Richard Branson to pump £200m into Virgin Atlantic as part of rescue package

Funds will be moved from Virgin Group as sector continues to be hammered by Covid-19

Richard Branson is to inject £200m into Virgin Atlantic to help it survive the devastating effect of coronavirus on air travel, as part of a rescue package of up to £900m, put together months after the airline sought a taxpayer-funded bailout.

Branson will transfer the money from his Virgin Group into the airline, funding the transaction with the proceeds from the sale of $500m of shares in his space tourism venture Virgin Galactic.

The cash boost comes on top of a further £400m arrangement already agreed between the transatlantic carrier and its two major shareholders, Branson’s Virgin Group and the US airline Delta, which holds 49% of the company. This segment of the rescue package involves the two backers waiving or deferring certain fees, such as the £20m that Virgin Atlantic pays every year to use the group’s branding. Delta will forego payments due to it for services such as IT and ticketing systems.

Virgin Atlantic is also working on securing new funding of up to £250m from private investors, with private equity group Centerbridge Partners and hedge funds Elliott and Davidson Kempner Capital said to be weighing up investments.

Negotiations among the interested parties are understood to be accelerating, with a conclusion expected some time next week. A further £200m has been agreed in the form of relief from some of Virgin’s suppliers such as aircraft manufacturer Airbus.

Air travel has been dramatically reduced due to the pandemic and is not expected to recover for several years. Airbus and Virgin have agreed that the delivery of planes already ordered will be staggered, allowing Virgin to defer payment for them.

Virgin was left scrambling to put together a private sector funding deal after the government made it clear that it was not prepared to use taxpayers’ money to bail out the billionaire’s airline. In April, Branson said he would mortgage his private Caribbean island to raise money to help his Virgin Group empire, as he pleaded with the UK government to give his carrier financial aid.

Virgin Atlantic is still in talks with the government over measures that could have a significant impact on its finances, such as quarantine rules affecting passengers arriving into the UK and so-called air bridges facilitating travel to other countries via bilateral deals.

But the government is thought to have ruled out any bailout for the aviation industry for the time being, forcing the company to explore every possible avenue to source funding elsewhere.

The request for government funds had prompted a substantial backlash, with some observers pointing out that Branson has paid the exchequer no personal income tax since moving to the tax-free British Virgin Islands 14 years ago.

Virgin Atlantic has already moved to slash costs, announcing plans in May to cut more than 3,000 jobs and shut its operations at Gatwick, to cope with air travel being all but choked off by the pandemic.

The 3,150 planned redundancies represent almost one in three of Virgin Atlantic’s workforce of 10,000, with the deep cuts prompting calls from unions and Labour for the government to step in to save the jobs.

With the aviation industry in an increasingly parlous state, its biggest players have moved to hack back costs. Ryanair pilots agreed to a 20% pay cut on Wednesday as part of efforts to avert 3,000 job losses.

EasyJet is planning to make as many as one in three of its pilots redundant and close its bases at Stansted, Southend and Newcastle airports.

Airbus said this week that it would cut 15,000 jobs worldwide amid the industry’s “gravest crisis”, with 1,700 of the job losses coming in the UK, where engineers make wings for its planes.

Contributor

Rob Davies

The GuardianTramp

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