Richard Branson Is Raising $400m To Help Rescue Virgin Atlantic

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“Vieco 10” probably won’t mean much to most people but it’s the name of the investment company owned by Virgin Group (and therefore Richard Branson) which holds a controlling interest in Virgin Galactic. Last night, in a statement to the New York Stock Exchange, Vieco 10 confirmed that it is disposing of up to 25m shares in Virgin Galactic as Richard Branson seeks to raise funds to save a number of ailing travel enterprises.

The sale of 25m shares is expected to raise approximately $500m of which approximately 81% will go to Vieco’s majority shareholder (Virgin Group) which has confirmed (via an SEC filing) that the proceeds will be used to prop up its travel industry assets:

“Virgin Group intends to use any proceeds from sales of our common stock pursuant to the distribution agency agreement to support its portfolio of global leisure, holiday and travel businesses that have been affected by the unprecedented impact of COVID-19.”

The key travel industry asset owned by Virgin Group is Virgin Atlantic, so it’s likely that the bulk of the money being raised will be used to give the airline a fighting chance to make it through the current crisis…but other assets are likely to get funds too. Virgin Hotels, Virgin Holidays and Virgin Vacations are all going through troubling times right now and can probably expect a helping hand from their majority shareholder. There may even be some money for Virgin Australia.

Thoughts

The big loser out of this may well turn out to be Delta as the only way I can see Virgin Group injecting much-needed funds into Virgin Atlantic is if the airline issues new shares in exchange for the funds. With Delta unable (or unwilling) to purchase new shares, any new issue would see its 49% interest in Virgin Atlantic diluted to a very big extent and possibly even down to zero (Delta paid $360m for 49% of Virgin Atlantic back in December 2012).

Virgin Atlantic is on record as saying that it needs $620m (£500) to survive the current crisis (that was the total after Richard Branson injected $250m into his portfolio of travel industry enterprises) so, with Virgin Group unlikely to be contributing much more than $350m from its recent sale of Virgin Galactic stock, this would appear to suggest that the airline believes it has the potential to raise the rest of the money it needs from other sources. It will be interesting to see if those funds will be from investors or if Virgin Atlantic has finally done enough to persuade the UK government to give it a much-needed low-interest loan.

Bottom Line

I have to admit that I didn’t think it would come to this. I thought that Virgin Atlantic was doing a good enough job of persuading the UK government that it had nowhere left to turn and that a government loan would be what would keep the airline in business…but it appears that may not be the case.

Virgin Atlantic has been making big changes to its organizational structure as it tries to get through the current crisis and now it’s about to get a serious injection of funds from its majority shareholder so it’s looking as if the airline is in a considerably better position now than it was just a couple of weeks ago…but it’s not out of the woods yet. There’s still money that needs to be raised and there’s no sign that we’re close to the end of this crisis so although things look a lot more hopeful, the champagne will have to stay on ice.