Virgin Atlantic Collapses By The End Of May Unless New Cash Found

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Sir Richard Branson, a British multi-billionaire living in a Caribbean tax haven, released an emotional statement on Monday trying to extort corona cash from the UK government and it appears that it did not work.

The Telegraph was reporting today that Sir Richard had set an end of May deadline to save the airline from collapse. Delta Air Lines, which owns 49% of the airline, has informed that they are in no position to invest fresh cash, and Virgin Atlantic owes them $200M.

Here’s an excerpt from the Telegraph (access their piece here):

The Sunday Telegraph has learnt that the pursuit of a £500m government package has been effectively shelved and that the airline is now focused on securing new private investment in the shadow of potential insolvency.

Those interested in rescuing Virgin Atlantic are understood to include Lansdowne Partners, the hedge fund founded by George Osborne’s best man Peter Davies, Singapore sovereign wealth fund Temasek and Northill Capital, the fund that is backed by Italian-born Swiss Ernesto Bertarelli.

Insiders said that a number of parties were likely to form consortia over the coming days as they reviewed detailed financial information provided by the airline.

Suitors can offer to structure a rescue by injecting debt, equity or convertible loans, which could leave Sir Richard with no residual stake.

Reuters was then reporting that Virgin is indeed still negotiating with the UK government (read more here):

“Because of significant costs to our business caused by unprecedented market conditions which the COVID-19 crisis has brought with it, we are exploring all available options to obtain additional external funding,” she said.

She said talks with the British government were “ongoing and constructive.”

Bloomberg wrote earlier that while Sir Sirchard might be a billionaire on paper, he appears to be cash poor (read more here):

On one level Branson’s predicament is simple, and pretty common for someone about to turn 70: He’s asset rich, and cash poor. But considering his pretty relaxed approach to business, Branson’s financial arrangements — spanning his British Virgin Islands tax residency and a portfolio of often debt-laden holdings — are as complicated as they come.

Branson’s talent has attracted wealthy partners, willing to invest alongside him in return for a share of the profits. One of the more unfortunately timed of these was a fleet of Virgin-branded cruise ships, co-funded by Bain Capital and the Singapore sovereign fund GIC Pte., due to start sailing this year.

Here’s what Sir Richard wrote last week:

Richard Branson Virgin

Virgin Atlantic Collapses Unless UK Government Chips-In

Conclusion

The most obvious solution would be for Sir Richard (51%) and Delta (49%) to recapitalize the airline. It would look terrible for Delta if they used cash to prop up a foreign airline after getting a bailout from the US government. Delta certainly needs more money by itself, too, and other airlines that it partially owns (AeroMexico and LATAM).

Sir Richard’s assets appear to be illiquid and it is the worst possible timing to launch a cruise line that was set to start sailing later this year. Many of the businesses that he partially owns are in the hospitality sector that is bleeding badly.

£500M may sound a lot but, unfortunately, is not in the aviation sector. Would this amount be enough to let the airline sail through to 2022? Covid-19 travel restrictions and bans will undoubtedly be in place until 2021 and it is difficult to see much demand immediately after that due to people not feeling secure enough to travel (financially).

There certainly will be airline collapses due to the coronavirus pandemic. The first ones to go will be the airlines that couldn’t turn a profit even during the best of times.

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