Welcome to London Air Travel’s Monday Briefing for the week beginning 11 May 2020.
Private Equity Firms Circle Virgin Atlantic
For an airline known for its PR savvy, Virgin Atlantic is struggling to control the narrative of its refinancing.
The whole process has been beset by leaks.
On Saturday, Sky News reported that the airline has appointed the firm Alvarez & Marsal to prepare for a possible administration process.
A “pre-pack” administration, where a business enters into administration and is immediately sold to a new buyer, is common in many industries. These have not been used by airlines because the Air Operator Certificate is ordinarily suspended on entering administration.
In the case of Virgin, the position is complicated by its Heathrow slots. In 2015, Virgin issued a bond to raise £220m to fund new aircraft. This was secured against Virgin’s Heathrow slots. A new subsidiary airline, Virgin Atlantic International, was formed to operate a small number of flights and take over the slots should Virgin Atlantic collapse. Virgin Atlantic still retains ownership of its Heathrow slots and should it fail to repay the bond, it will forfeit its slots.
The Sunday Times reported that over 100 potential investors have been approached on behalf of Virgin. The Sunday Telegraph claims that there are a dozen or so interested parties. These include Greybull Capital (former owners of Monarch), Apollo Global Management, Centerbridge Partners, Singapore sovereign wealth fund Temasek and Cerberus Capital Management.
Virgin Atlantic CEO Shai Weiss has intimated that state support could take the form of a loan guarantee against third party investment in the airline.
The “optics” surrounding Sir Richard Branson remain. Not for the first time when there is bad news from Virgin Atlantic, he was nowhere to be seen when it announced substantial job cuts last week. The Financial Times has suggested that manoeuvres may be under way for Sir Richard to divest of part of his holding in Virgin Galactic to help recapitalise Virgin Atlantic.
In addition to the immediate retirement of the Boeing 747, Shai Weiss has also confirmed to The Sunday Times that it will defer the delivery of six Airbus A350-1000 aircraft.
BA Prepares To Return In July
IAG CEO Willie Walsh sounded quite relaxed announcing the group’s first quarter results last week.
Perhaps it’s because he is retiring in September, but there was none of the slight hesitation or wobbles of voice of the past when answering questions during far lesser crises.
There were no significant changes to fleets or routes. Dubbing Microsoft Teams and Zoom as “crap”, Willie was confident that business travel will soon return.
Sometimes IAG will know things during results presentations that it is not yet ready to share – the Competitions & Markets Authority announcement on the transatlantic joint-business later in the day is a case in point.
However, they were clearly not expecting Prime Minister Boris Johnson to announce yesterday that a mandatory quarantine will be imposed on passengers arriving into the UK by air. The government has not yet confirmed when this will take effect, nor the time passengers will have to spend in quarantine.
The Transport Select Committee is also taking evidence on the impact of Coronavirus on the transport sector and Willie Walsh will be giving evidence from 10:00 BST this morning. Fans of select committee hearings (where there can be a bit of grandstanding and placement of soundbites by MPs) can watch it on BBC Parliament.
Also of note this week:
Avianca has filed for Chapter 11 bankruptcy protection. It will continue to fly. (Avianca)
In case you missed it:
BA and Qatar Airways have received regulatory approval to operate a joint-business between Europe and Australia. (London Air Travel)
BA’s franchise partner in Africa Comair has entered a business rescue process. (London Air Travel)
Late post publication updates:
[Reserved for updates throughout the day]
Virgin Group is to raise around $500m by divesting of some of its interests in Virgin Galactic to invest in other Virgin businesses. Separately, Virgin Atlantic executives are to present to potential investors this week and a deal could be agreed with a new investor as soon as the end of next week. (Financial Times)
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