Richard Branson Reportedly Looking To Sell Virgin Atlantic Stake

Filed Under: Virgin Atlantic

Update: Virgin Atlantic has announced some significant cost cutting measures.

Well that escalated quickly…

Virgin Atlantic is on the brink of collapse

About a week ago Richard Branson wrote an open letter, in which he stated that without government aid, Virgin Atlantic will collapse.

Virgin Atlantic is 51% owned by Branson, and 49% owned by Delta Air Lines. Virgin Atlantic had asked for government aid, but was rejected. Delta can’t legally own any more of the airline and has also stated that they won’t provide any further funding.

The optics of a government bailout are also not great:

  • Branson is a billionaire, and people argue that he should just inject more money into the airline; he responded by essentially arguing he’s not as cash-rich as people assume
  • Branson lives in the British Virgin Islands and some have accused him of being a “tax dodger,” to which he responds that he loves living there, and he didn’t move for tax reasons

Virgin Atlantic is in financial trouble

Branson now looking to sell 51% stake in Virgin Atlantic

The Sunday Telegraph is reporting that Richard Branson is no longer primarily focused on a government bailout, but rather is now looking to sell his stake in Virgin Atlantic. A few things to note about this:

  • Per laws, the buyer would have to be from a UK or European Union country, since 49% of the company is already owned by a US company; however, with strategic consortiums that can kind of be circumvented
  • If Branson can’t find a buyer by the end of May, the airline will likely enter administration
  • While the above is where things currently stand, it’s of course very possible that the government gets involved again

Virgin Atlantic has brand new A350-1000s

Who could buy Virgin Atlantic?

About 50 buyers have already expressed interest, and none are believed to be airlines.

Under normal circumstances I’m sure airlines would have loved to swoop in and buy a distressed Virgin Atlantic, but at this point virtually all airlines can’t afford to even consider this.

Perhaps one exception would be government-backed Qatar Airways, but they own a stake in IAG, the parent company of British Airways, so that’s not happening.

In general I’m not a fan of private equity groups or sovereign wealth funds taking over airlines, since it’s rarely good for the passenger experience. They’re rather spreadsheet-oriented (is that a polite way to put it?). Then again, so is Scott Kirby…

I’m also curious what this means for Delta, both when it comes to their stake in the airline, and the ways Virgin Atlantic’s business model may evolve under new ownership.

This can’t be good for Delta. As I wrote about in a separate post, I really think their global strategy is starting to backfire.

Virgin Atlantic’s 787-9 business class

The irony in all of this…

Air France-KLM, Delta, and Virgin Atlantic, have a new mega transatlantic joint venture. In anticipation of this, back in 2017 it was announced that Air France-KLM would be buying a 31% stake in Virgin Atlantic, at a cost of 220 million GBP.

In other words, Virgin Atlantic would be owned 49% by Delta, 31% by Air France-KLM, and 20% by Branson.

At the very last minute Branson called off the deal, though, as he wanted to maintain his stake in the airline. It’s not known how much money he spent for the deal to be called off, though it can’t have been cheap.

When Branson agreed to the deal in 2017 he said that the decision came because he felt it was necessary to safeguard the future of the airline in an industry dominated by just a few airline groups.

Clearly his feelings changed. Around the same time Virgin Atlantic acquired Flybe and they were going to be rebranded as Virgin Connect, though that airline has liquidated in the meantime.

Obviously no one could have predicted this crisis, though if he had just followed through with the deal he had agreed to, he’d be a much richer and less stressed man (and meanwhile Air France-KLM would have a big problem on their hands).

Air France-KLM, Delta, and Virgin Atlantic, have a joint venture

Bottom line

Branson is now looking to sell his 51% stake in Virgin Atlantic, after failing to secure government aid. The buyer will have to be from the UK/Europe, and it looks like we should expect a non-airline buyer, given the current situation.

The airline will apparently collapse if a buyer isn’t found by the end of May (or if the government doesn’t backtrack), so this will be something to watch over the next few months.

Between Branson backtracking on selling his stake to Air France-KLM, Flybe collapsing, Virgin Australia entering administration, and Virgin Cruises launching in 2020, Branson is having especially bad luck with business right now…

Comments
  1. “Branson is having especially bad luck with business right now…”

    I think most every business owner is having especially bad luck right now. He is not so special in this.

  2. I don’t see the purpose of Virgin Atlantic existing, on many of their Long Haul routes other airlines already fly the same routes (eg. LHR-JFK already has BA, AA and DL) while on Domestic and Short Haul their non existent.

  3. I have a round trip ticket on VA purchased thru Air France for June 17-27 lax to Paris. Cancel now? And get a credit? What’s the best strategy? Thanks!

  4. In essence if VS hadn’t focussed so much on BA and transatlantic revenue from LHR, they would be in a much better financial position today than they currently stand. The Flybe debacle to compete on domestic routes would never of worked from a slot controlled Heathrow, similar to the failure of Virgin red years previously. The only way the airline will survive is to switch all routes to Gatwick, partner with U2 for European and domestic flights and sell the Heathrow slots. Whilst this may seem mad, there most profitable flights have been there Orlando, Vegas and Carribbean flights which until recently have all been Gatwick departures. This would create two mega hubs in Britain and would ensure success for both.

  5. @Phil The purpose would be competition, same with just about any other airline.

    There are more UK routes than just LHR-JFK and that even with VS operating, BA/AA control the majority of the trans-continental take-off/landing slots in the entire UK.

    No-one has done more than Virgin to provide some actual competition to BA, and if you doubt that you can look at how many times BA has done their best (including acting illegally) to put competitors, including VS out of business.

    I for one certainly don’t want to deal with a UK aviation market even more heavily dominated by Budget Airways with its poor product and customer service.

  6. @John
    Overlapping on many of their competitors routes haven’t been successful though. If it had been so successful why are they asking for government $$$ for?

    And the UK market already is budget dominated if your talking domestically.

  7. Branson had a great idea knew branding as many didn’t however in continuation or long term management he like many others often fail. At some point one ego must be put aside and prudent long term managers put in place thats first year business school. Branson’s ego has once again gotten in his way look no further to Virgin USA. When Alaska bought it and they paid a premium the planes were a wreck there was no money for upkeep other than regulatory requirements.

    I also agree that Delta’s business plan might be coming off it’s wheels not so much a bad direction just no one foresaw this mess we’re in. So that begs the real question “What is air travel going to look like” on the other side of this ? Certainly many if not all of the marginal carriers will fall by the wayside, maybe not such a bad thing, pilot shortage will subside due to this, packed airplanes? Seating will change as well filtration systems.

    Virgin Atlantic could be the major collapse that has been predicted in the airline industry. The sad part of all of this are the workers who will lose their jobs, permanently. Remember cheap oil cost jobs as well.

  8. I’ll offer £1.

    On a serious note, I hope they survive. My fear is that several airlines will collapse, and as a result competition will become less. Yes, it’ll be good for the surviving airlines but the customer will pay higher prices and possibly get worse service as a result. The U.K. is the only European market where all three alliances compete properly on the Atlantic.

  9. While BA were improving their hard products, VS were frantically reducing the comfort of premium economy By making the new seat much harder and narrower than the previous model, and what was once the solid standard in main economy with economy delight.

  10. If the company is on the verge of collapse, does Branson make more than a pittance in selling? Wouldn’t the buyer just be putting cash into the company, rather that paying Sir Richard?

  11. In the current environment and the anticipated very slow recovery to pre-COVID19 levels for air traffic, which could take 2 years to realize, there is really not much purpose for VS to exist. BA itself will likely shrink and LHR will see a great many of its slots remain suspended. This is all bad news for DL, which needs VS as a TATL partner (in a normal, non upside down world) but those days are gone. As for DL’s LHR operation, my sense is that it will recover to be just an ATL/JFK/BOS and LAX operation (LAX replacing VS if it goes under). The rest of it will take years to come back on line, including MSP/DTW.

  12. @ghostrider – Virgin Atlantic is nowhere near a “major” airline from a global perspective, and while its collapse will have significant impact on the London market (not even the entire UK market really) it will be just a blip elsewhere.

    To put it in perspective, Virgin Atlantic is only the 28th largest airline in Europe alone by passenger boardings, and has revenue of around $3b (around 5% of that of Delta, United, American and Lufthansa) which puts it way down the global list.

  13. Per Forbes “Virgin accumulated £211 m of losses last decade for a negative 0.1% operating margin. British Airways made £11 billion at a 10% margin. Virgin has yet to report its 2019 accounts.”…what was Delta thinking??

  14. It will be very unfortunate if Virgin Atlantic goes out of business.. It’s actually a very good airline–I flew a couple of times on From ATL to LHR in business class, and I must say it was one of the best flying experiences I’ve had: very comfortable seats, and a very good customer service…

    I hope anyone who ended up buying Virgin, wouldn’t gut that airline… I wouldn’t bet on that though…

  15. And what about “Brightline”? That’s the high speed Florida railroad owned by Branson, which is not fully developed and losing money.

    Will that be “Flatline”?

  16. @Endre, Lolz!!! Sir Dickey has been telling a breathless and gullible media that he’s putting people in space “next year” – every year since 1998.

    It’s difficult to think of a fraudster who’s had more of a free pass.

    Virgin cola, virgin records, virgin galactic.

  17. Yes: we all know how good Scott Kirby has been for pax ex.
    Think DL has fallen down the same rabbit hole as SR, EY and the only reason QR isnt there is massive state aid. Don’t buy other people’s troubles and think you can wave a magic wand and make them better. Never happens.
    But I digress.
    VS very rarely are route pioneers. They go in on routes where BA & someone else have a cosy duopoly and play disruptor, usually by thrashing yields so they can capture the lower end of the market
    Their experience in YYZ is an interesting case in point. They operated YYZ LHR where only BA & AC flew. However, they completely missed the point that TS flew to LGW and thus had the low end of the market covered very nicely. Also AI may have also been on the route – well there go your yields. Conveniently used the 2008 crisis to withdraw.
    The Brits have a lovely expression: all talk and no trousers

  18. Wasn’t it Branson who said, “If you want to be a millionaire, start with a billion dollars and buy an airline!”

  19. @Robert schmidt

    Branson / Virgin Group does not own Brightline it only has a small minority shareholding and licenses the use of the Virgin Brand to the company

    NOT every company with the ‘Virgin’ name or branding is owned (either majority or minority) by Virgin Group

  20. I think you’ve got the details wrong. Branson is looking for a cash injection. Selling his stake would put money in his pocket and not the company’s. More likely the deal, if it goes through, would involve a loan, with warrants for shares at a very attractive price, or a sale of newly created shares with Virgin getting the cash. This would dilute Branson’s ownership and presumably Delta’s also.

    That’s not to say that Branson isn’t also looking to sell some or all of his holdings but that by itself is of no benefit to the company.

  21. No better time to recirculate the old joke:
    Q: How do you make a small fortune in the airline business?
    A: Start with a large fortune.

  22. Prerequisite for air travel are countries that will let you in. With that more and more unclear what do we need airlines for?

  23. I have 600k Virgin miles that I regret ever having earned
    Every time I ever tried to use them they supposedly had no inventory or some partner restriction
    Like to use them for Virgin America back in the day sorry you have to redeem round trip oh we don’t allow redemptions in that market etc
    Want to go business class to Hawaii on Hawaiian sorry no seats
    Agent says I’ve never booked any in all the years I’ve been working here anytime I checked
    ANA First class sorry must redeem for a round trip
    The one time I ever flew Upperclass I disliked it the smelly hot towels the crowded cramped cabin the sub par food and uncomfortable seats
    Did not feel premium at all and the upper class lounge inferior out of SFO
    Has to be the worst program I have ever stepped foot in
    Prepared to lose them all but hoping for the best and they survive.Competition is good for everybody

  24. Not sure why someone would buy his equity. They could buy the debt and end up with equity most likely.

    On another note, though I haven’t flown VA in decades, it is sad to see another airline struggle or disappear.

    I am a BA F customer LAX -LHR RT and love the experience (A380 pref over the 747 sadly ). Could never do VA Biz (can’t do BA Biz either) but was thinking about trying the A350 experience. Hope I will be able to some day again.

    The world is better with more good choices. Hopefully the new owners will follow through on that.

  25. @Steve

    When DL bought their 49% share I saw comments on what Virgin would spend the cash injection on but Virgin and Branson didn’t see a penny because Delta bought the holding from SQ.

    So yes selling part of his stake in the company does not help the company.

    BTW it is worth saying that VS pays all the UK taxes that it is required to pay based on UK tax law so corporation tax on profits (if any) but also employers taxes (national insurance here in the UK) as well as business rates (property taxes) and so on.

    What Taxes are paid on his personal income from VS and his other companies are totally separate from the company.

  26. Will DL honor an award ticket issued using VS miles went they go belly up? What is the best option for burning VS miles while you can?

  27. Don’t get this the wrong way. With loan unlikely given his plans to sell, a bailout with government ownership might not be bad.

    “About 50 buyers have already expressed interest, and none are believed to be airlines”

    This already shows there is still potential for VS to turnaround under proper restructuring.

  28. It will be a terrible shame if Virgin goes down the tubes, Its an excellent airline, by the way of their excellent staff, RB branded it well, and was his pet. his holidays were great, so we can not take that away, Then I feel, (like a lot of golf) it became more about him thn the brand.His first show was when UK voted to leave EU,His comments, How can people be”So Stupid, ” then followed on to say hpw much money he stood to lose? In fact he started to fund “stay in the EU” until his stock started rocket again? Then, he was selling to Delta , AF/KLM, and did,nt hoping for bigger cut, after he had agreed,it seems, Mysel I think Delta, have done a great job, with the tie up, its cost them lots of monies, but b4 the Virus, they could see a very good model, They themselves have used the premium economy, and a few ides,s from Virgin, The opp costs for Virgin , is a lot less than Delta, ie wages etc,Anyway we will wait asnd see, if RB sells, we can hope he sells to get some monies, but to someone ,who will inject into the Company, Myself I,d hope the Government could buy it, then sell shares when all it back to normal? I,ll speak to Boris.

  29. I suggest those who have expressed an interest are merely having a look at the books to see if any parts of the business are worth buying out of administration.

    Feel sorry for the staff as I supect they will get screwed whatever happens.

  30. From the early days when it provided genuine competition, Virgin has now pretty-much joined the trans-Atlantic cartel. While they have a few unique routes from MAN, from London at least they pretty much duplicate BA fares. Other than Havana, I can’t think of anywhere else that they fly and BA doesn’t.

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