Virgin Atlantic is fighting for survival, but its recent job cuts were less about a short-term need to shed workers and more a strategy to entice investors.
Earlier this week, Virgin announced that it would cut 3,150 jobs due to falling demand and cashflow concerns due to COVID-19. That amounted to 1/3 of the Virgin Atlantic workforce. Virgin’s London Gatwick base was also closed and the carrier will retire its four-engine 747-400. While falling demand and cashflow concerns certainly played a role, an internal memo to pilots reveal an previously-unspoken ulterior motive: convince the UK government and investors that Virgin was ready for a cash infusion.
Per Reuters, the May 6th memo to pilots stated:
“In order for us to qualify for financial support from HM Government or the private sector it is critical that we demonstrate that we have taken all self-help measures in a timely fashion so we can secure the funding we need to survive.”
Virgin Atlantic declined to respond specifically to the note, except to note that “discussions are ongoing and constructive” among employees, unions, the UK government, and potential investors.
Sir Richard Branson, who owns 51% of Virgin Atlantic, has put Necker Island, his own island home in the British Virgin Isles, up for collateral.
The job cuts and Gatwick closures were the first steps to convince the UK Virgin will take meaningful changes to become solvent. Now Branson and Delta Air Lines, who together own Virgin Atlantic, will try to seek out private equity before approaching the UK government again as a last resort. Branson’s tax-free hideaway in the Caribbean and Delta’s refusal to inject any more cash into its investment will likely be two additional barriers to any government rescue package.
Branson’s recent note to employees did not mention job cuts. While everyone should have seen them coming, that omission further suggests that these jobs are being sacrificed, hopefully on a temporary basis but likely on a much longer basis, to secure outside funding.