[PhilipHart]

In his article yesterday on the subject of Virgin bankruptcy – “Virgin Atlantic appoints advisors to manage a bankruptcy process” (Sky News), – Rob “Head for Points” Burgess points out the following:

One issue, however, would be the potential loss of its Heathrow Airport landing and take-off slots. Many people have forgotten that many of Virgin’s slots are secured against a £220 million loan and would be forfeit if that loan was not repaid.

[Roa1]

How soon before the creditors who are owed billions of dollars by airlines decide to pull the plug or commence enforcement action and cease their assets. A recent case, against Virgin Australia has already begun in the US court from seizing four of their aircraft’s that are currently undergoing maintenance at an airport in Nashville, Tennessee.

The current liabilities of airlines are massive, and much of their assets are short term loan facilities and those will need to be financed. Airlines have complex sources of finance, sale-lease back deals, involving banks and investors, aircraft leasing companies to defer payments on lease-back aircraft. Most of Virgin’s fleet are leased aircraft, and other new planes yet to be delivered from the Airbus, the A-350 series. I can’t imagine creditors would continue to incur losses on their investment and airlines ability to service its debt. Furthermore, airlines have no money coming-in from ticket sales, therefore, cash flow is expected to remain negative until the restriction on the lockdowns are lifted. and why would anyone wants to fly knowing that on reaching their destination they’ll be forced to quarantine “sine die”, at their own expense.

And here come’s the knight in shining armour, Richard Branson, promising that he will be able restructure and run his new airline with just 36 planes from Heathrow Airport!

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jsn55, FaroFlyer, TimothyTanks

[FaroFlyer]

[postquote quote=998491][/postquote]

Hi SimonS1,

I agree for this year and next BA have enough aircraft, especially for short haul. However, if / when the industry does recover then BA will need more long haul to pick up the VS slack. Of course there will be hundreds, if not thousands, of long haul aircraft parked up, but if BA pick up VS aircraft now it means any newcomer must start from fresh.

The graph in this Forbes article shows that VS has made £211 million profit in the last 10 years while BA made £11 Billion! https://www.forbes.com/sites/willhorton1/2020/04/26/branson-to-sell-virgin-atlantic-iconic-brand-but-chronic-losses/

Who would want to go up against this fire power? I smile often when I think of the number of anti BA, Cruz, Walsh posts citing the “race to the bottom” and predicting their early demise. Where are the mighty LH Group and AF/KLM now?

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ImissConcorde, Roa1

[SimonS1]

Really, is the difference in profits such a surprise bearing in mind the relative sizes of the businesses and their histories – one a start up, the other a 100 year old carrier?

I would have said there is zero chance of BA picking up the Virgin fleet now. It is likely to take years for the airline industry to recover to pre-covid levels, why on earth would BA take on extra aircraft when they are reducing their own fleet and mothballing/scrapping LH aircraft? Surely if they had that much confidence in the future they wouldn’t be laying off 12,000 people? And if as you say VS is barely profitable why would it make sense anyway.

As for firepower well I guess in a couple of years we will see. Other parts of IAG are already taking government bailouts so I doubt it’s that clear cut. Share price down 70% in 2.5 months, hardly a good news story.

Finally why do you assume it would be a newcomer? There are plenty of other airlines around. ME3 airlines might increase their frequencies for example.

[RoyJones]

Can someone explain something to me? RB wants to borrow £500 million “on commercial terms” from HM Govt. At 5%, which is probably below “commercial”, that requires £25 million pa interest repayment. In the last 10 years VS has made £211 million profit according to Forbes. That is £4 million a year less than just the interest repayments and airline profits are going to be doubtful for at least the next 3 years. How is the £500 million going to be repaid?

[quote quote=998505]ME3 airlines might increase their frequencies for example.[/quote]

First of all the ME3 are going to have to recover their hub businesses instead of expanding and those are dependent on almost unrestricted travel to and from most countries. Secondly Emirates is “lumbered” with 100+ A380s, Etihad are trying to empty the Abu Dhabi treasury with their “investments” and QATAR have invested quite heavily in IAG. Thirdly none of them are going to get US landing rights ex Europe incl UK so why get more UK landing rights?

Just as COVID 19 finds easier victims in the already weakened by disease or age, it is finding easier victims in the marginally profitable airlines.

2 users thanked author for this post.

ASK1945, PhilipHart

[jsn55]

I have to agree that nobody will be picking up another airline’s assets for a long, long time unless it’s a deal they can’t refuse, like ten cents on the dollar. And even then it might be a stretch. We have a cross-country flight in September and are discussing whether we’d board a plane wearing a mask for 6 hours. If enthusiastic travellers like us are debating that, it will be a long hard road back for the airlines.

I’ve stopped worrying about my Flying Club miles and think about all the wonderful people who will be unemployed when this disaster plays itself out. That thought puts things in perspective immediately.

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canucklad, PhilipHart

[capetonianm]

As it became clearer that the CV crisis was going to inhibit travel for some while, and I’m being deliberately vague here as it’s all speculative, I donated my remaining miles across the the few airlines I use, to charity. I hope they will be able to use them to some benefit.

1 user thanked author for this post.

jsn55

[SimonS1]

[quote quote=998507]First of all the ME3 are going to have to recover their hub businesses instead of expanding and those are dependent on almost unrestricted travel to and from most countries. Secondly Emirates is “lumbered” with 100+ A380s, Etihad are trying to empty the Abu Dhabi treasury with their “investments” and QATAR have invested quite heavily in IAG. Thirdly none of them are going to get US landing rights ex Europe incl UK so why get more UK landing rights?[/quote]

Well Emirates already has US landing rights ex Europe….that is why they fly Milan to JFK (also Barcelona to Mexico). If they could get the slots they would use them. It wouldn’t be the first either, Kuwait Airways also has ex London to US rights.

Second Emirates has already been re-capitalised, and Abu Dhabi has the third largest SWF globally with $700bn of reserves. So if you are worried about AD treasury I wouldn’t stress too much.

As far as hubs are concerned I think that will rebound quite quickly. A few cut price sales will get that moving. For that reason I would much rather be in ME3 position than any of the European airlines.

[RoyJones]

[quote quote=998512]Well Emirates already has US landing rights ex Europe…[/quote]

SimonS1 not quite correct, Emirates has 5th Freedom Rights on Milan to JFK, Athens to Newark and Barcelona to Mexico City, that’s all. All 5th Freedom Rights are route dependent and have to be agreed on a case by case basis between all three parties – the home country and the two countries (one of which may be the EU rather than an individual country) at each end of the route.

I am sure from the passenger point of view we would all like the ME3 to be competing across the Atlantic but the CAA indicated some time ago that London airports would not be considered for new fifth freedom rights and the US Big 3 would lobby extensively against any new rights.

On another, but related issue, I wonder how much a pair of slots at LHR or LGW are worth right now.

[SimonS1]

[quote quote=998523]I am sure from the passenger point of view we would all like the ME3 to be competing across the Atlantic but the CAA indicated some time ago that London airports would not be considered for new fifth freedom rights and the US Big 3 would lobby extensively against any new rights.[/quote]

Times have changed materially, with Brexit and Covid. What was agreed “some time ago” may not hold up now.

If airlines like Virgin start going bust then a change of thinking may be needed, particularly as the competition authority may have a view of BA acquiring further slots.

[FaroFlyer]

SimonS1 commented
“Really, is the difference in profits such a surprise bearing in mind the relative sizes of the businesses and their histories – one a start up, the other a 100 year old carrier?”

Answer; Hardly a start up. VS was founded 35 years ago. I was a VS Gold card back in the mid 90s when all staff, and Gold cards were invited to RB’s garden party at his home near Oxford. BA long haul fleet size a little over 3X VS, and it is generally accepted that BA makes most of it’s profits on long haul, particularly trans Atlantic, where VS are also strong. Over the last 10 years VS operating profit -0.1% BA operating profit 10%. In numbers BA net profit > 50X VS.

and asked
“Finally why do you assume it would be a newcomer? There are plenty of other airlines around. ME3 airlines might increase their frequencies for example.”

Reason for suggesting a newcomer is that I feel, if anyone tries to make a go of VS, it will be Venture Capital as listed in the Forbes article. Alternatively an opportunist, like BA. Yes, the IAG share price is down ~ 70%, but that is in line with the industry. It is still worth £3.78 Billion

1 user thanked author for this post.

jsn55

[canucklad]

[quote quote=998526]If airlines like Virgin start going bust then a change of thinking may be needed, particularly as the competition authority may have a view of BA acquiring further slots.[/quote]

And, although some might wistfully look back at the BEA & BOAC years as a golden era in travel , would we really want to , as consumers , return to a highly regulated monopolistic environment .

If VS goes under, it’s a tragedy for those employees who have invested a better part of their lives to a brand most are proud to work for. Those job loses added to the other inevitable substantial losses , particularly in the Croydon area will slow , all of our return’s to normal.

BA is bad enough with its moniker of London Airways, how much worse will it be if & when it adopts the Heathrow Airways moniker ?

[SimonS1]

[quote quote=998528]Answer; Hardly a start up. VS was founded 35 years ago. I was a VS Gold card back in the mid 90s when all staff, and Gold cards were invited to RB’s garden party at his home near Oxford. BA long haul fleet size a little over 3X VS, and it is generally accepted that BA makes most of it’s profits on long haul, particularly trans Atlantic, where VS are also strong. Over the last 10 years VS operating profit -0.1% BA operating profit 10%. In numbers BA net profit > 50X VS.[/quote]

My point though was really that at the point VS started up with its 1 Gatwick aircraft, BA already had a dominant position with slots at Heathrow, feeder routes across Europe, the capital to buy BCal and similar and the scale to try and force Laker/Virgin to the wall with predatory measures.

Virgin’s US strength is only on the back of Delta. If Delta exits then Virgin as a stand along business across the Atlantic is nowhere against the BA/AA JBA (otherwise Virgin would be more profitable).

But my main question still remains: why would you even contemplate buying another carrier when you are mothballing or retiring your own fleet and laying 12000 people off?

[FaroFlyer]

[postquote quote=998538][/postquote]

Hi Simon,

IAG are still going ahead with Air Europa https://uk.reuters.com/article/uk-health-coronavirus-iag-air-europa/iags-acquisition-of-air-europa-still-ongoing-ceo-says-idUKKBN22J0UD

Why not add Virgin? I am sure that they would get shareholder support for a long term investment.

[canucklad]

[quote quote=998539]Why not add Virgin? I am sure that they would get shareholder support for a long term investment.[/quote]

And Virgin would be added to a long list of other causalities, whose downfall to a greater or lesser extent started with the state carriers position of strength….
Why reward bad behaviour ? BA was bad enough, but with the capital of IAG behind it , are they now more predatory than ever ?

Be in no doubt, Virgin and more importantly their employees won’t be assimilated into BA long term , as an airline it will be deconstructed . Another home carrier will cease to be a pesky competitor. Add Virgin to the list of ex UK competitors —- All better quality airlines, but not able to compete with the (Ex) by proxy state megalith !!

[Author]

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