Virgin Must Have Some Big Problems

A sure sign of when a Virgin Group company is in trouble, is Richard Branson making derogatory comments about one of its competitors. This is a fairly standard technique to deflect attention from his own companies. Low swipes at the competition are his stock in trade but his recent rather hysterical remarks would suggest Virgin has more problems than normal.

He made an announcement in the US that “one of the major US airlines will go out of business” in the current economic downturn. Of course, Virgin America is a new and fairly small airline so he could not have been talking about them.

Unfortunately, Virgin America does not look too healthy at all. Its recent figures show that it has $38 million in cash. The company says that this is sufficient to see the company through its initial start-up phase and into profitability. Based on past trading, this looks enough to last less than six months – unless the company can find a new investor.

Virgin America has been dogged by strict foreign ownership rules which insist that the majority of shares of any US airline remain in US hands. There have been suggestions that some of the current supposedly US investors are simply nominees for Virgin itself. You can be sure that any new investment will be scrutinised very carefully by rival airlines and US politicians.

Branson might well pull Virgin America out of trouble – but he is no position to question the longterm viability of other US airlines.

In the UK, his extraordinary comments about British Airways, suggest that Virgin Atlantic is really suffering. Claims that he has asked the government to block any aid to BA and saying that the airline is really not worth very much are very unwise. There is not a shred of evidence that BA has asked for aid, or has any intention of doing so, and making derogatory remarks about the value of a competitor to the extent that the share price suffers a sharp drop is sailing very close to the wind. Willie Walsh is not known for his tolerance and if Branson continues on this route he could well find himself in legal trouble.

Virgin Atlantic is the first UK airline to make some of its pilots redundant and there are rumours that more staff will be shown the door shortly. No airline is making money at the moment but Virgin looks to be be in a weaker state than many. Foolish remarks – boarding on the slanderous – about other airlines will not hide Virgin’s losses from its investors.

2 thoughts on “Virgin Must Have Some Big Problems

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