Branson Looks to Unprofitable Virgin Galactic to Help Save Reeling Empire
by Douglas Messier
Managing Editor
For nearly 16 years, Richard Branson’s obsession with space travel has been massive money pit for the billionaire’s Virgin Group. Branson’s conglomerate has poured more than $1 billion into Virgin Galactic, Virgin Orbit and The Spaceship Company without launching a single tourist or satellite into space while generating minuscule revenues and not a single penny of profit.
And yet, by the strange workings of modern finances, this money losing effort will be helping to prop up the Virgin Group, which has been laid low financially by the global COVID-19 pandemic.
Media reports say Branson will sell up to $504.5 million of his stake in Virgin Galactic. That represents about 22 percent of his shares in the publicly-traded company.
Virgin Galactic went public in October after selling nearly half of itself to Social Capital Hedosophia (SCH) in a reverse merger. SCH was an investment vehicle that was already publicly traded on the New York Stock Exchange. It trades as Virgin Galactic under the symbol SPCE.
Branson’s Virgin Group. which is heavily focused on travel, has been hit hard by the pandemic. Branson had to postpone the launch of his latest venture, Voyage Voyages, which is offering vacations aboard a brand new cruise ship.
Virgin Australia airline went into voluntary administration in April. An independent administrator is seeking potential buyers for the insolvent airline.
The airline had sought an AUS $1.4 billion (US $908 million) bailout from the Australian government. However, officials refused to bail out the unprofitable, deeply indebted airline.
Branson’s request for a £500 ($617 million) loan from the British government to help bail out Virgin Atlantic Airways also came to naught. The company, which has also struggled with profitability, subsequently laid off 3,000 employees.
Although airlines around the world have received government assistance, the ways Branson has structured his business empire and residency have been working against him.
Virgin owns only 10 percent of Australian airline. Four other partners located outside of country own the rest of the company.
Virgin Australia has been only intermittently profitable and was already struggling with a high debt load of AUS $5 billion (US $3.24 billion) before the pandemic broke out. Decision making was slowed down by having five owners.
Virgin Atlantic is 51 percent owned by Virgin and 49 percent by Delta Airlines of the United States. Delta is receiving bailout funding from the U.S. government, which doesn’t want to see it used to prop up UK-based Virgin Atlantic.
Branson’s appeals for government funding have been widely mocked in public. Critics point out that he is a billionaire worth an estimated $4.5 billion who lives on his own private island in the tax haven known as the British Virgin Islands (BVI).
The Virgin Group is set up as a series of trusts and off-shore companies designed to reduce taxes while funding money to BVI for the benefit of Branson and his family. Branson hasn’t personally paid taxes in his native Britain in 14 years.
Branson has protested that he didn’t move to BVI to avoid taxes. However, those claims have fallen largely on deaf ears in a world where millions have lost their jobs and about 285,000 have lost their lives.
Comments Branson made during the economic crisis of 2009 have also come back to haunt the billionaire.
He said that the British government should not bail out struggling British Airways. Instead, the company should go bankrupt so that competitors like Virgin Atlantic could come in and provide better service.
The Australian government followed that advice. The British government thus far has not come to the rescue of Virgin Atlantic.
23 responses to “Branson Looks to Unprofitable Virgin Galactic to Help Save Reeling Empire”
Leave a Reply
You must be logged in to post a comment.
“No, no, I’m not getting out while the getting is good. It’s the rona.”
I am sad to say it but his tourism empire is doomed. If other nations follow the lead of the UK and place two week quarantines on international travelers then tourism and business travel is going to come to a permanent halt for a while. The only ones traveling will be those relocating and ticket prices will be extremely high due to the low load factor. Sir Richard Branson is probably better off letting his airlines and trains go and start over in another industry like vertical farming that would benefit from the new normal.
Well, if there’s a vaccine in 15 months (they started saying “18 months” back in February, iirc), things could be back to normal within about 2 years.
If.
So, if he calculates he can hold out, he might try to weather the storm. And there might be government help yet – perhaps in return for him re-establishing his residence and his main business residence in the UK. There’s a lot of people who will lose their jobs if Virgin goes under, so the government may overlook his personal tax games and look at the bigger picture. Of course, there’s lots of others who’ll have their hands out too, so he’ll have to get in line and start lobbying
Except they won’t return to normal as we know it now. Folks will fall into their new behavior patterns and feel secure in them. This will likely be looked on as one of those times when the world changed, as after the Civil War, WWI, the Great Depression/World War II.
Really, its been a nice run, 75 years, since the end of World War II resulting in upwards trends in globalization, global tourism, increasingly faster and cheaper air travel. But the pendulum swings. This event will impress itself on individuals, corporations and regions with resulting behavior changes. Folks are going to ask themselves if international vacations are worth it, especially given the environmental damage that results from tourism. Environmental groups are already using the lockdowns to push home their points about how it contributes to climate change.
And its not just vacation travel, its business travel as well. I am already hearing individuals on video meetings asking why money and time was ever wasted on business travel for meetings when video conferencing is so easy and productive. Replacing a $1,000 business trip with a handful of “free” video conferences is going to be very appealing to businesses. And I expect conferences will follow. I have been invited to organized a video conference session for a space organization. Once they find out how cheap it is to a real in person conference they will be asking the same questions.
Similarly a close look is being taken at the real cost of long global supply changes and if cheap labor could be replaced with automation. And of course having suppliers closer to home eliminates another reason to travel by air. So expect airlines to downsize, consolidate and become more expensive to use in the new post virus world.
I’m sure there will be various long term effects, but I fly almost every week and what I am seeing in Asia is that soon as restrictions ease, air travel starts going right back up
Where in Asia? Most countries are still shut down to air travel.
I think you’re right that video conferencing will replace more and more business travel. That will permanently shrink the T&E business. But it won’t end it. And the degree to which things return to “normal” will vary a lot in terms of location and speed.
A lot will depend upon national cultures. In the U.S., wartime rationing effectively ended on VJ day. In the U.K., parts of the wartime rationing regime were still in place 10 years later.
Yes, but environmentalists have been hitting on airlines and tourism for years. Its another reason bailouts for low cost airlines are going to be a hard sell politically. Then there is the long term financial impact with individuals and organizations looking to save money which creates long term habits of thrift. The airlines sense this which is why they are already positioning themselves for downsizing with the predictable impact on Boeing’s sales.
https://apnews.com/e4f8118b…
Boeing goes another month without a single airliner order
By DAVID KOENIG
May 12, 2020
“Boeing also indicated Tuesday that it is no longer certain about completing orders for another 101 planes and dropped them from its backlog, which dropped below 5,000 for the first time since 2013.
Airbus said it received orders for nine planes in April, bringing its 2020 total to 299 planes after cancellations. The European plane maker said its backlog was 7,645 jets.”
I expect Mojave Air and Spaceport will benefit from thousands of older grounded aircraft being stored and eventually scrapped early. It is sad to see Sir Richard Branson clinging to an industry whose peak has passed.
We’ll see. I’m less convinced the long-term trends will be quite so grim for either airliner makers or the T&E industry. In the near term, of course, there’s already major blood on the floor. And there will be more.
Space tourism may not be dead. The people that can afford to spend $250,000 for a couple of days of excitement aren’t going to be bothered by a “stupid” pandemic and they will likely arrive at Spaceport America on private jets.
The bigger question is whether there are enough healthy rich people for VG to have a chance to break even.
Air travel has recently been a parade of security theatre and personal offense. It’s also highly uncomfortable when you finally get crammed into a seat that is too small for an average sized person (my shoulders are at least 2″ wider than an airline seat). The only alternative is to get a limited expensive upgrade to “Economy Plus” which isn’t that much better, but lots more expensive. You often do get to bring a carry-on if you upgrade. Those seats often are sold out well in advance. Business? First Class? Did you win the lottery this year? Some first class tickets don’t have a luggage allowance on some airlines/routes. It could be a good thing for some airlines to drop out and prices go up a little to the point where airlines compete again on their quality of service and not just price. I’m thankful that I don’t have to travel for work anymore. If somebody wants me on the other coast, they can bloody well wait for me to drive.
Yes, but 600 sales aren’t going to be anywhere near enough for Virgin Galactic to close its business model and turn a profit. They will need 4,000 to 6,000 at least. And don’t forget they may be getting competition from Blue Origin and Starship.
Mr. Branson is hardly the only one who’s going to suffer badly if your scenario is more than transiently true. This will be a very ill wind for Boeing too, especially on top of all the other, mostly self-inflicted, damage it has suffered over the past year or so. But I don’t think these quarantines will be in place all that long.
Of the three surviving Space Billionaires, Branson has most of his wealth connected to entirely the wrong businesses to be in during a pandemic, Musk has been dinged a bit in both his main businesses and Bezos has made out like a bandit, being in exactly the best business to be in during a pandemic.
He also has the weakest business model for space, suborbital tourism and eventually “point to point” flight. What is the value of an one flight from China to the UK if you have to spend two weeks in quarantine? Even his orbital business model, Launcher One, serves a market, small says, that is weak in terms of potential for revenue.
Sir Richard really needs to take a deep think at what the future opportunities will be both in the new post virus economy and in space.
Tesla’s stock price has soared. Whether it will stay as high as it is now that they’ve gone back to actually producing cars where profits are derived from selling carbon credits…we’ll see.
It remains to be seen if Alameda country takes legal action against Elon for reopening in spite of orders to remain closed. The SEC may also take action for Elon’s un-reviewed tweet that the company’s stock was overvalued.
That depends upon whether or not the SEC wants to put itself out there as a paladin of the nervous and panic-prone fraction of investors. As the stock is now trading even higher than when Elon made that tweet, the buy-and-hold types are in great shape. It’s only the Stimpy’s that got dinged.
Update 9 hours later: Early indications are that Alameda County is going to blink.
The SEC will probably just wait for the lockdown to end and than strike.
The SEC, I’m sure, already has plenty on its plate due to Covid-19-related business disruptions a lot more significant than a brief hiccup in one company’s stock price caused by a tweet. If they’re triaging their “to-do list” – and they sure ought to be – the Tesla thing shouldn’t rate very high.
Yeah, the share price has been bouncing around a bit but generally upward for a few weeks now. It took another dip late on the 12th, possibly because of Elon’s high-profile confrontation with Alameda County over restarting production at Fremont.
But the Shanghai factory has been back at full chat for awhile and most of the site-prep preliminaries are now done for the upcoming Berlin works. Tesla’s battery operation has apparently been quietly making some big gains too.
If Elon actually goes through with pulling Tesla entirely out of CA, I suspect the stock will be good for another bump up. Both getting new facilities up in a hurry and moving manufacturing from one facility to another are Elon Musk core competencies. He’s done both more than once.
The other U.S. carmakers could cut down or end paying Tesla for zero-emissions credits by simply building EVs of their own that the public would want to buy. The Tesla IP, after all, is public domain. But, in the same way legacy aerospace has utterly failed to step up to the SpaceX challenge, the legacy carmakers also seem complete prisoners of their heritage cultures and folkways. They are the Joe Bidens of their respective industries – doddering wrecks that time has passed by.
Doug, any idea how this little ‘transaction’…
https://news.bloombergtax.c…
…fits in with this story?
My intuitive guess would be this was done to protect his core wealth against this latest ‘initiative’, though I may well be wrong as I’m no expert in these sorts of things.
I believe that British Airways is owned by a Spanish consortium.
Yes, International Airlines Group which is incorporated in Madrid Spain but has its headquarters in London. It owns a number of airlines, including Iberia Airlines and Aer Lingus.
https://www.iairgroup.com/e…