Coronavirus: Ministers hire Wall Street giant on Virgin Atlantic talks

One of Wall Street’s biggest investment banks has been drafted in by ministers to advise them on Virgin Atlantic Airways’ effort to secure hundreds of millions of pounds in taxpayer support.

Sky News has learnt that Morgan Stanley is working with the government on its talks with the airline founded by Sir Richard Branson.

Whitehall sources said the bank had been appointed in recent days to provide additional help in assessing whether as much as £500m of public money should be used to help Virgin Atlantic survive the coronavirus pandemic.

Morgan Stanley’s appointment adds it to a line-up of existing government advisers on aviation rescue talk that already includes EY, the accountancy firm, and Rothschild, the investment bank.

Negotiations with Virgin Atlantic, which is majority-owned by Sir Richard’s Virgin Group, have been underway for about two weeks.

The company is seeking hundreds of millions of pounds in the form of a commercial loan, as well as a government guarantee on further sums owed to it by credit card companies.

Insiders said the talks were progressing but that they might not conclude for several more weeks.

It is possible that Morgan Stanley’s role could be extended to encompass the government’s talks with other struggling airlines.

Ministers will come under pressure to justify using taxpayers’ money to rescue a company whose two principal shareholders are Sir Richard – a billionaire – and Delta Air Lines, an American carrier.

Earlier this month, Sky News revealed that Heathrow Airport and some of the aviation industry’s biggest manufacturers were mounting a frantic lobbying campaign to secure taxpayer support for Virgin Atlantic.

The Sunday Times reported at the weekend that Manchester Airports Group had also written to ministers to argue the case for bailing out the company.

In one of the letters, John Harrison, general counsel and UK chairman of Airbus, warned that Virgin Atlantic’s “collapse could have an extremely negative impact on the A330 [aircraft manufacturing] programme”.

“As you will be aware, all wings for these aircraft are designed and manufactured in the UK, and orders from airlines like Virgin are vital for the continuation of our business,” Mr Harrison wrote.

The please from industry stakeholders underlined the extent to which Virgin Atlantic regards the coronavirus pandemic as an existential threat.

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The company, which recently received a capital injection amounting to more than $100m from Virgin Group, has furloughed thousands of staff and seen its top executives agree substantial pay cuts because of the COVID-19 outbreak.

Fewer than a handful of Virgin Atlantic’s planes have been flying in recent weeks.

Last month, Peter Norris, Virgin Group’s chairman, urged Boris Johnson to establish an industry-wide support package that could cost in the region of £7.5bn.

Hopes in the airline industry that such a rescue plan might be forthcoming appeared to be dashed last month when Rishi Sunak, the chancellor, indicated that state aid would be available “only as a last resort” and after the support of existing government schemes and companies’ existing shareholders had been pursued.

He added that help would only be afforded to companies which had demonstrated their value to the wider UK economy and to competition in the aviation sector.

In the US, a $25bn rescue package for carriers including American Airlines and United Airlines was announced on Tuesday.

Delta is among the companies in line to receive part of the emergency funding.

As a privately owned company, Virgin Atlantic may find it difficult to raise equity unless it is prepared to find a new investor at a distressed valuation.

Virgin Atlantic was one of the shareholders in Flybe, which also conducted an urgent hunt for new funding before it collapsed last month.

In its letter to Mr Shapps, which was copied to Mr Sunak, Airbus said Virgin Atlantic had played an important role in working towards the decarbonisation of Britain’s aviation industry.

Mr Harrison added that it was “important for UK passengers to have access to a market that has choice and competition”.

“Virgin has a vital role in ensuring this remains the case, and also contributes to the tourism industry in the UK through Virgin Holidays,” he wrote.

The broader aviation industry has warned that it is running out of time to secure funding that would keep some of its most prominent players aloft as the coronavirus outbreak creates the biggest crisis in its history.

Sir Richard Branson

Image:
Virgin Atlantic was founded by Sir Richard Branson

A spokesman for the DfT said last month: “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.

“We are continuing to work closely with the sector and are willing to consider the situation of individual firms, so long as all other government schemes have been explored and all commercial options exhausted, including raising capital from existing investors.”

Tim Alderslade, the chief executive of lobbying group Airlines UK, has described the situation facing airlines as “grave”.

Airlines also want ministers to underwrite hundreds of millions of pounds in regulatory and air traffic control charges as they seek to navigate through the escalating coronavirus crisis.

A Virgin Atlantic spokeswoman said on Wednesday that talks with the government were “positive and ongoing” and that the company’s “cash position remains stable”.

Morgan Stanley and the Department for Transport declined to comment.

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