BA to buy Virgin Atlantic - Sunday Times says

[Wee Weasley Welshman]

http://www.timesonline.co.uk/article/0,,2095-691126,00.html

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Paras one and two of this Business section leader read:

EXECUTIVES at British Airways will this week be asked to draw up plans for a dramatic bid for Sir Richard Branson’s Virgin Atlantic after it emerged that Virgin had come within a whisker of trying to buy BA.

Branson was close to making a full-blown offer to BA shareholders earlier this year — having started tentative talks with BMI British Midland, the airline chaired by Sir Michael Bishop.


We certainly live in interesting times.

WWW

[B Sousa]

He seems to always be smiling. Would be interesting to see him take over BA....Im sure a few of the exec types are sweating that one out......
BTW as one from the states, my best rides in the last few years have been on BA or Virgin......As a PAX they rate high with me.

[L337]

Does SIA own 49 or 51% of Virgin?

If SIA sell is it game over?

L337

[Max Angle]

They own 49% I believe and the rest is in private hands much like bmi. It's only for sale if the owners want to sell.

[kfw]

I think BA would rather buy BMI than Virgin .

All down to slots of course but BMI have 4X the number .

I would hope that BA can buy KLM to get access to AMS with all those runways and nice terminal buildings but I doubt they would risk blowing their cash reserves on it .

[NigelOnDraft]

IMHO BA would not be allowed to buy eithe ron various competition and slots grounds....

Doesn't mean they won't try - they always manage to upset some competition or Euro authority....

NoD

[Shadowpurser]

Wow - certainly we do live in interesting times!

About time the aviation industry realised the need for some consolidation or else someones going to go to the wall sooner or later.

Slots out of LHR as KFW has said would be very much at the forefront of managements mind - making BMI a very attractive aquisition. However scheduled shorthaul is already a struggling market, especially full fare. So I can't see BA wanting to take on more shorthaul routes at the moment.

However Virgin and it's large N.American market (Where BA makes most of it's money) is a very attractive proposition, as well as it's slots at LHR.

Anyway! All pie in the sky stuff. I can't see BA blowing cash reserves on buying up other airlines in uncertain times.

IMHO another great bit of self promotion from the King of free advertising Richard Branson. You've got to admire the guy, he certainly does have a flair for the dramatic!

Why buy Concorde? Just buy the parent company!!! lol!!

[Electric Sky]

Maybe an interesting twist to this one. Should BA buy Virgin, would it not open the door to bmi for it's long fought for opportunity to operate U.S. flights from LHR? As I understand it the current Bermuda 2 agreement permits 2 UK airlines to operate the routes.

However, I can't see any of this happening. Sir Richard selling his airline to BA ... nooooo!

ES ;)

[GustyOrange]

It's possible for BA to buy either airline and use paper instead of cash.

BA shareholders have already been shafted, diluting their holdings won't make mch difference now.

Gusty

[dontdoit]

Interesting that the Sunday Times' rich list from last month values the entire Virgin empire (that's the airline(s), music, trains, mortgages, phones, THE LOT) at £1.2 billion. The World's Favourite have about that much and half as much again available in cash. I know who my money's on.....

[millerscourt]

Singapore Airlines as 49% owners of Virgin would I am sure be very glad to get shot of their stake in Virgin as it has been a dead loss since the very beginning, not that the retiring CEO of SIA has ever admitted his failings and blames everthing and everyone else for his failures.

[CaptainFillosan]

As I understand it in The Mail, there is a proviso. BA would ONLY make a move IF Virgin "or any other company" makes a bid for BMI. Puts a different slant on it perhaps.

[Private jet]

Firstly, Shadowpurser,

Either one airline going bust or multiple airlines downsizing it always results in one thing, people losing their livelihoods.
Consolidation only ever helps those whose employment is most secure at the time anyway.

Generally speaking, I have to admit that I'm not a fan of Branson. In my experience those involved in business do not get to his level of achievement without using "sharp practice" at some point. This is a fact of life, so when he is continuously portrayed as the "peoples champion" etc. etc. I have to sigh. I recall when BMI first declared the possibility that it would operate transatlantic flights Mr Branson was amongst the first to object. That looks like stark hypocricy to me...considering the position his airline was in 15 years previously (looking to expand but restricted by BA)

I am not being critical of VA itself or its staff. The strengths of this company is its employees, not the publicity seeking clown of a chairman. I know a few of the original ex BA crewmembers that were there in the early years and set the foundations for the airline today. Branson needed them then, and therefore was obviously able to set aside his anti BA stigma at that time.

As for Concorde.....well, having worked on it briefly in my maintenance engineering days my view is that it belongs in a museum. Branson knows nothing about the practicalities of operating such a machine and the potentially massive costs. Still, he could buy the fleet at a realistic price (which is up to BA to set, they are the owners, regardless of paying £1 each for them), let Virgin pay Airbus tens of millions of pounds for engineering support, pay millions more setting up a maintenance line etc. and then watch his empire sink due to the weight of his own vanity and overconfidence. I'm not usually given to oubursts of this nature but I want to express my opinion. Thankyou.

[Silver Tongued Cavalier]

What about buying Aer Lingus then?

The Oneworld partner has the 3rd highest number of LHR slots after BA and BMI. And is currently about to be given away by a Government which wants rid for a knock down price!

Oh and by the way, Aer Lingus is also making money hand over fist right now, has much more cost cutting potential, and numerous expansion plans in the running.

Now IMHO that would be a great buy!

[mr.777]

Private Jet,

You accuse VS of having a "publicity seeking clown of chairman".Fair comment.....but what do you think BA are doing leaking this story to the Sunday Times?!I mean come on,do you SERIOUSLY think that BA are gonna buy Virgin out?
The way I see it,yet again,BA are playing catchup in the publicity stakes.Yes Branson does court a lot of unecessary attention,but it seems to do the job.Obviously people at BA have got the hump about the whole Concorde/BMI merger thing.....it would not surprise me if Messrs King and Marshall were behind this story in order to deflect some of the attention away from VS.
Unfortunately it seems BA have not learnt anything from their media dealings with Virgin and Branson in the early 90s.......they will never beat him in a straight publicity war (although straight has never been BA's way really has it?).
British Virgin Atlantic Airways?Do me a favour!!!

[Basil]

I'd guess an immediate loser following such a takeover would be the VS FEs as BA ditched the classics.

[mainfrog2]

mr777 regardless of BA's dodgy practices in the past, it doesn't change the fact that he is indeed a 'publicity seeking clown of a chairman'.

BA's is just not publicity seeking.

I think the two sides in this VA BA argument should stop behaving like spoilt children.

[BOAC]

Yippee! Does that mean we get his new holiday island off Queensland as well............:ok:

[Digitalis]

Whilst you could never say 'never', BA taking over VS seems unlikely for a number of reasons. There are only two shareholders in Virgin Atlantic (a private company): Singapore Airlines (49%) and Richard Branson (51%). While Sir Dickie always has an eye for the main chance, the idea of selling any of his shareholding to BA in anything other than catastrophic circumstances would, I think, be completely unacceptable to him.

As for SQ's shareholding, like a lot of people and companies in 1999/2000, they bought into VS at a time when industrial and financial confidence - in all areas of business - was unrealistically high, as we now know with the benefit of 20/20 hindsight. However, the events of 9/11, and the effect on VS (previously extremely profitable) and the other North Atlantic carriers, were not predictable, so I think it's unreasonable to accuse SQ of bad judgement. Did you or anyone else do so at the time?

For equally unpredictable reasons (Sars), SQ is financially struggling right now, while VS is trading at a small but significant profit (the final figures for 02/03 are likely to show £17m profit on £1.4bn turnover). The outlook for both airlines is extremely good compared to their competitors, and history has shown both to be innovative and fast-acting in securing market share and margins. SQ has deep pockets, and can survive its current troubles. I doubt it has any need to realise a 60%-75% loss (which would be added to its trading loss) on its £600m investment in VS by selling out, when the forecasts suggest that the investment will perform well in the future.

On the regulatory and competition front, I think it's unlikely that BA would be allowed to absorb Virgin (or bmi - the other idea that was floated over the weekend) unless there was some quid pro quo for another, established, European-based Atlantic operator. I doubt that BA, or the British Government, could stomach replacing Virgin at LHR with, say, Air France or Lufthansa. The idea that bmi would be allowed to set up long-haul in place of Virgin is, I'm afraid, laughable unless you happen to be a bmi employee!

There are all sorts of politics surrounding this story, and much of it is fairly impenetrable. Yes, BA needs to get some good press exposure to offset Branson's coups of the last few weeks, but I think the reality is that these are the first few hesitant steps in the dance that will bring a number of European carriers together. While BA, VS and bmi practice their moves against each other, the real targets could be further afield....

[stormin norman]

'While Sir Dickie always has an eye for the main chance, the idea of selling any of his shareholding to BA in anything other than catastrophic circumstances would, I think, be completely unacceptable to him.'

Did he not say that about his virgin music empire?, then someone offered him a pile of cash and he was off like a rabbit with his back pocket full of cash.

loyal to his employees you must be joking !

[Digitalis]

My point was not that he would never sell up, just that he would never sell up to BA!

[Alt.cap]

Wouldn't disagree there Stormin' !

Everythings for sale. Initially the seller may not know it. ;)

[eltel]

Sorry Digitalis, the grinning pullover would sell out to anybody with money if he needed it cf Singapore!

[HZ123]

'Eltel' spot on, a business man sells when the time is right and now seems shrewd enough. With the monies he can start again just like so many have done before him.

On the down side BA would have a terrible time uniting the two outfits and would have to accept exactly the same problems that came with BCAL, DANAIR, Brymon, CityFlyer, BRAL, and the many others that have gone before.

BMI in the past must have spoken at length with BA when BRAL were taken over and as one or two have suggested the BMI link might be the best of a bad bunch. Over to 'Skippy', Lord Marshall and those other great and good board members.

[frb98mf]

FYI the Rich List bit on him wasn't too well worded. I would think the Virgin empire is worth lots more than 1.2bn in assets and IP alone, but a lot has been hived off completely or partially and his overall stake in all the companies bearing the Virgin name is what they mean by 1.25bn.

Wouldn't a BMI/Virgin merger make the most sense? Brings VG into the Star alliance, creates a UK airline that could compete on transatlantic, domestic and European routes.

[TwinAisle]

For my sins, I work on the business end of airlines, and a few thoughts seem to be to be blindingly obvious...

VS have 747-400s, and 340s of various variant..... BA are doing their best to cut capacity, are looking to offload a few 747-400s, and want 340s on the books about as much as they want the plague. So why would they want the planes?

VS have a relatively tiny number of slots at LHR compared to BA, or for that matter, compared to BD. This would be an expensive way of getting relatively few slots - there are way more sensible targets for BA to buy if they are after slots.

The chances of our lords and masters at the MMC even reading a proposal to merge the UK's #1 and #2 airlines are about as high as us all seeing the Queen's bum on telly tonight.

BUT - BD and VS makes sense. It would provide what both sides want:

- a shorthaul network to feed VS;
- some critical mass at Heathrow and a more balanced med/long haul fleet for both (remember the CCQ on 330/340?);
- a way for SM to realise his millions, and perhaps leave the regional business to play on its own;
- baby and VEX are not in the equation, imho. Baby is going for its own AOC - ask yourself why? VEX is pretty standalone anyway - my guess is they will both be exluded from a deal that will tie up VS and BD Mainline/longhaul...

BA are mouthing off to the press because they are rattled. BDVS would give them a real headache, giving them what they have never had to face - serious competition on the long-haul (and the North Atlantic in particular) backed up by a great domestic/Euro feeder network.

You heard it here first - BD VS will happen, Baby will fly solo, regional will become the "new" British Midland.... and the whole BD VS thing will go into Star.

TA

[akerosid]

I agree completely with TwinAisle; BD/VS makes superb sense.

Without wishing to repeat his comments, I'd say:
- The A330/340 CCQ advantage spreads to the rest of the fleet in that BMI will more than likely acquire 319s and that will give an all Airbus short haul fleet, with easy conversion to the widebodies.
- There's no conflict in terms of routes
- VS already deals with the STAR Alliance
- Both airlines have generally good service reputations

Maybe they will be content to codeshare and market more closely, rather than merge, but the potential is clearly there for a deal.

BA and VS won't happen, won't even be allowed to happen and regardless of SQ's SARS problems now, they're not going to sell out to a major competitor.

[Digitalis]

The BD/VS topic is being done in Aircrew Notices (though it seems to have turned into an internal bmi pilots vs ops/crewing rant:rolleyes: ). For the record, TwinAisle these were my thoughts on that topic:

If this were to happen, and it's a big 'if', it would be in effect a takeover of bmi by Virgin, though it may be presented as a merger. This has been under discussion for some years, although both parties have blown hot and cold over the affair. It seems to me that bmi, whose long-haul aspirations are pretty much defunct, and Virgin, whose Heathrow expansion plans are stymied by lack of slots, have re-started negotiations in the hope that their owners' mutual dislike can be overcome in the financial interest of both companies!

The outlook for bmiBaby and Virgin Express is probably fairly neutral from this deal, as they don't compete on many (if any) routes. Virgin Express is, and always has been, nothing to do with Atlantic, and bmiBaby is going to be placed outside the bmi fold - before the deal, if it happens.

The business 'fit' for the deal has been quoted many times in the past as justification for the deal, but I'm not so sure that any airline needs to cover the gamut of possible markets - indeed, it's arguable that BA would be far better off without shorthaul. Why should it be different for VS? It's likely that non-first-class long haul will enter a period of reasonable expansion and profitability over the nest few years, but that short haul (particularly full-service scheduled - bmi's core market) will suffer at the hands of the low-cost lines. Who would buy into the bmi business in that light? Not me!

So, I don't put too much credence in these reports, but I wouldn't be surprised to hear about further codesharing and other 'synergies' in the near future.

The conclusion differs from yours, but we seem to agree on the irrelevance of Virgin Express and bmibaby to this deal!