ‘punt’ I dont see the problem with investing £1k. We are in COVID times, airline stock is suppressed. If VA recover well, £1k could easily triple or quadruple in the longer term (many years). It could similarly struggle, and go down to 20% of what you put in or even bankrupt. But if this is an outside bet with a small % of your capital, I really dont see the problem

        • Char Char says:

          Yes but you are talking about an airline that hasn’t gone public yet so you don’t know if the price will be suppressed or over valued based.

        • John says:

          The same could be said for pretty much every company, why not take a punt on all of them?

          Choosing virgin for a punt just because you like to fly to the USA is not a good reason

          • Rob says:

            But if you got 10% off your flights as a shareholder …

          • Dev says:

            Seeing as I kicked off this massive chain, it would probably be good to clarify, “worth a punt” is the amount I can gamble, without worrying about the outcome.

            (And for the record, I do have a large core holding of index funds in a variety of trackers!)

  • Rob says:

    Looks like from the direction if this article it’s a “no from Rob” and with his experience in the airline industry and business finance I’d take his advice if this did come though

    • Memesweeper says:

      I think, to be fair, it depends on the price of the IPO. If it’s cheap enough it could be worth a punt.

      • Rob says:

        The share price will be hugely erratic purely due to the debt.

        Let’s assume a business has £100 of debt in it and the shares are worth £10. Total enterprise value of £110.

        Now let’s assume something positive happens and the market believes that the enterprise value should now be £120 and not £110. Because of the huge level of debt, it means the share price doubles from £10 to £20.

        In an identical business with not debt, the share price would move from £110 to £120.

        • Will says:

          But if something bad happens…..

        • Super Secret Stuff says:

          I’m confused, how is debt valuable to a business?

          • Rob says:

            You see a 2nd hand car you want to buy. It is worth £5000.

            You then find out the car has £4500 of outstanding debt on it which the new buyer will inherit.

            When you learn this, you drop your offer for the ‘equity’ in the car to £500.

            Same here. If Virgin is worth £1.5bn if debt free but has £1.4bn of debt, the shares are only worth £100m.

          • Jonathan says:

            Debt = leverage so gains & losses magnified.

          • Super Secret Stuff says:

            Oh I thought you meant the more debt the more valuable the company was! Must have miss read it

          • Super Secret Stuff says:

            @Jonathan that’s true up to a point but completely unrelated to the topic of how debt affects a company value

  • John says:

    I invest in index funds for the long term, and highly speculative stocks that might go up 10x or more or drop to nothing in the short term. If virgin makes it into the ftse global all cap I will hold some there, but otherwise it isn’t going to make me rich so why bother

  • Wally1976 says:

    What’s that law again…Betteridge’s I think!?

  • Mayfair Mike says:

    As a hedge fund manager I think this would make a fantastic short

    • Paul Pogba says:

      It feels like the sort of stock that if it catches the attention of the reddit crowd could become a drama.

      • Super Secret Stuff says:

        Uk centric so highly unlikely to interest the masses of *US* investors in Wall Street Bets. Virgin galactic, different story as they love the moon and anything that could go into space. However yes could lead to a small problem if the shorting got excessive

  • R01 says:

    There is an article in the Torygraph today saying that the majority EU ownership rule no longer allied to Virgin due to Brexit (though it still applied to British airlines flying to the EU).

    That is what makes this float viable

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