Delta rules out cash lifeline for struggling Virgin Atlantic

Virgin Atlantic

Sir Richard Branson’s co-investor in Virgin Atlantic has ruled out injecting cash into the struggling airline – and indicated he expects it to go into administration.

Ed Bastian, chief executive of Delta Air Lines, said his focus was currently on protecting his own business as the aviation industry grapples with the worst trading environment in living memory.

Delta owns 49% of Virgin Atlantic while Sir Richard’s Virgin Group owns the other 51%.

Sir Richard published an open letter to Virgin Atlantic employees on Tuesday in which he warned that, without financial support from the UK government, the 36-year old airline would collapse.

Some industry followers have speculated that, following its recent successful efforts to raise cash and cut costs, Delta might be able to lend support to the carrier.

Delta has halved its operating costs during the last 30 days and has been awarded a $5.4bn grant by the US government to cover its wages bill during April, May and June.

It is also applying for a further $4.6bn in US government loans.

But Mr Bastian told CNBC today that no money would be finding its way to Virgin Atlantic.

He said this was partly because under EU rules, by which British carriers must still abide, EU-based carriers must be majority-owned by EU-based owners.

He told interviewer Phil Lebeau: “We are not in a position to invest any more in Virgin Atlantic, we are already at the ownership cap of 49% and candidly, with our crisis, with the cash we need to protect our own business, that’s what our focus is.

“I trust Virgin will work through its challenges with the government and with Richard.”

Mr Bastian insisted this would not be the end of the Virgin brand in aviation.

He went on: “If they are required to go through an administration process in the UK, I am confident they [Virgin Atlantic] could re-emerge.

“There’s a need for the Virgin brand in the UK market place and I’m confident once we… get to a point where people will feel safe to travel again, the Virgin brand will be strong once more.

“But it could take a legal process to get through that.”

His comments come a day after Virgin Australia, which is 10% owned by Sir Richard, went into administration.

It has been reported that it proposed nine different bail-out packages to the Australian government before doing so.

The Trump administration last week signed off on an aid package for US carriers that is expected to come to around $50bn, of which around $17.5bn would be in grants, with the rest in loans.

The UK government said last month that it might provide “bespoke support” to individual carriers in this country and stressed that this would only be as a “last resort” once all other options had been exhausted.

But the Financial Times reported at the weekend that Virgin Atlantic’s proposal for a £500m package of commercial loans and guarantees had “failed to impress” the government.

It quoted one source as saying the airline had not done enough to show it had explored other options to bolster cash before asking for state aid.

In his letter to employees, Sir Richard sought to make clear that the airline was not asking for anything its competitors had not.

He wrote: “We will do everything we can to keep the airline going – but we will need government support to achieve that in the face of the severe uncertainty surrounding travel today and not knowing how long the planes will be grounded for.

“This would be in the form of a commercial loan – it wouldn’t be free money and the airline would pay it back (as easyJet will do for the £600m loan the government recently gave them).”

Easyjet announced on 6 April that it had raised £600m by selling commercial paper which has been bought by the Bank of England under the Covid Corporate Financing Facility (CCFF) – the scheme launched last month by Rishi Sunak, the Chancellor, to support larger companies during the current crisis.

Another short-haul carrier, the FTSE 250-listed Wizz Air, announced on Tuesday that it had been told it would be eligible to raise money under the scheme – although it has not yet indicated that it will tap the facility.

International Airlines Group, the owner of Virgin Atlantic’s bitter rival British Airways, is expected by industry analysts to be highly unlikely to seek any government support.

It announced three weeks ago that it would not be paying its latest dividend, saving it £320m, while it has also been drawing on existing bank facilities and exploring other ways in which it can boost its liquidity position.

An economic downturn seems likely with many businesses closed for the foreseeable future

Willie Walsh, IAG’s chief executive, said last month it was not for taxpayers to support airlines when the shareholders of those airlines were not prepared to do so.

Mr Bastian was speaking as Delta reported a net loss of $534m for the first three months of the year.

That compared with a net profit of $730m during the same period last year.

Delta, the first of the major US carriers to report financial results for the first quarter of the year, has grounded more than 650 aircraft.

Mr Bastian said that, as of the end of March, the airline had been burning through $100m on a daily basis.

But he told CNBC that following cost cutting measures and its efforts to raise capital, including support from the US government, that sum would have halved by the end of June and could even be reached by May.

The US aviation industry is expected, in total, to report losses of at least $2bn for the quarter.

Delta completed its £233m acquisition of a 49% shareholding in Virgin Atlantic from Singapore Airlines in June 2013.

Singapore had paid Sir Richard £600.25m for the stake in December 1999.

A plan that would have seen Air France-KLM acquire a 31% stake from Sir Richard, which would have seen him cede control of the airline, was abandoned just before Christmas last year.