Yesterday, it emerged that business tycoon Richard Branson will be allowed to sell half of his stake in space-company Virgin Galatic. The share, which could amount to some US$1bn, could theoretically provide support to struggling Virgin Atlantic and Virgin Australia for them to stay afloat through this crisis. But would it be enough?
What’s happening to the Virgin brand’s airlines?
It’s no secret that the coronavirus has wreaked havoc on many airlines around the globe. There have been many pleas for bailouts, and Virgin Atlantic is no exception. It became the center of a polemic debate last month after it requested £500m ($620m) from the UK government as support throughout the pandemic.
With the government unsure how to proceed, officials at the airline then sought to remedy financial woes by putting the carrier up for sale. Virgin Atlantic is now looking for a consortium of private investors who can supply a much-needed cash injection. However, that’s not the only worry for the Virgin Group.
Virgin Australia was denied its own government bailout at the start of last month. On 2nd April, we reported that the Australian government had said it would not impart the AU$1.4bn (US$890m) that Virgin Australia had requested.
To say that Virgin Atlantic and Virgin Australia are in a tight spot would be accurate. Yes, both airlines have options right now in terms of seeking private investors, but help and bailouts have not come as easily as they would have undoubtedly liked.
How could Virgin Galactic help?
Resourcefulness is a key facet for both of these airlines and their co-founders. Yesterday (8th May), the Financial Times reported that Richard Branson had been cleared to sell half of his stake in the space-travel enterprise Virgin Galactic. The sale of Branson’s stake in the company could amount to around $1bn. With so much potential financial support readily available from Branson’s other venture, could Virgin Galactic save these two struggling airlines?
Let’s start with the figures. Virgin Atlantic has pleaded for a bailout of around $620m to see it through the crisis. Virgin Australia’s own plea was for around $890m. With $1bn to inject into saving these airlines, it’s apparent that this money would not be enough.
The combined sum of these bailout request comes to $1.51bn. Somehow, more than $500m would need to be found to stop both of these airlines collapsing. That leaves the question of what airline should be saved first? Branson’s $1bn could be used to completely bailout either one of these airlines or split to support both but not to the full extent.
However, more recently, Virgin Australia sought out just $130m to remain operational while it looks for potential buyers. The scaled-down bailout from Virgin Australia puts the combined asking of these two airlines at $750m. Therefore, Branson’s Virgin Galatic stake could stretch on the surface.
What are the problems?
One problem, of course, is that this money is not only needed to save the airlines in their day-to-day operations. Virgin Australia has a backlog of $1.2bn in debt that needs to be paid off. Keeping the airline through the pandemic is only half of the story.
That said, whether the funds from Virgin Galactic stakes cover the cost fully or not, they would undoubtedly alleviate pressure on investors for both these airlines. As such, the airlines could, with courage, ask for a lower bailout from their respective governments.
However, while the situation might look bleak at the moment, there is hope on the horizon. 50 investors have already expressed their interest in contributing to save Virgin Atlantic. What’s more, officials at Virgin Australia are confident a sale will go through on the airline soon.
At the time, a spokesperson for Virgin Atlantic told us:
“Because of significant costs to our business caused by unprecedented market conditions which the Covid-19 crisis has brought with it, we are exploring all available options to obtain additional external funding…Meanwhile, we continue to take decisive action to reduce our costs, preserve cash, and protect jobs…”
These airlines need to have these options because a liquidity injection from Virgin Galactic is all just speculation at the moment.
Will Branson sell his stake?
Even though Branson is cleared to sell a portion of his investment in Virgin Galactic, there is no guarantee that he will do it. Furthermore, he would need to find a suitable buyer willing to pay the asking price.
The space venture has been the magnate’s baby for some time, and it’s looking to launch as soon as feasible. A number of reputable celebrities have already reserved space flights, and over the past six months, Virgin Galactic’s market value has jumped astronomically. It’s worth nearly double what it was at the end of last year, with a valuation of $4.17bn.
We contacted Virgin Atlantic and Virgin Australia to find out more about what they need to remain profitable. They were unable to comment at the time of publication.