Richard Branson’s Virgin Atlantic Facing Tough Economic Times

In later April this year, CTV News published an article on its website explaining how Business magnate, Richard Branson had embarked on offering his island as collateral. The move was a bid to salvage Virgin Australia and Virgin Atlantic from possible collapse. CTV noted that it would take government intervention to see Branson’s large business through the Covid-19 lest it will collapse.

In an earlier statement, Branson had said that the large airline needed the Australian and U.K. governments to chip in financially to boost the company that was facing uncertainties. The announcements came after the stalling of most of its flight schedules because of the Covid-19 regulations across countries. Branson’s companies that largely depend on airline activities received a significant blow because of the strict rules that forced many airlines to look for alternative means to finance their activities.

Offering Necker Estate as Collateral to manage the crisis

In a letter addressing his employees, Branson noted the importance of Virgin Atlantic and Australia in giving British Airways competition, preventing monopoly, and enhancing the provision of better airline services. Having pumped an estimated $250 million into his group of companies to cushion them from the shock of the impacts of Covid-19, Branson said that he was ready to go a mile to support the companies.

He announced that he would offer his Caribbean Island’s Necker estate as collateral to secure funds to retain his employees as the companies were no longer generating income. He expressed his desire to obtain a commercial loan of an undisclosed amount from a U.K. bank to finance his group of companies.

Recently, Branson said that he would further inject two-hundred million sterling pounds to Virgin Atlantic to enable the company to survive the impacts of the Covid-19 pandemic. The contribution would be part of the total of 900 million pounds Virgin Atlantic’s Covid-19 rescue package. He said that he would channel the funds to the airline from the Virgin Group’s coughers. Part of the funds will come from the proceeds that the magnate received following the sale his shares totaling $500 million in his hospitality business, Virgin Galactic.

Earlier, Branson had 400 million pounds agreement with the carrier’s majority shareholders, U.S. Delta Airlines (49% shares), and Virgin Group to boost Virgin Atlantic. As part of the deal, Virgin Group agreed to defer the 20 million that Virgin Atlantic pays annually to use the group’s brand. On the other hand, Delta would forgo the payments that it spends on ticketing systems and I.T. Virgin Atlantic has also been making efforts to attract new private investors to fund it to a tune of 250 million pounds. Some of the prominent companies that have shown interest in the deal include Elliott and Davidson Kempner Capital and Centerbridge Partners, a private equity group company.

Negotiations between the interested investors and the troubled Virgin Atlantic have been taking place to bail the airline. Another relief of 200 million came for Virgin Atlantic’s suppliers, including aircraft company Airbus. After it expressed its non-commitment to using tax-payers’ funds to keep Virgin Atlantic afloat, Branson received a blow from the government. However, Branson has been holding talks with the government to reconsider its strict measures that have significantly affected the large airline. The proposals include the impact of how the quarantining of passengers arriving in the U.K. is changing travel decisions and the company’s clients.

The government decided to rule out the possibility of funding Branson’s company forced the magnate to explore different avenues of raising funds to see his airline through the Covid-19 pandemic. Virgin Atlantic has also embarked on other cost-cutting strategies, such as laying off at least 3,000 of its staff and shutting down some operations such as Gatwick. The company is expected to declare over 30% of its workforce redundant. Employees will also undergo pay-cuts as part of the move to cut on the company’s expenditures during these financially challenging times. However, Branson indicated his determination to ensure that Virgin Atlantic survives the impacts of the Covid-19 pandemic.

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