Virgin Atlantic is in big trouble. Backed against the wall with mounting debt and declining revenue, the iconoclast founder and majority owner, Sir Richard Branson, has made one final plea to the United Kingdom, warning Virgin will collapse without a government loan. But the public is skeptical about a Virgin Atlantic bailout.
Richard Branson Promises To Mortgage His Private Island To Save Virgin Atlantic. Maybe?
In a long-winded blog post yesterday that touched on a number of topics, Branson defended his choice to live in the tax-free British Virgin Islands and pledged to use his island to raise money to sustain Virgin.
“The rest of the island is run as a business, which employs 175 people. As with other Virgin assets, our team will raise as much money against the island as possible to save as many jobs as possible around the Group.”
Headlines broke that Branson would use his island, purchased when he was just 29 years old, as collateral a government loan.
Not so fast.
Branson later confirmed via a spokesperson that Necker Island would NOT be used as collateral for any government loan. Rather, it “may” be used for security against commercial loans. May as in maybe…
The spokesperson added:
“He and the team at Virgin Group will use the resources available to them which could even include raising money against Necker. He does not state that Necker Island would be used as collateral against any potential government support Virgin Atlantic may receive.”
That doesn’t promise anything.
Why So Much Skepticism Over Virign Atlantic?
EasyJet received a loan of £600 million without much controversy. Why not Virgin?
It goes back to Branson once again.
As one critic told The Guardian:
“Richard Branson’s letter failed to convince us that suing the NHS wasn’t bad for the health service, moving his money to a tax haven wasn’t to avoid tax, or that emitting millions of tonnes of pollution wasn’t bad for the environment. There are still no justified grounds to give Virgin an unconditional bailout. Public money should be used for public goods.”
The word unconditional is key, but the optics of a super rich man living in a tax haven asking a company that is 49% owned by Delta and which also sued the UK’s NHS over what many deemed a petty matter…well, not so great indeed.
Branson says his wealth is tied to his airlines, not money lying around:
“I’ve seen lots of comments about my net worth – but that is calculated on the value of Virgin businesses around the world before this crisis, not sitting as cash in a bank account ready to withdraw.”
I don’t doubt it. But I’m not sure that is going to win much sympathy.
And while Branson and proponents of the bailout certainly can make a strong argument that British Airways needs competition, the question of whether a taxpayer funded bailout is the only answer remains a tough sell.
CONCLSUION
Virgin Atlantic is in a tough position, to put it mildly. The bailout optics are bad and even if the Tory government ultimately grants one, it will lead to populist range. But unlike its American cousins, Virgin Atlantic is seeking a loan, not a government infusion of free money. That surely counts for something.
image: Virgin Atlantic
Hmm. I usually agree with you Matthew, but I may have to slightly disagree on this one. Just a couple nuances:
1. The “critic” who blurted out not being convinced by Branson’s letter is a campaigner. Not a government official with any hand in granting or rejecting the aid request. Not a member of the public. An actual lobbyist with a play to make. (Note I’m not disqualifying their opinion, just saying it is a view that serves a purpose.)
2. The Branson spokesperson was doing the “terms & conditions” move: qualify and caveat what Branson said to avoid the legal consequences of a promise involving the finances of an airline that has a publicly traded major shareholder, and which belongs to a conglomerate with stakes in other publicly traded companies. As you know, it could turn into a legal nightmare.
3. The statement about his personal wealth vs his net worth, while it won’t garner the sympathies of the average Joe, is actually on-point. If accurate, he’s right to say he doesn’t have $4bn lying around to reinvest.
4. Branson’s choice to live in BVI is legit. He isn’t *pretending* to live there to avoid taxes, he actually moved.
At the end of the day, Easyjet got a £600mn bailout from the UK government. Yet nobody said that Sir Stelios should use his $1.7bn net worth (of which, like Branson, most will be illiquid or be a function of his real investments, including in Easyjet) to inject cash into the airline. And nobody’s criticised him for living in Monaco for years as a ploy to avoid paying taxes in the UK.
So, I’m aware of the criticism that’s been levelled against Branson. Just not sure it’s level-headed.
Mike, check out my next article on the subject today. You’re already taking my talking points. 😉 This article was to tee up the next one…
Hah, guess I typed this too soon! Good to read the other article, all fair points
Much of the anger in the UK is focused on the Virgin group as a whole which extends to phones, banking, gyms, health care and more besides the airline. They have just lost the right for run a significant part of the railway and they lost it because they failed to honour pension commitments for the workforce.
In the DNA of that group is over promise and under delivery, they never meet your expectations and they create a lot of hype about how marvelous they are.
People have been particularly angered about Branson and how much money he bled from tax payers over the railway while taking his earnings to his tax haven without paying so much as a penny. He also caused great anger over his legal action and it was nasty because he failed to win an NHS contract. The legal action costs to the NHS forced service reductions for the most vulnerable. Not a clever thing to do unless you believe you can always get your own way.
As for the airline, again, people are sick of over promise and under delivery. Economy class on a 3x3x3 787 will always be grim no matter how the hype and more hype just makes reality worse.
So yes, there is anger about Branson coming wanting more taxpayers money and fortunately the government seem to be getting that right at least.
It’s also not just the UK, I believe Virgin Australia is in administration. Perhaps the world could just be cleared of this toxic brand.
Exactly…this is about more than just Virgin Atlantic.
Virgin Atlantic is indeed backed into a corner. 49% owned by a U.S. carrier is not going to sell well to the British public regarding a bailout. Nor is Delta going to pony up. Branson is not going to risk his personal assets. Air France/KLM just wants to survive and their offer for shares (which Branson must be kicking himself for not selling) will never happen now.
It’s like they are in a no-man’s land. While I agree with Mike above that it seems unfair given EasyJet receiving a bailout, it was still probably a much better sell to the British public. They are an LCC that brings travel to a wide swath of people – and keep fares low. As well will probably see operations return faster within Europe and keep UK secondary airports alive.
Virgin Atlantic is a higher cost airline with a strong focus on premium flights that, given the climate over the next year or two, has very little chance of surviving against BA given their lack of short haul feeder flights. Their loss at Heathrow would not be catastrophic as those slots would sell in a second and easily be filled in by surviving carriers. There is just no incentive to bailing them out other than other than the short term lack of competition to BA on primarily North American flights. But that frequency won’t be needed for a year or two. By then other carriers will fill in the competitive needs.
With that said, Virgin Atlantic could still survive. They would need to go back to the size they were years ago. Reduce frequency. Slash payroll with cuts and layoffs. Sell some Heathrow slots. Cancel aircraft orders and renegotiate leases. And, finally, find outside investors or loans.
Hhh he has already given us a clue regarding your next article.
In addition to the already mentioned reasons for the UK government to not bailout Virgin Atlantic I would like to add the silly comments of beardy Branson as reported on the BBC that he though Virgin Atlantic should be supported as competition for British Airways. Really… there are plenty of other airlines like Norwegian, AA, Air Lingus etc flying UK to US to provide competition. I flew Virgin Atlantic once – noisy old 747, grumpy cabin staff, not that great…..
Also Branson said he left the UK for the British Virgin Islands 14 years ago, not to avoid paying any taxes, but the love of his private island. Really….. if he asked his accountants to figure out how much taxes he would have paid if he had stayed in the UK, and sent that amount to the UK government every year, I think they would have accepted it…….