Virgin Atlantic job cuts were the only route to Treasury coffers

Billionaire Branson will have a tough time getting a hearing for the fantastical £500m of state aid he requires. What did he expect?

Here’s the bit Sir Richard Branson didn’t mention in his open letter to Virgin employees a fortnight ago: the only possible route to the Treasury’s wallet involves almost a third of the 10,000 staff at the Virgin Atlantic losing their jobs.

The jobs decision hadn’t been taken at the time but Branson could still have foreshadowed an obvious threat. Government ministers were never going to throw £500m of taxpayers’ money, or some such sum, in Virgin Atlantic’s direction unless they could see a vaguely credible plan to cut costs. The airline, remember, was loss-making even before the pandemic.

As far it goes, the new boardroom thinking looks pragmatic. Unprofitable routes will be dropped, gas-guzzling and ancient 747s will be ditched and Gatwick will be abandoned as a base for the time being. It’s tough on staff but the entire airline industry is acting similarly.

The action plan, though, is very far from being a sufficient qualification for a bailout. The Treasury will not want to see Virgin Atlantic go bust, taking even more jobs with it, but, as Branson must know, the politics of a loan are appalling.

He’s a billionaire who lives in a tax haven and who has a liquid asset in the form of a $1.5bn stake in publicly traded Virgin Galactic; and the owner of the remaining 49% of Virgin Atlantic is Delta Air Lines, which can’t contribute because the US government doesn’t want a dime of its own bailout support to leak into foreign airlines.

To even get a hearing in the Treasury, Branson will now have to recapitalise Virgin Atlantic. That could mean injecting cash himself or finding new investors – and the capital will have to be genuinely at risk. Then he will have to pledge to forgo the £20m a year that Virgin Group is currently paid in brand fees, and persuade Delta to do similarly with its IT charge. He will then have to commit to financial transparency and, probably, offer an equity slice to the state.

Its impossible to know if he’s both willing and able to meet those demands, but they seem the minimum requirement for Treasury even to contemplate a loan or guarantee – and probably for a sum much smaller than the fantastical £500m. The process is harder than writing self-serving letters, but what did Branson expect?

Ocado investors are right to make a fuss over executive bonuses

Ocado these days is worth £12bn, equivalent to the combined stock market values of Sainsbury’s, Morrisons and Marks & Spencer, which represents an astonishing shift in power in the food retailing industry.

The big money in the food retail business, it turns out, lies not in selling groceries to shoppers, but in selling robots and clever delivery technology to grocers. Ocado’s seven licensing deals with overseas retailers have transformed its prospects, and the pandemic has accelerated a process that was happening anyway.

And, since the Ocado co-founder and chief executive, Tim Steiner, still owns 29m shares, his 4.2% stake is worth roughly £500m. Which raises the obvious question: why on the earth, back in 2014, did he require a side order of 4m freebie shares to encourage him to turn up for work?

Those shares were the largest part of a “growth incentive plan” (GIP) that seems to have been created for no other reason than the management fancied a potentially juicer jackpot than could be generated by the regular long-term plan (which, naturally, they kept as well).

The sole performance condition was to get the share price to improve faster than the FTSE 100 index over a five-year period, which was achieved in spades. Last May Steiner’s 4m GIP shares were worth £54m and the company bought him out for cash. Three other directors shared almost £34m.

Wednesday’s vote on Ocado’s remuneration report, which describes the final tallies, therefore comes long after the ship has sailed. Rebellion, one might say, is pointless, especially as 2014’s shareholders approved the GIP at launch with the usual Putin-like majority of 83%.

But, actually, it’s still important that today’s Ocado investors make a fuss. Steiner’s £54m payday is not as ludicrous as the £75m that the housebuilder Persimmon showered on Jeff Fairburn, but the common element is the lack of a cap on the size of the reward.

Such structures, fund managers keep telling us, are no longer acceptable. If they mean it, they should give a thumbs-down to Ocado’s pay report. Steiner has created a brilliant business, but his GIP should never been proposed or approved.

Contributor

Nils Pratley

The GuardianTramp

Related Content

Article image
The Treasury should be wary of giving a bailout to Virgin Atlantic | Nils Pratley
Airline’s owners need to dig deep into their own pockets before the state steps in to help

Nils Pratley

01, Apr, 2020 @6:04 PM

Article image
Has Branson accepted only he can save Virgin Atlantic? Not entirely
Branson has moved in the right direction; but the Treasury should push him further

Nils Pratley

11, May, 2020 @6:45 PM

Article image
Virgin Atlantic: a successful non-intervention by the Treasury
Sir Richard Branson didn’t really need to borrow £500m, as talk of a return to profitability in 2022 proves

Nils Pratley

14, Jul, 2020 @6:31 PM

Article image
Virgin Galactic wins space tourism race to float on stock market
Sir Richard Branson beat Elon Musk and Jeff Bezos by listing his venture in New York

Nils Pratley

28, Oct, 2019 @7:56 PM

Article image
Help-to-buy should be axed as Persimmon profits pass £1bn | Nils Pratley
The taxpayer-funded scheme fuels big margins for builders and massive bonuses for their bosses

Nils Pratley

26, Feb, 2019 @6:44 PM

Article image
Richard Branson’s Virgin Atlantic plans stock market listing
Move is airline’s attempt to shore up balance sheet after £659m loss due to Covid pandemic

Sarah Butler

08, Aug, 2021 @4:22 PM

Article image
Ocado's £200m robot deal should impress foreign supermarkets | Nils Pratley
The delivery outfit’s takeover of US firm Kindred Systems also gives it a toehold in non-grocery world

Nils Pratley

02, Nov, 2020 @8:05 PM

Article image
Virgin Atlantic hires bank in search for emergency funds
More than 100 potential investors contacted to help keep airline afloat

Rupert Neate Wealth correspondent

26, Apr, 2020 @5:05 PM

Article image
Virgin Atlantic agrees £1.2bn rescue deal amid coronavirus slump
Investors pump in funds, loans and deferrals alongside Branson’s £200m injection

Gwyn Topham Transport correspondent

14, Jul, 2020 @4:00 PM

Article image
Virgin Atlantic bailout backed by Rolls-Royce, Airbus and Heathrow
Transport secretary Grant Shapps urged to help airline, which seeks large cash injection

Gwyn Topham Transport correspondent

01, Apr, 2020 @4:47 PM