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Friday, July 10, 2020

Branson will sell Virgin Atlantic, an iconic brand but chronic losses

Sir Richard Branson is reportedly selling Virgin Atlantic while looking for a buyer by the end of May. He is actually giving up the UK government with a £ 500 million loan.

Who will buy? Virgin Atlantic has an iconic brand but chronic losses.

Virgin Atlantic has only recorded profits three times over the past decade, while British Airways has skyrocketed to reach profitability.

British Airways owner IAG is not asking for government support. EasyJet, also profitable, received a £ 600 million loan.

Virgin has accumulated £ 211 million in losses over the past decade with a negative operating margin of 0.1%. British Airways earned £ 11 billion with a 10% margin. Virgin has not yet reported its accounts for 2019.

Even more worrying, Virgin was still unprofitable in recent years despite having formed a joint venture with Delta Air Lines

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during the aviation boom years.

Delta owns 49% of Virgin, but last week said it would not help Virgin or other airline investments.

“We are unable to make financial commitments to any of them,” Delta CEO Ed Bastian told investors. “They are aware of it.” Delta is focusing resources on its operation.

Bastian suggested that Virgin Atlantic could go into administration and restructuring, as the sister company Virgin Australia is doing. The Branson Virgin group owns 10% of Virgin Australia.

MORE FROM THE FORBESVirgin Atlantic owes Delta $ 200 million, will not receive money from the US shareholder

“If they’re required to go through an administrative process in the UK, I’m sure they could re-emerge,” Bastian told MSNBC. “A legal process may be needed to overcome it.”

Branson for now seems focused on new capital and does not go into administration.

Houlihan Lokey is fielding the investment interests of some 50 companies, Telegraph said. This includes Centerbridge Partners, Cerberus Capital Management, Lansdowne Partners, Northill Capital Read and the Singapore sovereign wealth fund Temasek.

Temasek is also the owner of Singapore Airlines, which bought 49% of Virgin Atlantic in 1999 for £ 600 million, but sold the stake in Delta in 2013 for just £ 224 million. Temasek regularly reviews the opportunities and previously reviewed Hong Kong Airlines.

The search for a new investor comes when Branson last December canceled a plan to sell a 31% stake in Virgin to Air France-KLM, proposed two years ago.

This deal would put an end to the ownership and control of the majority of Branson as its stake would have been diluted from 51% to 20%. Delta and Air France-KLM would have owned 80%, effectively putting Branson aside. Virgin Atlantic would still be based in the United Kingdom

Branson could again try to sell part of his stake and lose control. Or new shares may be issued with Delta’s blessing, although Delta would likely prefer to dilute Branson’s holding so that Delta can exercise more power.

A Virgin spokesman confirmed Houlihan Lokey’s appointment and said: “Discussions with a number of stakeholders continue and are constructive, meanwhile the airline remains in a stable position.”

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