Long-haul specialist Virgin Atlantic is reported to be on the brink of approaching the UK government for financial assistance. The government previously said that there would be no blanket bailout of its airlines, although it left the door open for case by case requests to be made as a very “last resort”.
Virgin poised to request state aid
A report in the Financial Times this afternoon suggests that Virgin Atlantic, a long haul specialist based in the UK, is getting ready to request state aid. Earlier this week, we reported that the UK government had thrown out the idea of a blanket bailout for airlines, and instead would consider bespoke rescue packages as a “last resort” on a case by case basis.
Today’s report suggests that Virgin Atlantic will be the first airline to request such support from the UK. Other airlines may well follow, with the FT reporting that low-cost carrier easyJet, regional airlines Loganair and Eastern Airways and even Norwegian could be right behind.
Billionaire Richard Branson previously said he would inject $250m into the Virgin Group, although it’s not clear how much of this cash would be awarded to the airline.
Does Virgin deserve a bailout?
Virgin Atlantic is arguably suffering more than most with the current slump in air travel demand. The airline only operates long haul routes, and today announced it would be consolidating its operations to only work out of London Heathrow going forward. 85% of the fleet is grounded, with just six aircraft left operational, mostly for cargo and repatriation fights.
City AM reports that, according to Virgin’s most recent filing, it had only £83m of net cash available. 75% of its fleet of 46 aircraft are leased, which closes more doors for raising capital through sale and leaseback of planes.
However, a request for governmental assistance is likely to raise some eyebrows in the UK aviation community. Virgin is primarily a leisure-focused airline, serving resort destinations such as Orlando, Las Vegas and the Caribbean. It also operates a number of transatlantic routes to key US cities.
As well as being headed up by billionaire Richard Branson, Virgin is backed by joint venture partner Delta Air Lines. Delta came out of 2019 as one of the most profitable airlines in the world, so questions will likely be asked about why financial assistance is not being sent over from across the pond.
Will Virgin get a bailout?
If Virgin does go ahead with its request, experts are anticipating that it will be some way down the list of priorities for the government to fund. A government official told the Financial Times that regional airlines would be first in line for assistance, if they were to request it, sin line with the government’s focus on economic stimulation in areas outside of London.
The UK government has already introduced unprecedented income support for the thousands of workers in the nation, including those employed by airlines. Employees no longer able to work due to the current situation will receive up to 80% of their salary up to a capped level, and yesterday a similar measure was introduced for the self-employed too.
As such, Virgin’s employees are, to some degree, being taken care of. This may mean that the government is less interested in bailing out the airline, which has made losses for the past two years. Should it agree to bail out Virgin, it would set an awkward precedent against other airlines in the industry, and could see the likes of BA and easyJet calling for similar measures in order to ‘level the playing field’.
What do you think? Should the UK bailout Virgin, or are there other priorities right now? Let us know your thoughts in the comments.