leadf
logo-loader
viewVirgin Australia

Branson left red faced as Virgin airline empire faces total collapse

The billionaire is currently pleading for UK government loan to save his Virgin Atlantic operation, despite having criticised similar rescue efforts sought by rival British Airways a decade ago

International Consolidated Airlines Group - Branson left red faced as Virgin airline empire faces total collapse

Billionaire Richard Branson is facing the complete collapse of the airline portion of his Virgin empire after the antipodean division, Virgin Australia, went into administration on Tuesday.

The airline, the country’s second largest carrier, is now looking to secure new buyers and investors after it failed to secure a bailout from the Australian government to help address its A$5bn (£2.55bn) debt pile, although the government in Canberra has promised around A$900mln (£460mln) to support local carriers.

Virgin’s demise now leaves competitor Qantas with almost complete dominance of the Australian domestic flights market, having held 58% previously compared to Virgin’s 31%.

However, Branson’s troubles are not over as Virgin Atlantic, the other carrier in his conglomerate, is now also facing collapse as the coronavirus pandemic and government lockdown measures decimate demand across the travel industry.

READ: Virgin Atlantic will not survive without government support, Branson says

Branson is reportedly seeking a £500mln loan from the UK government to help stave off the carrier’s bankruptcy. Virgin Group owns around 51% of Virgin Atlantic, with the remaining stake owned by US airline Delta.

“Over the five decades I have been in business, this is the most challenging time we have ever faced...From a business perspective, the damage to many is unprecedented and the length of the disruption remains worryingly unknown”, the tycoon said in a letter to Virgin employees.

He added that Virgin Group has already committed around a quarter of a billion dollars to help the business and protect the jobs of its 70,000 staff, adding that a move to reduce employee wages at Virgin Atlantic for eight weeks had been a “unanimous decision” made by the airline’s workers and their unions to “save as many jobs as possible”.

The letter also stressed that the £500mln being sought was not “free money” but a loan the airline will pay back. The billionaire has also offered to put up his private Caribbean island, Necker, as collateral for the loan.

However, Branson’s pleas for financial assistance have attracted a somewhat frosty reception, with some criticising the fact that he has decided not to deploy more of his vast personal fortune, estimated to be around £2.2bn, to help out the struggling airline operation.

Some may also accuse Branson of hypocrisy for seeking a government bailout after having denounced a similar move around a decade ago by competitor British Airways, now part of International Consolidated Airlines Group SA (LON:IAG).

At the time, the billionaire said the government “should not intervene to stop companies going bust”, words that are likely to come back to haunt him now his own airline teeters on the brink of total collapse.

Broker brands IAG ‘market leader’ amid travel turmoil

In fact, IAG may have the last laugh on Branson, with analysts at Peel Hunt saying in a note on Tuesday that the owner of BA, Aer Lingus and Iberia was “market leader in a ‘stay at home’ world”.

“IAG is well capitalised, has continuing access to aircraft financing and is trading at as low a proportion of capital employed as it ever has”, the broker said, retaining their ‘buy’ rating on the stock alongside a target price cut to 300p from 650p.

“Despite ongoing pessimism, demand for travel will not disappear; travel to see friends and family has historically been resilient, and this is highly likely to continue. While not as strong, holiday travel will remain in demand”, Peel Hunt said, although the cautioned that business travel is “likely to fall sharply” as video calling replaced some travel and cut into IAG’s revenues.

Quick facts: Virgin Australia

Price: 0.086 AUD

ASX:VAH
Market: ASX
Market Cap: $726.29 m
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

3 min read