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Welcome to London Air Travel’s Monday Briefing for the week beginning 27 April 2020.
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Virgin Atlantic Scrambles To Secure Investment
It has been a weekend of claim and counter-claim in respect of Virgin Atlantic.
The Sunday Telegraph reported that Virgin had abandoned any hope of securing government support. It was now racing to secure new private sector investment against a deadline of the end of May.
This was promptly denied by Virgin. It insisted the option of government support remains on the table.
Investment bank Houlihan Lokey has approached over 100 potential investors on behalf of Virgin Atlantic. These are said to include private equity groups, sovereign wealth funds and hedge funds.
More than 50 parties have asked for further information. They have a week to express further interest.
Virgin has also insisted that the airline is not for sale outright. This is not the first time Virgin has explored a sale. Deutsche Bank were commissioned to carry out a “strategic review” in 2010. Although Sir Richard has always maintained he would never sell the airline. “I wouldn’t ever sell my shares as it’s too much my baby” he said in 2012.
It is plausible that Virgin will be able to obtain some new finance. This will not come from Delta which has confirmed it can’t support the airline. It has also reportedly applied for a business interruption loan.
There remains considerable public hostility, at least online, to state support for Virgin Atlantic.
Much of this has focused on Sir Richard Branson’s tax status and his residence in Necker Island. In truth, Sir Richard has long used tax minimisation measures. As have some of Virgin’s competitors, but not as transparently as living on a private island in the Caribbean. In more buoyant economic times most, apart from Private Eye magazine and the author Tom Bower, have been willing to turn a blind eye to it.
Not only does this show a remarkable fall in Sir Richard Branson’s pubic persona, but also his lack of political access. It’s a far cry from Cherie Blair was reported to have uttered “We must do something for you” to Sir Richard at a Downing Street reception.
IAG has been relatively quiet over the past couple of weeks. Whilst the personal animosity between Sir Richard and Willie Walsh is well known, it’s worth remembering that the Competition & Markets Authority is still reviewing BA’s joint business with American Airlines. The failure of Virgin Atlantic could mean they are forced to end it.
London Airport Operations
In terms of London airport operations and route developments:
Air New Zealand has permanently suspended London Heathrow – Los Angeles. The route was due to end in October 2020, and its temporary suspension is now permanent.
Delta has temporarily suspended routes from London Heathrow to Portland and Salt Lake City for the summer season.
United Airlines has temporarily suspended routes from London Heathrow to Denver, Houston and Los Angeles for the summer season.
Heathrow airport has confirmed that Terminal 3 has closed to passenger flights. All airlines have temporarily relocated to Terminal 2. The remaining airport moves from Terminal 4 such as Air France, Alitalia and KLM are expected to be complete in early May.
On the question of temperature checks on arriving passengers, Heathrow insists that it is bound by UK Government rules on passenger checks. Should Government policy change, Heathrow says it can move quickly.
Global Developments
Air France and Air France-KLM are to receive a package of state aid of €7 billion comprising direct loans and loan guarantees from the French Government. KLM is also in discussions to receive aid of €2-4 billion from the Dutch Government. One condition attached to these is the pursuit of sustainability initiatives. Though, it is not clear how this will be measured.
Air Mauritius has entered into voluntary administration. (Air Mauritius)
Lufthansa is in active discussions with European governments to secure state support of €10 billion. The group has admitted that it is effectively insolvent. Its cash balances of €4.4 billion will not cover expected outflows of cash in the coming months.
The long-term position of South African Airways remains unclear. The airline reportedly does not have funds to survive beyond the end of April. However, plans to liquidate the airline or institute mass redundancies have been put on hold pending talks with trade unions. (SABC)
Virgin Australia entered into voluntary administration last week. The Sydney Morning Herald has a good account of the behind the scenes machinations between the airline, the Australian government and potential suitors in the days leading up to the administration. From initial reports, which include Perth Airport impounding aircraft, the administration is a potentially messy affair.
(NB. If you thought relations between BA and Virgin Atlantic were bad, in public statements, Virgin Australia executives seem only able to refer to Qantas as the “competitor”.)
Late post publication updates:
[Reserved for updates throughout the day]
Norwegian has set out a proposal to restore operations in a presentation to bondholders, ahead of a meeting on Thursday 30 April 2020.
Bondholders are being asked for significant concessions including an extension to the maturity of bonds and a partial conversion of bonds into equity. One of the bonds is secured against Norwegian’s Gatwick slots.
Aircraft lessors are being asked to reduce leasing obligations by $500m.
If bondholders and lessors do not agree to this, Norwegian will not be able to secure additional state support and will run out of cash in mid-May.
If Norwegian is able to secure a financial restructuring it does not plan to restore long-haul flights until the summer of 2021. Whilst Norwegian envisages retaining a long-haul presence at Gatwick, it plans to focus its short-haul operations on the Nordic region.
The full presentation can be viewed here.
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