Branson Backtracks On Virgin Atlantic Sale To Air France-KLM

Everyone has a price. Just sounds like a ploy for more money.

Bloomberg is reporting that the terms of the agreement to call off the deal include remaining a part of the revenue-sharing JV With AF-KLM and Delta, which seems almost too good to be true for Virgin... I am guessing this will be costing Branson an absolute fortune - perhaps a significant portion of the original deal price, in order to retain his place in the “mega joint venture” and avoid bad blood.

Perhaps Branson saw what Alaska did with with Virgin America, and couldn't stomach the same fate for Virgin Atlantic.

I imagine it was because under AF/KL/DL control, VS would be effectively shut down minus a few lucrative O/D routes to/from LHR with most slots transferred to AF/KL/DL or sold and they were not on board with Branson's plan to turn VS into a 2nd UK flag carrier, thus he had to do something to retain enough control to pursue that vision.

money money money

The operative language is that "Richard Branson reached a deal" to terminate the planned sale.

In other words, he ponied up more cash and affirmed that he wants VS to be part of the DL/AF/KL joint venture.

It's an ownership thing. He sees what Delta's management has done in helping turn around VS; they do have multiple seats on the board.

VS has a future which is why DL has spent a lot of money to fix them up; for a price, Branson was willing to keep VS closer to the vest. I am sure for the right amount of money, DL and AF/KL were happy to have renegotiated the contract to ensure that the benefits of the joint venture accrue to the airlines that worked to get the joint venture approved and would have benefitted to an even greater degree from their equity position.

AF/KL will still benefit from the joint venture because Branson could not have gained the benefit to VS any other way. Now they will just benefit other than through equity.

With less control from Delta Virgin have much more hope of a large Heathrow expansion.

It actually makes more sense for both BA and Virgin if Virgin's expansion is approved. It firmly shuts the door on easyJet who have been planning to open up a Heathrow base if the third runway gets the go ahead. So as much as BA would hate Virgin becoming a much bigger carrier it would play out to their advantage in the end. They'd still be the most dominant carrier but they'd have a competitor on equal terms, not one that would undercut them on price and cripple their European short haul routes.

Is a third runway likely anytime soon? Been going on for so long I have no clue what to believe

@Robert you're SOOOO right. Its not an altruistic streak in Branson who has always been about the $$$. Hope AF/KL & DL take hm to the cleansers. My guess is that they will offer the shares at a discount to his original price.

Could this be Brexit related as VA would need to be 51% UK owned?

@Tim Dunn what money has DL spent on VS to ‘fix them up’ ?

The DL 49% share holding came from SQ. They didn’t put any cash into VS.

The share sale was conditional on the JV being approved but both VS and AF-KL had break clauses. There was also a clause that AF-KL could still force the sale to them through if they wanted. it’s clear they don’t want to to that.

However this change appears to have been an amicable one.

A lot has happened in the last couple of years and it’s clear there has been a reprioritisation at AF-KL on what they want to spend their cash on - fleet renewals etc.

I don’t see their being any huge cancellation fee here (unlike the (I think) €50m Iberia has to lay Air Europa if that sale falls through). If the JV is successful they will actually make more money in the longer term.

This is the letter Sir Richard sent to VS staff -

https://www.virgin.com/richard-branson/letter-virgin-atlantic-employees

And whoever mentioned flags - all VS planes have the Union Flag on them.

Yes there is money in this. Honestly, I suspect some emotion, too. VA is the last of the 'original' Virgin businesses either alive or that he has a stake in. I suspect there is a bit of attachment here that means the price needs to be mega high to be any sort of attraction at this stage [in his life] for Branson.

skedguy - AF/KLM don't own any VS shares yet, so how on Earth can they "offer them back at a lower price"?

As usual, most of the analysis on here is dreadful. There's little benefit in AF/KLM owning a third of Virgin when all their goals - a strong transatlantic joint venture - are now happening anyway. I'd be willing to wager that they responded very positively to the request to cancel the sale and any break fees are minimal/waived.

No surprises at all, this is the Virgin modus operandi, generate publicity by any means possible so they generate it with the sale and then generate a bit more by calling the sale off.

Delta didn't see them coming, the share Delta has was owned by Singapore Airlines for years who just longed to be rid of their difficult acquisition and unloaded it to Delta willingly because SIA found Virgin impossible to work with. Delta are now stuck with that share of Virgin which doesn't allow them due influence, SIA walked away happy and Branson has his publicity. He wins, Delta loses and AF/KLM are well out of it.

Remember at all levels the Virgin empire be it the airline, the gyms, Virgin Care, money or phones are built on over promise and under delivery. No one with sense touches the brand.

@ChrisC
You are kidding yourself if you don't think that Delta has poured an enormous amount of money into VS, far beyond the ownership stake.
VS now runs off of DL's in-house res system, DL maintains many of their planes, DL has spent thousands of hours trying to help VS restructure its network for the benefit of both - but VS has most definitely gained a benefit in the process.
Some of those things are typical in joint ventures but some are unique to DL and its equity position- and they may or may not have assumed that the full cost would have been offset by increased ownership by DL and AF/KL - or not.

And I'm still not sure why you or anyone is trying to minimize the partnership that DL and VS have built. Branson may be brazen but he is smart and he knows that DL was the best thing that happened to VS. He isn't about to walk away from one centimeter of the relationship and welcomes the deeper relationship with AF/KL that will undoubtedly further increase the value of VS. Branson absolutely wants continued DL's presence on VS' board. And AF/KL will help VS succeed at regaining some of the eastward focus on its network for the same reason that DL has succeeded in helping VS excel to the west.

And, most importantly, Branson RENEGOTIATED an agreement w/ DL and AF/KL. There is no charity on either side. Branson paid something of value to retain control and rework what was obviously a valid contract.

Both sides will do fine. DL will have 49% of VS - which is comparable to AM and much higher than with most other partners.

this didnt age well lol