The penny has dropped for Sir Richard Branson: you can’t plead poverty, or lack of ready cash, when you own a stake in a publicly traded space tourism business worth almost $2bn (£1.6bn).
Virgin Group now intends to flog about a quarter of its holding in Virgin Galactic, which should raise the thick end of $400m after the minority Abu Dhabi partner takes its cut. If the entire proceeds were to be shovelled into Virgin Atlantic in the form of new equity, Branson – in theory – would take a big step towards saving his 51%-owned airline.
It would then be a matter of rounding up a few private investors – probably hedge funds or sovereign wealth funds – as new shareholders to boost the size of the recapitalisation of Atlantic. Talks appear advanced.
So can UK taxpayers breathe easily in the knowledge that Branson has now accepted that, if Virgin Atlantic is to be saved, he’ll have to do the job himself? You’d think so, but don’t bet on it.
The messaging from Shai Weiss, chief executive of the airline, is still about a “public-private partnership”. What he means is that the airline, if necessary, would still like a state-backed loan or credit guarantee to supplement the infusion of private capital.
Such a model, to be fair, is better than the straightforward bailout that Branson seemed to imagine (outrageously and wrongly) would be forthcoming at the outset of this saga. Yet this is the point at which the Treasury, if it’s really open to getting involved with a company that was loss-making even before Covid-19 came along, needs to exercise extreme caution.
For starters, financial transparency remains roughly zero. We’ve yet to see the form in which Branson and any new would-be co-investors would put capital into Virgin Atlantic. Only maximum helpings of genuine at-risk equity capital should be acceptable. Virgin Group would also have to drop its licence fee arrangement and move the airline’s ultimate holding company, as opposed to the operating company, to the UK.
The Treasury, in other words, should keep pushing. If Branson comes up with, say, 60% of a refinancing package for Virgin Atlantic, the question to ask is why he can’t manage 100%. There are, remember, a lot more shares in Virgin Galactic that could be sold over time.
Flexible but fiddly: the Treasury’s job in rebuilding
The government’s strategy document, Our Plan to Rebuild, said next to nothing about the economy. The single section was mostly a summary of what’s been done so far, coupled with a warning that less will be done in future. “The government will … need to wind down the economic support measures while people are eased back to work,” said the document. In other words, see Rishi Sunak for details.
The chancellor’s most important announcement could come as soon as Tuesday. It concerns the coronavirus job retention scheme, the most effective of the policies adopted in a hurry in March. Paying 80% of the wages of furloughed workers, up to a maximum of £2,500 a month, has prevented the employment picture becoming even worse.
A bill of £14bn a month, or thereabouts, cannot be sustained indefinitely, however, so Sunak will have to be less generous at some point. But dropping the rate from 80% to 60% from July – as some are urging – would be risky. Many employers would feel compelled to consult on redundancies immediately, defeating the purpose of the support efforts so far.
Whatever date he chooses, Sunak needs to remember he cannot confidently predict the pace of the return to work. Timetables to ease the lockdown may have to be revised constantly. The guiding principle for other reforms, then, should be flexibility.
In practice, that will mean allowing full-time workers to return on a part-time basis with wages topped up by the state. It could also involve shortening furlough structures, so that employees can been shifted in and out from one week to the next.
Flexibility will be fiddly (both for government and employer) and contrasts with the simplicity of the present set-up. This, though, is how the Treasury earns its corn. It’s one thing to say you’re anxious to avoid a “cliff edge”. Only good and detailed design can make it happen.