Richard Branson seeks cash splash to rescue Virgin Atlantic

Still denied a bailout from the UK government, the Brit billionaire is reportedly set to sell Virgin Atlantic.

By Bloomberg News, April 27 2020
Richard Branson seeks cash splash to rescue Virgin Atlantic

Richard Branson is considering pouring more money into teetering Virgin Atlantic Airways than he originally pledged in a bid to attract outside investors and gain access to hundreds of millions of pounds of state-backed loans, according to people familiar with the matter.

Branson had earlier said he’d channel the bulk of a US$250 million infusion into his Virgin-branded companies toward the U.K. airline. The pledge, linked to a request for some £500 million pounds ($618 million) in U.K. funding guarantees, has met with resistance from the government.

The talks and amounts are in flux, the people said. U.S. partner Delta Air Lines has said it won’t put in more money, and raised the possibility that Virgin Atlantic could go through insolvency proceedings.

Branson has been pursuing outside investors to strengthen the bailout application. The 69-year-old billionaire’s Virgin Group is seeking some combination of structured finance, convertible bonds or preferred debt, according to one of the people, who asked not to be named discussing a confidential matter. An injection of pure equity could also be part of the mix, though rules governing airline ownership could place limits on that option.

About 100 financial investors have been contacted with around half responding, the person said.

Virgin's future on the line

Branson himself “has no intention of selling out” of Virgin Atlantic, Nick Fox, a spokesman for Virgin Group, said by phone.

Fox declined to comment on the investor search or what form support might take. Virgin previously confirmed that Houlihan Lokey had been engaged to lead the search. The future of Branson’s flagship business is on the line as airlines worldwide are roiled by the Covid-19 outbreak.

Like other European carriers, Virgin Atlantic has grounded almost all of the fleet, while slashing costs through a deal with staff to take unpaid leave. That step and question marks over Branson’s tax affairs have led to a backlash against a bailout from some U.K. politicians. His Virgin Australia was already denied a rescue and faces collapse.

Branson, who founded Virgin Atlantic in 1984 and owns a 51% stake, would remain a leading shareholder, the people said. Delta’s 49% stake would likely go down.

Britain’s Telegraph newspaper reported earlier that Branson was seeking a buyer for Virgin Atlantic, something his spokesman disputed.

“Richard is committed to investing in Virgin Atlantic,” Fox said. “He and Virgin Group are fully supportive of the process the airline is going through in seeking prospective investors.”

With the airline industry in such dire straits, a new backer would be investing on the strength of Branson’s plans for the carrier, one person said. The tycoon last year came close to selling 30% of Virgin Atlantic to ally Air France-KLM before pulling the plan as earnings surged.

Potential investors

While Virgin Atlantic and its adviser have reached out to potential investors including private equity firms and sovereign wealth funds to gauge interest, some have been reluctant to risk putting money into the battered airline sector, two people said.

Among investment options, Crawley, England-based Virgin Atlantic could issue bonds convertible into stock after five years if not repaid, one person said.

The institutions expressing an interest in Virgin will be provided with insight into two- and five-year plans for the airline after signing non-disclosure agreements, according to another person.

While Delta won’t provide direct investment while itself seeking federal funding, the U.S. carrier may be able to help indirectly in the longer term. That could include deferring payments related to a joint venture between the airlines and others for a booking platform, one of the people said.

Branson has already said he’s seeking to raise cash against his Necker Island home in the British Virgin Islands. Most of that money will likely go to help his other leisure businesses, the person said.

The search for a new investor may be complicated by airline ownership rules, which dictate that a carrier must be majority owned in the location where it holds its air operating certificate. That could affect how much funding is structured as equity versus debt, and affect the airline’s ownership structure.

Virgin Australia

Branson, 69, has become the highest-profile victim of an airline-industry crisis that’s only just getting started.

Virgin Australia entered administration last week after failing to obtain a government bailout, with appointed administrators Deloitte now fielding interest from more than 10 suitors to purchase a restructured version of the airline

Branson, whose Virgin Group held a 10% stake in Virgin Australia, was last week said to be among the interested parties, but only as a part-investor of $200-$250 million, and that on the proviso of support from the Federal Government.

Under Deloitte's timetable for Virgin Mk II, the shape of the new airline will be revealed to potential buyers in early May.

The administrators will then accept "non-binding indicative offers" through to the middle of May, while "serious, binding offers" must be lodged by mid-June, with the intention of signing contracts by the end of June. 

Read more: Could Virgin Australia 2.0 be flying in as little as three months?

This article is published under license from Bloomberg Media: the original article can be viewed here

05 Apr 2017

Total posts 19

So effectively Virgin Atlantic is competing with Virgin Australia, in the same timeframe, for new owners. Houlihan Lokey is advising both parties. In one way that may be seen as a conflict of interest. But perhaps it could be the only means to facilitate a mega deal and bring in a new investor or group of investors to buy the lot and merge the two Virgin airlines. That seems a bit far fetched to me, but who knows in these unprecedented times.

Qantas - Qantas Frequent Flyer

18 Feb 2015

Total posts 124

Far Fetched indeed, the only commonality with the two Virgins is their woeful miss management and severe lack of funds.

Richard Branson's public image has taken a beating and rightly so.

British Airways - Executive Club

28 Mar 2014

Total posts 70

Yes, it was he who said airlines should not be helped if in financial trouble in 2009

American Airlines - AAdvantage

02 Jun 2019

Total posts 21

It would be sad to see Virgin Atlantic end because of this. Worse if IAG & BA were allowed to buy them and put a tighter squeeze on Heathrow's slots. Hoping SRB finds a way to save his airline and keep it flying. If Delta's 49 % has to diluted down to say 20 % so be it.

22 Jan 2018

Total posts 100

As a businessman, I wouldn't invest a penny in VS. I don't know much about VA to comment. VS always seems to do the rig he things (buy fuel efficient aircraft, partner with successful airlines like DL, land flying rights to key cities around the world, etc etc) but they don't seem to move the levers of a business. My manager delivered my mid-year performance review last week, and his standard mantra is “focus on impact, not activities. VS Seems to only do the later.

Hi Guest, join in the discussion on Richard Branson seeks cash splash to rescue Virgin Atlantic