Branson’s Airline Saved as Ruling Caps Race Against Clock

(Bloomberg) — Richard Branson’s Virgin empire has faced many challenges in its five-decade history, from high-profile legal clashes with British Airways and failed bids to run the U.K. national lottery to abortive forays into vodka, cola and bridal wear.

The setbacks have been so numerous that overcoming them has become part of the Virgin DNA. Yet the six-month battle to save Virgin Atlantic Airways Ltd. has been a case apart, involving as it has the business that first truly took the group global and remains its best-known brand.

The battle to stop the carrier from becoming one of the highest-profile corporate victims of the coronavirus crisis was finally sealed on Wednesday after a U.K. court gave the go-ahead for a 1.2 billion-pound ($1.6 billion) rescue built around a loan from private-equity firm Davidson Kempner Capital Management.

Virgin Atlantic’s $1.6 Billion Rescue Approved by U.K. Court

The hard-won financing package emerged as the last, desperate option for saving the carrier after it became one of the few worldwide to be refused state support when Britain denied it access to the 330 billion-pound Covid Corporate Financing Facility, a fund tapped by half a dozen airlines.

The deal comes at a cost to Branson, who injected 200 million pounds of his own money into the company, raised through the sale of shares in Virgin Galactic Holdings Inc., the orbital tourism venture that had become his obsession in recent years.

“Branson has shown that he has a real attachment to Virgin Atlantic,” said Stephen Furlong, an airline analyst at Davy Stockbrokers in Dublin. “It’s also central to the strength of the Virgin brand and its ability to generate royalties.”

Virgin Atlantic’s challenge now will be to ride out the crisis with minimal cash burn as long-haul routes remain limited by border restrictions, while preserving flying rights at London Heathrow airport.

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“They need to get through to next spring and hope that the traffic comes back,” said Nick Cunningham, an analyst at Agency Partners in London who has covered the aviation industry for 30 years. “It’s vital that they preserve cash, and that could mean more job cuts once furloughs end. But they also need to keep operations going and hang on to those slots.”

‘Massive Battle’

Branson, who turned 70 in July, was quick to highlight the threat to Virgin Group businesses posed by the virus, given their focus on travel and leisure, sectors that were effectively shut down as the pandemic gathered pace. “They are in a massive battle to survive,” he said in a March blog post. “This is the most significant crisis the world has experienced in my lifetime.”

Not long after, Branson said he had little money on hand to fund struggling brands, arguing that he was asset rich but cash poor after extracting little “significant” profit from Virgin and plowing proceeds into new businesses.

With the U.K. government demanding that Virgin Atlantic exhaust all options for private financing before it would consider any form of assistance, he had no choice but to weigh asset sales, while asking Shai Weiss, the carrier’s chief executive officer, to begin a search for outside funding.

Political Turn

The issue of aid for Virgin Atlantic also took on a political dimension. Branson’s residency in the British Virgin Islands, where residents pay no income or capital-gains tax, together with more than 3,000 job cuts at the airline, stirred hostility to any funding from the public purse.

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Virgin Group says it and its brands pay all required taxes, while the carrier points to the quick agreement on redundancies with employees, in contrast to simmering disputes at rival operators including British Airways.

Branson initially pledged to mortgage his Necker Island retreat to free up cash, though it’s not clear if he did raise money from the 74-acre luxury resort. The focus quickly shifted to Virgin Galactic, which was buoyed during the Covid crisis by optimism about space projects and successful launches by Elon Musk’s Space Exploration Technologies Corp., or SpaceX.

Branson raised more than $450 million from Virgin Galactic, which remains his most valuable listed asset. The company has a market value of $4.37 billion following a 51% share price gain this year as of Tuesday’s close in New York.

The entrepreneur has seen the stake he controls in the business, which plans its first launch of space tourists next year, cut to just above a quarter from about 50%. His personal wealth has also taken a tumble, slumping 13% this year to $5 billion, according to the Bloomberg Billionaires Index of the world’s 500 richest people.

Ultimately, though, Branson may consider the cannibalization of Galactic shares as money well spent, rescuing as it does an asset that’s still a standout among a portfolio of more than 60 businesses ranging from a $220 million stake in Virgin Money UK Plc to an African game reserve and a new cruise arm.

Virgin Atlantic was set to fold later this month without the rescue, CEO Weiss had said, his warning given substance by the collapse of sister carrier Virgin Australia Holdings Ltd., which called in administrators in March.

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Branson had little direct involvement in the Australian firm, with Singapore Airlines Ltd., Etihad Airways PJSC, HNA Group Co. and Nanshan Group Co. each owning about 20% to his 10%.

Still, the entrepreneur is in discussions about re-investing in the carrier following its sale to U.S. buyout firm Bain Capital LP, earmarking about A$100 million ($74 million) to restore his stake.

During Virgin Atlantic’s inaugural flight to Tel Aviv last year, Branson described the carrier as his first love, and one for which his passion had been rekindled in recent years after the sale of a 49% stake to Delta Air Lines Inc. The move opened up new markets, and a slew of new planes and routes rejuvenated its product offering under Weiss, who took over as CEO in January 2019.

Branson was so bullish on Virgin’s prospects prior to the coronavirus outbreak that in December he pulled the plug on a deal to sell 31% of the carrier to Delta ally Air France-KLM, hanging on to his majority holding.

As a key player in a North Atlantic travel market that remains the industry’s most lucrative, especially on high-profile New York-London services, the business also projects the Virgin name more effectively than any other — at least until its space sibling begins transporting celebrities and the super-rich to the brink of space.

(Updates state of discussions with Virgin Australia in 20th paragraph)

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©2020 Bloomberg L.P.

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