Despite losing his previous investment in Virgin Australia, Richard Branson is about to tip more money into the re-launched airline. Mr Branson’s Virgin Group previously had a 10% stake in Virgin Australia. But the airline went into administration earlier this year. Since then, Virgin Australia has been re-sold and re-launched. That saw former shareholders such as the Branson Group lose their money. Undeterred, Mr Branson has the checkbook for another round.
Branson to take 5% stake in Virgin Australia
Over the weekend, The Australian Financial Review newspaper reported the Virgin Group was to take a 5% stake in Virgin Australia. Reportedly, the Virgin Group was in final talks with new Virgin Australia owners, Boston’s Bain Capital. The value of Mr Branson’s investment is unknown, but the deal will include continued use of Virgin branding. The previous incarnation of Virgin Australia was paying The Virgin Group approximately US$11 million annually for licensing rights.
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It is expected the deal will shortly be finalized and announced when Bain Capital takes full control of Virgin Australia at the end of October.
The move by the Virgin Group to retain an interest in Virgin Australia is significant. The Virgin Group holds a substantial stake in Virgin Atlantic and has its hands full dealing with that airline’s woes. But Richard Branson has long been keen on Australia’s aviation sector. He famously mapped out plans for Virgin Australia (then called Virgin Blue) on the back of a couple of beer coasters with a few airline executives in the later years of the 1990s.
Branson’s continued interest has come at a cost
Since then, the Virgin Group has retained a financial interest in Australia’s second-largest domestic airline, cashing out over time to take its final stake down to 10%. Mr Branson would drop by one or two a year, usually connected with a Virgin Australia promotional exercise, and make a suitable splash in local media.
But Mr Branson’s interest and enthusiasm for Australian Aviation has come at a cost. Over the years, Virgin Australia has asked its owners to tip in equity a couple of times. The airline did so most recently earlier this year. But by then, Virgin Australia’s owners had closed their wallets. They were either hoping for a government bailout (which didn’t come) or a restructure. They got the latter.
Other owners, including Singapore Airlines, Etihad Airways, and the HNA Group, have walked away, cutting their losses.
Richard Branson sticks with Australian aviation
You could read Mr Branson’s continued interest and continued willingness to invest in Virgin Australia in a couple of ways. Firstly, it’s a crazy brave vanity exercise. But given the financial pressures facing the Virgin Group and many of its airline assets, that’s an unlikely option.
More likely is faith in the underlying strength of Australia’s domestic aviation market. It is having a lousy year but is usually one of the world’s more lucrative aviation markets. In addition, the re-launched Virgin Australia is a slimmer, more efficient airline. Much of the burdensome debt is gone, and excessive expenses trimmed.
Richard Branson obviously thinks Virgin Australia has a future, and there’s money to be made here. Otherwise, he wouldn’t be flexing the checkbook. He’s a smart guy and his belief in Virgin Australia going forward is worth taking onboard amid all the analysis and commentary about the future of Virgin Australia.