Iain
15th Oct 2001, 21:57
Financial Mail: COMPANIES: Cash Crisis, What Cash Crisis? Says Confident Branson
The Mail on Sunday (United Kingdom); Oct 14, 2001
BY LISA BUCKINGHAM
WHEN Sir Richard Branson arrived at Singapore's Changi airport last Wednesday, it should have been the start of a flag-waving trip to launch his new mobile phones venture.
But within 48 hours, mobiles were scarcely being mentioned. The focus was firmly on Branson's Virgin Atlantic, its finances and the airline's crucial ties with Singapore Airlines (SIA).
It is no secret to executives at SIA that the relationship between Branson and their chief executive, Dr Cheong Choong Kong, has been less than warm.
The Singaporean carrier is still smarting from being persuaded to pay Pounds 600 million for a 49 per cent stake in Virgin Atlantic in 1999, a stake now worth just Pounds 23 million.
SIA's operations people are said to be increasingly frustrated that it has taken so long to reap the expected rewards of linking with the high-profile British carrier.
Sharing facilities on flights, shared lounges and joint booking facilities - all seem to be happening remarkably slowly.
And the latest indignity has been that the fierce pricing tactics of Branson's low-cost Australian airline, Virgin Blue, helped bring about the collapse of Ansett Airlines and forced the renationalisation of its parent Air New Zealand - in which SIA had a 25 per cent stake.
The result? SIA lost almost all its initial Pounds 160 million investment in Australasia.
And this has weakened the company's famously strong balance sheet.
Yet when Branson went to meet Cheong on Friday, SIA executives fully expected that the Virgin boss would be pleading for cash.
SIA's finance chiefs have been poring over Virgin Atlantic's figures since September 11. Their work was given new urgency by research published days before Branson's arrival by Kevin O'Connor, Deutsche Bank's highly-rated Asia Pacific aviation analyst.
It stated baldly: 'We estimate that Virgin Atlantic requires a capital injection of at least Pounds 150 million.' Yet after his meeting with Cheong, Branson emerged saying he needed no money, and had asked for none.
Branson is renowned for optimism and financial near-misses.
Even more, he is passionately committed to his airline - the business for which he sold his beloved Virgin record label to EMI nearly a decade ago.
Virgin has sacked 1,200 staff and admits business traffic is down by 30 per cent and economy passengers by 15 per cent since the American assaults.
But Branson insisted on Friday: 'We have the necessary resources at Virgin Atlantic.' O'Connor was sceptical. He estimated that Virgin Atlantic would report losses of Pounds 150 million in the
12 months to next April compared with profits of Pounds 27 million last year.
He said that at the end of the last financial year, Virgin Atlantic's debts were Pounds 169 million against shareholders' funds of Pounds 137 million.
But 21 of Virgin's 32 aircraft are leased. If the leases are taken into account, the company's debts are more than eight times its equity.
Companies such as Cathay Pacific of Hong Kong have debts of just 55 per cent of shareholders' funds.
Deutsche also reckons the value of Virgin's aircraft fleet is Pounds 200 million less than its book value. And that was before the mauling that plane values took in the aftermath of September 11. Furthermore, Virgin Atlantic has orders for one Boeing 747 and 10 Airbus A340s, scheduled for delivery between now and the end of next year. They could cost about Pounds 1 billion.
A Branson spokesman denied the company needed cash and said Pounds 150 million was 'Not Virgin's estimate' of likely losses.
He said that the carrier had Pounds 200 million of cash as the downturn started and said Deutsche Bank's figures were probably calculated without taking account of the job cuts and 32 per cent capacity reductions Virgin has made.
Dealing with SIA, Branson holds an important card.
He knows that Virgin Atlantic fits perfectly into SIA's long-term strategy; it would not be in SIA's interests to see its 49 per cent stake jeopardised. But Branson also knows that in today's climate, it would be hard to raise money elsewhere.
SIA executives would clearly drive a hard bargain if asked for cash. And some of their demands would be profoundly unpalatable to Branson.
If SIA provided further funds for Virgin, it would have to be a loan.
SIA cannot increase its Virgin stake beyond 49 per cent without Branson losing the right to fly to the US, which provides about 75 per cent of Virgin Atlantic's business.
SIA is thought likely to insist that cash should be accompanied by a truce in the Australian market with Virgin Blue joining the reconstruction of Ansett, which will be controlled by SIA.
Most unpalatable to Branson, industry insiders expect the Singaporeans would demand a form of management control at Virgin Atlantic, including a say over aircraft purchases and a veto on Branson using the airline's revenues to fund other parts of his empire.
One aviation expert concluded: 'Sir Richard might have control over his airline for the moment, but at what cost? If he alienates SIA he may cut off the source of funding that his airline desperately needs.'
All Material Subject to Copyright
The Mail on Sunday (United Kingdom); Oct 14, 2001
BY LISA BUCKINGHAM
WHEN Sir Richard Branson arrived at Singapore's Changi airport last Wednesday, it should have been the start of a flag-waving trip to launch his new mobile phones venture.
But within 48 hours, mobiles were scarcely being mentioned. The focus was firmly on Branson's Virgin Atlantic, its finances and the airline's crucial ties with Singapore Airlines (SIA).
It is no secret to executives at SIA that the relationship between Branson and their chief executive, Dr Cheong Choong Kong, has been less than warm.
The Singaporean carrier is still smarting from being persuaded to pay Pounds 600 million for a 49 per cent stake in Virgin Atlantic in 1999, a stake now worth just Pounds 23 million.
SIA's operations people are said to be increasingly frustrated that it has taken so long to reap the expected rewards of linking with the high-profile British carrier.
Sharing facilities on flights, shared lounges and joint booking facilities - all seem to be happening remarkably slowly.
And the latest indignity has been that the fierce pricing tactics of Branson's low-cost Australian airline, Virgin Blue, helped bring about the collapse of Ansett Airlines and forced the renationalisation of its parent Air New Zealand - in which SIA had a 25 per cent stake.
The result? SIA lost almost all its initial Pounds 160 million investment in Australasia.
And this has weakened the company's famously strong balance sheet.
Yet when Branson went to meet Cheong on Friday, SIA executives fully expected that the Virgin boss would be pleading for cash.
SIA's finance chiefs have been poring over Virgin Atlantic's figures since September 11. Their work was given new urgency by research published days before Branson's arrival by Kevin O'Connor, Deutsche Bank's highly-rated Asia Pacific aviation analyst.
It stated baldly: 'We estimate that Virgin Atlantic requires a capital injection of at least Pounds 150 million.' Yet after his meeting with Cheong, Branson emerged saying he needed no money, and had asked for none.
Branson is renowned for optimism and financial near-misses.
Even more, he is passionately committed to his airline - the business for which he sold his beloved Virgin record label to EMI nearly a decade ago.
Virgin has sacked 1,200 staff and admits business traffic is down by 30 per cent and economy passengers by 15 per cent since the American assaults.
But Branson insisted on Friday: 'We have the necessary resources at Virgin Atlantic.' O'Connor was sceptical. He estimated that Virgin Atlantic would report losses of Pounds 150 million in the
12 months to next April compared with profits of Pounds 27 million last year.
He said that at the end of the last financial year, Virgin Atlantic's debts were Pounds 169 million against shareholders' funds of Pounds 137 million.
But 21 of Virgin's 32 aircraft are leased. If the leases are taken into account, the company's debts are more than eight times its equity.
Companies such as Cathay Pacific of Hong Kong have debts of just 55 per cent of shareholders' funds.
Deutsche also reckons the value of Virgin's aircraft fleet is Pounds 200 million less than its book value. And that was before the mauling that plane values took in the aftermath of September 11. Furthermore, Virgin Atlantic has orders for one Boeing 747 and 10 Airbus A340s, scheduled for delivery between now and the end of next year. They could cost about Pounds 1 billion.
A Branson spokesman denied the company needed cash and said Pounds 150 million was 'Not Virgin's estimate' of likely losses.
He said that the carrier had Pounds 200 million of cash as the downturn started and said Deutsche Bank's figures were probably calculated without taking account of the job cuts and 32 per cent capacity reductions Virgin has made.
Dealing with SIA, Branson holds an important card.
He knows that Virgin Atlantic fits perfectly into SIA's long-term strategy; it would not be in SIA's interests to see its 49 per cent stake jeopardised. But Branson also knows that in today's climate, it would be hard to raise money elsewhere.
SIA executives would clearly drive a hard bargain if asked for cash. And some of their demands would be profoundly unpalatable to Branson.
If SIA provided further funds for Virgin, it would have to be a loan.
SIA cannot increase its Virgin stake beyond 49 per cent without Branson losing the right to fly to the US, which provides about 75 per cent of Virgin Atlantic's business.
SIA is thought likely to insist that cash should be accompanied by a truce in the Australian market with Virgin Blue joining the reconstruction of Ansett, which will be controlled by SIA.
Most unpalatable to Branson, industry insiders expect the Singaporeans would demand a form of management control at Virgin Atlantic, including a say over aircraft purchases and a veto on Branson using the airline's revenues to fund other parts of his empire.
One aviation expert concluded: 'Sir Richard might have control over his airline for the moment, but at what cost? If he alienates SIA he may cut off the source of funding that his airline desperately needs.'
All Material Subject to Copyright