UK Government Seeks Financial Advice On Virgin Bailout

Virgin Atlantic is reportedly requesting £500m ($623m) of taxpayer money to weather the coronavirus storm. But with competition from other airlines and the government’s bank balance rapidly dwindling, the UK treasury has called in the big guns to offer specialist advice on the deal. Wall Street heavyweight Morgan Stanley is now at hand to lend its expertise and to ensure taxpayers’ money gets spent in the right way.

Virgin A350
Virgin Atlantic is awaiting the outcome of its request for government assistance. Photo: Virgin Atlantic

Wall Street heavyweight weighs in on Virgin deal

The UK government has reportedly leveraged some of the world’s most prominent financiers to advise on a bailout for Virgin Atlantic. As reported in Sky News today, Morgan Stanley, one of Wall Street’s biggest investment banks, has been drafted in to advise ministers on the airline’s proposal for state support.

Virgin Atlantic is reportedly requesting hundreds of millions of pounds in taxpayer support to weather the current crisis. This funding, if approved, will be delivered in the form of a commercial loan, alongside a government guarantee on money owed to the airline by credit card companies.

Virgin Atlantic
The airline has requested £500m. Photo: Getty Images

According to reports, discussions with Virgin Atlantic have been ongoing for a couple of weeks now. Virgin is seeking a bailout to the tune of £500m ($623m). Sky News reports that insiders have said the talks could continue for several more weeks.

Virgin’s bid for aid comes after the UK government confirmed there would be no blanket bailout for the airline industry, contrary to the stance taken by other governments in Europe and, of course, in the US. It did, however, say that individual requests would be assessed on a case by case basis. With Morgan Stanley involved, the UK government is clearly taking its issuance of taxpayer money incredibly seriously.

Virgin eagerly awaits the outcome

Undoubtedly, Virgin Atlantic is keen for the government to reach a final decision as quickly as possible. In mid-March, the airline announced massive service cuts and the grounding of 85% of its fleet. By the end of the month, only a handful of Virgin planes were flying, with just three routes left open for passenger service.

While the airline has looked to other avenues to make money, opportunities are limited. Virgin flew its first cargo-only flight towards the end of March and took on some NHS supply missions to Shanghai too. However, with passenger numbers at an all-time low, the airline has decided to stop flying entirely for a week between the 20th and 26th April.

Virgin Atlantic, Cargo, Medical Aid
Virgin has been operating cargo flights. Photo: Virgin Atlantic

While a week on the ground may help Virgin drive down some overheads, this will also be a week of little to no revenue for the British airline. With parking costs still to pay and a large number of its fleet on lease, there’s only so much cost reduction that can be achieved.

As such, Virgin is keenly hoping that the state will step up and save it from collapse. A source told Travel Weekly that,

“The focus now is on the outcome of the government conversations. The airline does really need the government’s support. There is only one plan right now and that is government support.”

Earlier in the month, founder Richard Branson pledged a sum of $250m to support the Virgin Group. It is understood that around $100m of this will end up with Virgin Atlantic. This likely means that a negative response from the treasury won’t spell the immediate collapse of the airline. Still, a prolonged grounding stretching into the third or fourth quarter could make it very difficult for Virgin Atlantic to bounce back.

Virgin Atlantic Richard Branson
Branson’s bailout money will help, but for how long? Photo: Virgin Atlantic

Although Virgin makes a good case for support, with backing from the likes of Heathrow and Airbus, it won’t be the only airline going cap in hand to Westminster. Loganair and easyJet have both expressed their desire for a bailout, and it’s only a matter of time before British Airways joins the queue.

One thing is for sure; with Morgan Stanley advising on the deals, the treasury’s decisions will be made based on a sound business case, not on emotions or any sort of brand image. In this respect, Virgin’s loyal following and semi-cultish fan club won’t do it any favors in the race to stay afloat.