The Virgin that got lucky

[Wirraway]

BRW.com.au. .. .The Virgin that got lucky. .By Sheryle Bagwell. .. .It may not beat the return that Sir Richard Branson reaped from his first business, Virgin Records - set up for a couple of hundred pounds in London in the early 1970s and sold to EMI in 1992 for $US1 billion - but the deal to sell his half stake in Virgin Blue to Patrick Corporation for an initial payment of $260 million will rate as one of Branson's best. And Branson has not even met Patrick's head, Chris Corrigan. He says: "Bizarrely, I think it is the first time I have gone into partnership with somebody I have only spoken with on the phone. But reputation is everything in life, and I think we have had a mutual respect for each other from afar.". .. .The flamboyant British tycoon and the hard man of the Australian waterfront will finally meet next month when Branson flies to Australia on April 10 to complete the deal. The new partners will then have ample time to toast the extraordinary success of an airline set up just 18 months ago with an $11 million investment by Branson. The demise of Ansett Australia has left Virgin as the only domestic competitor of Qantas.. .. .Few long-distance relationships prove to be so successful so quickly. For Branson, the Patrick deal will give him more than enough cash to proceed with his next venture, the launch of Virgin Mobile in the United States.. .. .Branson says that Patrick has merely made a down-payment of $260 million for its 50% of Virgin Blue. The transport and logistics group will pay an extra $20-30 million for every $100 million increase in Virgin Blue's capitalisation above $600 million by the time of the company's planned float, now scheduled for the fourth quarter of 2003. Patrick's $260 million payment values the airline at $520 million. Branson says it is now worth $600 million. He says that will rise to at least $1.2 billion by float time, which, in turn, would double Virgin Group's consideration from the Patrick deal.. .. .Branson says Patrick has also agreed to finance any purchase of Ansett assets (to be reflected in the final payment to Virgin), leaving Branson free to take the cash and spend it elsewhere in his group. Branson says Virgin Blue "doesn't need that money" and will report a full-year profit at the end of this month "in excess of $25 million". With Ansett now out of the picture, he expects profits to rise threefold in 2002-03.. .. .He says: "However, if (Virgin Blue) did need money as a result of certain assets from the receiver needing more than we thought, then obviously we would make some of this money available.". .. .For Corrigan, the Virgin Blue partnership, even at double the present price, gives him a valuable stake in a burgeoning and already profitable airline business. He will add it to a transport portfolio that includes control of half the nation's ports and half the rail-freight businesses of New South Wales and Victoria. The freight synergies for Patrick of a tie-up with Virgin Blue are obvious. Yet it was Branson who approached Corrigan last year, when Virgin Blue was in need of a sympathetic ear in Canberra.. .. .Referring to the failed bid for Ansett by Solomon Lew's and Lindsay Fox's Tesna, Branson says: "We were concerned just before the election that the Federal Government would make an irrational decision and pump lots of money into the Tesna thing, based on political pressure. Therefore, we decided to approach somebody who was well respected in Australia to make sure the Government realised there was an alternative.". .. .Branson could not have found a more suitable political lobbyist than Corrigan, with his impeccable conservative credentials. Under the arrangement struck late last year, Patrick and Virgin would also team up to bid for Ansett assets which, if acquired, would give Patrick a controlling stake in Virgin Blue. Branson says that deal "fell away" when its Ansett bid "was not only turned down by the (Ansett) administrator but when the administrator wouldn't even let us look at the books". (In its first report to creditors, Andersen, the administrator of Ansett, said Patrick gave it a one-page proposal.) . .. .Things did go Virgin's and Patrick's way in the end. The Howard Government did not support the Tesna bid. Lew and Fox then turned to Branson for help. When the Tesna principals came calling on Branson at his palatial London home in February, Branson did not spend much time mulling over the proposal. He says: "Their approach was, 'We're going to survive and you're not going to survive ... so it's much better for us to be partners'. We spoke out of courtesy but their proposal did not really stack up.". .. .A few days later, the Tesna bid had collapsed and Corrigan was back on the phone to Branson. A week later, Patrick was back in business with Virgin.. .. .Branson rejects suggestions that the need for cash to prop up other loss-making parts of Virgin Group is part of the reason for his rapid sale to Patrick. A selling spree over the past three years has netted the travel, entertainment and media company about UK pounds 1.2 billion. Despite problems with Virgin Mobile in Britain and Virgin Express, the group's low-cost airline based in Belgium, the group managed to increase cash reserves this year to about UK pounds 300 million. Branson says that Virgin Atlantic Airways, the group's biggest business, is no longer haemorrhaging cash and is stronger after September 11.. .. ."We are a private group of companies - generally speaking, we don't float companies," Branson says. "We prefer to have partners around the world on different ventures ... and we felt Corrigan could bring a lot to the table in time." Branson, who remains chairman of Virgin Blue, says he has no plans to sell his remaining stake and wants to retain an equal share in the business with Corrigan after next year's float, which he expects will be "relatively small". He also dismisses speculation that he would like to bring Singapore Airlines into the business. "There is not really room for a third player in this," he says.. .. .The partners' first priority is to expand the business: Virgin Blue wants a 50% share of the domestic airline market by 2007, a substantial rise on its current 15%. (Virgin Blue's chief executive, Brett Godfrey, says its immediate market-share goal is 25%; see following story.) But Branson and Corrigan say they will not pay any price to acquire Ansett terminals to underpin that expansion, and are under no pressure to do so.. .. .Branson says: "With some extensions, we can get about 30 planes in our current terminals. If we don't take the Ansett assets, the airports will - and then for the extra 20 or so planes that we are going to need, we can rent space." But Branson knows that Virgin Blue would benefit considerably from owning those Ansett assets. Virgin is negotiating with Andersen on a deal to take on more than 1000 Ansett employees. Branson says he would like to hire them as part of Virgin Blue's natural growth - in return for a good deal on the assets. "But it's by no means definite that we will be going down that route," he says.. .. .Branson clearly wants to maintain the formula that has worked so well for him in Australia and keep costs and ticket prices low. He says the airline will not exploit its new market position by raising prices or turning into another Ansett. "I can completely understand why people hate the idea of duopolies," says Branson. "But our reputation is everything; the Virgin brand's reputation is everything. We believe it makes good business sense to keep fares low because, if you can have twice as many people flying and you can keep your planes full, you can make more money than by having high fares.". .. .Australia is likely to be a frequent stopover for the globetrotting entrepreneur as he mulls over plans to bring more Virgin products to Australia. Having led an air price war that contributed to Ansett's demise, Branson says he wants to shake up the local financial services industry. One plan is to introduce the Virgin credit card.. .. .But the main focus for Branson, and Godfrey, is likely remain the continuing battle to wrest market share from Qantas. To ensure that remains a fair fight, Branson, on his next visit, intends to make a courtesy call on the Prime Minister, John Howard.. .. .Branson relishes the role of corporate underdog, even though that description sits oddly with an entrepreneur who controls a complex web of more than 200 businesses worldwide, and whose personal net worth is now estimated at UK pounds 1.2 billion. "Australians come up and give me big slobbery kisses as I walk down the street," he says. "Maybe that's the downside of being so successful.". .. .The Virgin collection. .How Branson's brand is building in Australia:. .Virgin Blue: Virgin Group owns 50% of the airline, as a result of the March 12 sale of 50% to Patrick Corporation for $260 million.. .. .Virgin Mobile: A 50:50 mobile-phone reselling joint venture between Virgin Group and SingTel Optus.. .. .Virgin Music: After bombing in Australia in the 1990s, the Virgin Music brand is returning. Local retailer Brazin (Sanity music stores) is rebranding its 55 In 2 Music stores as Virgin Music and opening 45 new Virgin stores. Brazin will pay royalties to Virgin Group.. .. .Source: BRW. . . . <small>[ 22 March 2002, 12:49: Message edited by: Wirraway ]</small>

[Wirraway]

From Australia's BRW Thursday, 21 March 2002. .. .Virgin territory. .. .By Chris Milne. .. .Virgin Blue will move quickly to capitalise on opportunities presented by its new ownership structure and its position as Australia's second domestic airline. The chief executive, Brett Godfrey, has many ideas, ranging from a strong push into air freight to a separate airline for regional cities. "We have a million things we could do," he says.. .. . With Ansett Australia gone, Patrick Corporation as a new shareholder, and the likelihood that Virgin Blue will get to use at least $130 million of the $260 million Patrick paid to acquire its 50% stake, Godfrey can focus on long-term planning. He says the pressure to establish and expand Virgin Blue since it started in September 2000 has resulted in short-term planning so far. "A year ahead? For us that's an eternity," he says.. .. .Godfrey's long-term planning skills are developing fast. Virgin Blue has 17 Boeing 737 aircraft, with another two scheduled to arrive late in March. It expects to have a fleet of 24 aircraft by September, when the last of the orders is delivered to its Brisbane base. Godfrey says Virgin Blue will have 30 planes by March 2003. He says a fleet of 30 aircraft will produce annual revenue of about $700 million (Virgin Blue's revenue over the past 12 months was $360 million) and a pre-tax profit of $60 million. The airline's projected pre-tax profit for the 12 months to March 31 this year is $32.9 million.. .. .An expanded Virgin Blue would employ 2500 people, up from 1300 now, and Godfrey says it would capture 25% of the domestic airline market, compared with 15% today. "I think 25% is a safe number to aim at for the next 12 months." He would like to have 30%, but admits it will be a tough assignment for the one-class airline to steal more from the full-service, two-class Qantas. However, Virgin Blue's low-cost operation is based on a one-class system. "I don't think you have to have business class," Godfrey says. "On Qantas, many business people are travelling economy. But you do need to have frequency.". .. .Virgin Blue is flying hourly services on the Brisbane-Sydney-Melbourne network during peak morning and evening times, and Godfrey says the additional aircraft will enable him to "fatten" those key east-coast routes and move towards hourly departures throughout the day. Qantas has half-hourly flights on the Brisbane-Sydney-Melbourne network, but Godfrey believes hourly flights will be enough to attract more business travellers. Thanks to the demise of Ansett, Virgin Blue already has more than 100 corporate accounts.. .. .Godfrey says starting Sydney-Perth and Melbourne-Hobart services is a key part of Virgin Blue's expansion plans. The airline already flies to Cairns and Townsville, and Godfrey says it might develop a larger regional network. "It would not surprise me to be in the real regional markets within the next year.". .. .How it might establish new regional services is not clear. Godfrey has talked to the new owners of the former Ansett subsidiary Skywest in Western Australia, and to the administrators of Kendell Airlines and Hazelton Airlines, about possible arrangements, ranging from code-sharing to full partnerships. Virgin Blue could establish its own regional airline, using smaller aircraft to link large regional centres and feed into its capital-city network. "We would have to find the right aircraft, but we have got something in mind already," Godfrey says. . .. .Godfrey has also been talking to international airlines, particularly United Airlines and Air New Zealand, about possible alliances. Both are members of Star Alliance, which has lacked an Australian partner since Ansett's demise. But Virgin Blue, as a one-class airline, does not meet the membership requirements of Star Alliance, and Godfrey says it will not join the group. However, it might become an associate member, like SpainAir, the no-frills Spanish airline. "The vast majority of people on Star airlines are economy passengers anyway," Godfrey says.. .. .Patrick's investment in Virgin Blue gives the airline an opportunity to expand into the air-freight business. The Virgin Blue 737s can each carry three to four tonnes of freight in their cargo holds, as well as passenger luggage. The airline handles some express parcel deliveries and overnight packages as well as specific cargo, such as Holden car parts. "It's very much in the embryonic stage, but our aircraft tend to fill up (with express freight) in the last services in the evening," Godfrey says.. .. .Expanding the air-freight operation would fit with Patrick's sea and rail-freight business and create a potentially substantial revenue stream. Godfrey says: "We may have to acquire dedicated freighters.". .. .Over the next 12 months, Virgin Blue might expand into New Zealand, although that would require a fleet of more than 30 aircraft. Godfrey says expanding to other countries, including Indonesia and Fiji, depends on winning traffic rights.. .. .The "Australianisation" of Virgin Blue through Patrick's 50% stake, and the demise of Ansett International, will make it easier for Virgin Blue to win approval to fly to overseas destinations. Virgin and Patrick will also consider acquiring Ansett's assets, such as its terminal leases and its engineering and maintenance facilities.. .. .That prospect lay behind the original proposal for Patrick to take a stake in Virgin Blue, and remains alive under the new deal. "The terminals are pretty important," Godfrey says. The expansion plans will cause Virgin Blue to outgrow its existing, low-cost facilities within 15 months, and it likes the prospect of access to the former Ansett facilities at Sydney, Melbourne, Brisbane, Adelaide and Perth. The Sydney lease, particularly, would be a big investment for a low-cost airline unless Virgin Blue could attract other users. "It would have to be a common-user terminal," Godfrey admits.. .. .But there is an advantage in taking over the terminal lease, and it was probably recognised by the Tesna partners, Solomon Lew and Lindsay Fox. Under the present agreement, the owner of Sydney Airport has to buy back the terminal lease at market value after 17 years. Although a successful bid by Virgin Blue and Patrick Corporation would be expensive, it could add immediate value to the airline's asset base and, as Godfrey admits, the lease should be worth "a lot more" when it is repurchased by the airport.. .. .A higher asset value has implications for the new part-owner. Under the deal with Virgin Group, Patrick will have to make further payments of between $20 million and $30 million for every $100 million of Virgin Blue's capitalisation beyond $600 million over the next two years. That will help the cash-strapped Virgin empire, but it could also provide more working capital for Virgin Blue's assault on the 85% market share held by Qantas. . . . .Contents for this issue:. .BRW Vol. 24 No. 11. . . . <small>[ 22 March 2002, 13:40: Message edited by: Wirraway ]</small>

[Wirraway]

"Virgin Blue could establish its own regional airline, using smaller aircraft to link large regional centres and feed into its capital-city network. "We would have to find the right aircraft, but we have got something in mind already," Godfrey says.". .. .The mind boggels. .. . <img src="http://www.flug-revue.rotor.com/FRTypen/Fotos/embraer/Emb170Ef.JPG" alt="" />. .. . <img src="http://www.diecastaircraftforum.com/attachment.php?s=&postid=113664" alt="" />

[Whiskery]

Richard Branson was NOT lucky - he was astute and quick to seize on an opportunity. You didn't have to be a genius to realise Ansett days were numbered (even before the Air NZ buyout of News Corp), you only needed to calculate the timing for it's demise.