Richard Branson, a British businessman had once said, “If you want to be a millionaire, start with a Billion dollars and then start (buy) an airline!” and it is somewhat ironic that he himself is facing the music now as his Virgin Atlantic is at the brink of a major collapse.
The COVID-19 outbreak has started devastating the business that it threatened to disrupt the most, viz. the Airlines industry. Richard Branson is reportedly seeking a buyer for Virgin Atlantic and has set the deadline of May end to save it from an imminent collapse.
Virgin Atlantic says it is still in talks with the United Kingdom government for a Coronavirus-related bailout. The Airlines described the talks as “ongoing and constructive”, but also stated that it is looking to raise cash from the private sector.
Houlihan Lokey, the investment bank hired by the Branson-owned Airlines has sounded out more than 100 potential buyers with “all options on the table”. Roughly 50 potential buyers have asked for information and will be whittled down for a handful of bidders.
Sources from Virgin Atlantic say, “Because of significant costs to our business caused by unprecedented market conditions which the Covid-19 crisis has brought with it, we are exploring all available options to obtain additional external funding.”
Virgin Atlantic is in real trouble and Branson is not hiding it either. In a blog post, he said, “We will do everything we can to keep the airline going – but we will need government support to achieve that”. He is asking the British government for a commercial loan, believed to be £500m.
But it is unlikely that he will actually be able to secure a bailout from the UK goverment. The Department of Transport has said, “The aviation sector is important to the UK economy, and firms can draw upon the unprecedented package of measures announced by the chancellor, including schemes to raise capital, flexibilities with tax bills, and financial support for employees.”
In March, Chancellor Rishi Sunak had written to the Airlines and airports asking them to look for other forms of funding and that the government would step in only as a “last resort” during the ongoing Pandemic.
Virgin Atlantic has run into trouble after the group’s Airline in Australia, Virgin Australia slipped into administration. Virgin Australia was already riddled with a long-term A$5bn (£2.55bn; $3.17bn) debt prior to the enforcement of a lockdown which has only worsened its position.
But the Virgin group is just an example of how the Airlines industry as a whole is set for unprecedented devastation during the ongoing Pandemic which has led to lockdowns and travel bans across the world.
With domestic and international flights getting banned across the world, the Airlines industry has taken a hit and it is ironic that a virus which was actually spread around the world by passengers travelling in various Airlines, has now actually grounded every single Airlines.
The Coronavirus Pandemic has caused lockdowns and travel bans of the kind that had not been enforced for several centuries in the past, and the International Air Transport Association has already said that airline passenger revenues this year would be cut into half.
Richard Branson has already injected $250 million into the Virgin Group companies in order to ensure some measures of liquidity in the face of the ongoing lockdowns but he says that this is not proving to be enough.
Particularly with Airlines, it is really hard to keep grounded companies going, and as Branson said in an open letter, “The challenge right now is that there is no money coming in and lots going out.”
Ownership costs, parking costs and bidding for major airline routes- Airlines business is a high-cost business, and Branson himself knows that it can make a millionaire out of a billionaire.
But while Virgin Atlantic is the first casualty of the Coronavirus Pandemic in the Airlines sector, it might not be the last one. Running an Airlines involves a range of high costs, such as parking and ownership costs even if the Airlines is grounded.
Across the world, all Airlines companies are looking at a bleak future as there is still not much certainty on when and how air traffic will resume all over again. Finding buyers for an industry as troubled as this one is also a colossal challenge.
By the time the Pandmeic is over, the Airlines business might already be cut to size with loss-making companies failing to find buyers and investors. The most badly affected would be the customers as the loss-making companies would be eager to recover the historical losses that they are suffering. Once we are past the Pandemic, low-cost air travel might also become a thing of the past.