Virgin in need of Cash?
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Virgin in need of Cash?
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
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NOT SPECULATION
To quote Sir Richard himself:
On the performance of his various business lines since September 11:
Some [have performed] badly. Some, believe it or not, well. The "badly'' is at Virgin Atlantic [airline]. Seventy-seven percent of our business was over the North Atlantic. [The airline has] been severely affected by the lack of business travel, though economy and freight are holding up well....
On the potential impact if the bad times drag on for a full year:
We should deal with the situation if the problem goes on.... By reducing capacity to meet new demand, airlines should survive.
Source: Business Week
This is the first time that I can remember that Mr Branson has ever said anything negative about the future of the airline.
To quote Sir Richard himself:
On the performance of his various business lines since September 11:
Some [have performed] badly. Some, believe it or not, well. The "badly'' is at Virgin Atlantic [airline]. Seventy-seven percent of our business was over the North Atlantic. [The airline has] been severely affected by the lack of business travel, though economy and freight are holding up well....
On the potential impact if the bad times drag on for a full year:
We should deal with the situation if the problem goes on.... By reducing capacity to meet new demand, airlines should survive.
Source: Business Week
This is the first time that I can remember that Mr Branson has ever said anything negative about the future of the airline.
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though economy and freight are holding up well....
AEA Press release
So, if cargo is going so well for Mr B, we can just imagine how badly passenger operations are performing.
I was referring to a majority of the details being speculation.
There is no doubt that Atlantic carriers are suffering, but to what extent? It may suprise you to find out that VA's load factors on the pond are looking pretty reasonable at the mo. And the rundown of operations routes has already been announced.
The detials of the finacial situation are specualtion - there is only one person who knows the whole picture, and he won't tell! Also, the rumours of frosty relations between VAA and SA are hearsay.
The industry is being irreperably damaged by gossip and rumour mongers in the media, particularly travel and business writers. A lot of these just state the obvious, but those who write gossip as though it was fact are helping put some of us out of jobs.
I work for VAA, the picture is not as bleak as the journo's (and the Guv for that matter) will have it. And I'm not writng from a position of misplaced loyalty - I'm one of the ones who is for the chop!
[ 16 October 2001: Message edited by: Dan Winterland ]
There is no doubt that Atlantic carriers are suffering, but to what extent? It may suprise you to find out that VA's load factors on the pond are looking pretty reasonable at the mo. And the rundown of operations routes has already been announced.
The detials of the finacial situation are specualtion - there is only one person who knows the whole picture, and he won't tell! Also, the rumours of frosty relations between VAA and SA are hearsay.
The industry is being irreperably damaged by gossip and rumour mongers in the media, particularly travel and business writers. A lot of these just state the obvious, but those who write gossip as though it was fact are helping put some of us out of jobs.
I work for VAA, the picture is not as bleak as the journo's (and the Guv for that matter) will have it. And I'm not writng from a position of misplaced loyalty - I'm one of the ones who is for the chop!
[ 16 October 2001: Message edited by: Dan Winterland ]
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As Dan has said, well sort of, we must stop talking ourselves out of business. If we, as people within the airline industry, are not more optumistic about the future, how can we expect the public to be, and start flying again.
"The INTRODUCER"
Just got into Washington from LHR yesterday - no amenity kits in coach. When did that happen, and what am I supposed to take back for the kids? Still the best IFE though.
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Wonder how Sir Richards apparent problems with VA will affect VB downunder.The current govt down there would no doubt like the way he has kept renumeration levels especially for crew at such miserable levels and so if money is needed I guess he could bring in a provider of funds in some manner or other.Personally I would not entertain working for that lot but I think our govt takes the option of minimum salary as opposed to good management and efficient work practice.
"The INTRODUCER"
...and just came back with VS overnight - where there were amenity kits in coach. So either I've got a lot more influence with Sir Richard than I realised or they've just dropped them for the daytime.
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Lappy - I do know the pathetic salary scales and no VB will never see my cv.Actually we in the industry all know about your silly interview panel and I would not lower myself and have no need to.First thing I would do at that outfit would be to rearrange the C&T system before they cost too much dont you think Slash.
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Riverview,
You obviously have a problem, but as you say you will never send your CV to VB, we won't have to worry about it!
The interview panel seems to work better than the QF or AN one, and it seems to have worked Ok for a number of ex AN pilots.
VB pilots earn a wage that puts them in the top 5% of wage earners in Australia - so they are not being too badly done by - and I'd rather get VB wages than Ansett ones - ooops I forgot - you don't get any wages if you work for Ansett do you!
I don't know what your real problem is, you are either uninformed or a hero, in either case you percieve there to be a problem that doesn't exist in reality.
You obviously have a problem, but as you say you will never send your CV to VB, we won't have to worry about it!
The interview panel seems to work better than the QF or AN one, and it seems to have worked Ok for a number of ex AN pilots.
VB pilots earn a wage that puts them in the top 5% of wage earners in Australia - so they are not being too badly done by - and I'd rather get VB wages than Ansett ones - ooops I forgot - you don't get any wages if you work for Ansett do you!
I don't know what your real problem is, you are either uninformed or a hero, in either case you percieve there to be a problem that doesn't exist in reality.
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The problem is Sir Dicky is a Spoiler, if he see's a succesful sort of enterprise, he will try to get in it, if he can't he'll try to undercut it, or empty a trash can to find dirty details, the thing is one day, there's no one left to bully, but by then your purse is a little dry , he had some luck in the past, but it seems he could be running nearly on empty so to speak, problem is all who work for him seem to be blinkered, and unable to see wood when in a forest!
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My partner came back from LAX last week.
* Two flights combined
* Economy still only 75% full
* Entire 744 crew (from cnxld flight) seated in Business.
* Business basically empty of business fare paying passengers
How can Virgin survive with such poor loads, especially with the lack of high yielding passengers.
Its a pity, but perhaps the Virgin has had her day.. Better use my miles pronto..
How long do we give them... three months? Will they survive the Jan / Feb slow down?
[ 22 October 2001: Message edited by: Copenhagen ]
* Two flights combined
* Economy still only 75% full
* Entire 744 crew (from cnxld flight) seated in Business.
* Business basically empty of business fare paying passengers
How can Virgin survive with such poor loads, especially with the lack of high yielding passengers.
Its a pity, but perhaps the Virgin has had her day.. Better use my miles pronto..
How long do we give them... three months? Will they survive the Jan / Feb slow down?
[ 22 October 2001: Message edited by: Copenhagen ]
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Are you people so negative because Nicole's testing revealed you just weren't good enough? Do you feel rejected? Are you part of BigAirways and want to return to a transatlantic monopoly? Can't you airline get off the ground?
Talking any company down into a crisis potentially hurts many decent folk who don't deserve it. If you don't like Tricky Dicky reveal yourselves to him or shut up.
There is something very sick about some of you people out there!!
Talking any company down into a crisis potentially hurts many decent folk who don't deserve it. If you don't like Tricky Dicky reveal yourselves to him or shut up.
There is something very sick about some of you people out there!!
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“The problem is Sir Dicky is a Spoiler” … a spoiler known for his financial close calls. I fear VAA is about to be financially unravelled and having friends working there I am truly sorry Sir Dick has lead his old company into this situation. 
