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Branson: Cash Crisis? (VS / SIA Article)

Tue Oct 16, 2001 2:44 am

Financial Mail: COMPANIES: Cash Crisis, What Cash Crisis? Says Confident Branson
The Mail on Sunday (United Kingdom); Oct 14, 2001

WHEN Sir Richard Branson arrived at Singapore's Changi airport last Wednesday, it should have been the start of a flag-waving trip to launch his new mobile phones venture.

But within 48 hours, mobiles were scarcely being mentioned. The focus was firmly on Branson's Virgin Atlantic, its finances and the airline's crucial ties with Singapore Airlines (SIA).

It is no secret to executives at SIA that the relationship between Branson and their chief executive, Dr Cheong Choong Kong, has been less than warm.

The Singaporean carrier is still smarting from being persuaded to pay Pounds 600 million for a 49 per cent stake in Virgin Atlantic in 1999, a stake now worth just Pounds 23 million.

SIA's operations people are said to be increasingly frustrated that it has taken so long to reap the expected rewards of linking with the high-profile British carrier.

Sharing facilities on flights, shared lounges and joint booking facilities - all seem to be happening remarkably slowly.

And the latest indignity has been that the fierce pricing tactics of Branson's low-cost Australian airline, Virgin Blue, helped bring about the collapse of Ansett Airlines and forced the renationalisation of its parent Air New Zealand - in which SIA had a 25 per cent stake.

The result? SIA lost almost all its initial Pounds 160 million investment in Australasia.

And this has weakened the company's famously strong balance sheet.

Yet when Branson went to meet Cheong on Friday, SIA executives fully expected that the Virgin boss would be pleading for cash.

SIA's finance chiefs have been poring over Virgin Atlantic's figures since September 11. Their work was given new urgency by research published days before Branson's arrival by Kevin O'Connor, Deutsche Bank's highly-rated Asia Pacific aviation analyst.

It stated baldly: 'We estimate that Virgin Atlantic requires a capital injection of at least Pounds 150 million.' Yet after his meeting with Cheong, Branson emerged saying he needed no money, and had asked for none.

Branson is renowned for optimism and financial near-misses.

Even more, he is passionately committed to his airline - the business for which he sold his beloved Virgin record label to EMI nearly a decade ago.

Virgin has sacked 1,200 staff and admits business traffic is down by 30 per cent and economy passengers by 15 per cent since the American assaults.

But Branson insisted on Friday: 'We have the necessary resources at Virgin Atlantic.' O'Connor was sceptical. He estimated that Virgin Atlantic would report losses of Pounds 150 million in the

12 months to next April compared with profits of Pounds 27 million last year.

He said that at the end of the last financial year, Virgin Atlantic's debts were Pounds 169 million against shareholders' funds of Pounds 137 million.

But 21 of Virgin's 32 aircraft are leased. If the leases are taken into account, the company's debts are more than eight times its equity.

Companies such as Cathay Pacific of Hong Kong have debts of just 55 per cent of shareholders' funds.

Deutsche also reckons the value of Virgin's aircraft fleet is Pounds 200 million less than its book value. And that was before the mauling that plane values took in the aftermath of September 11. Furthermore, Virgin Atlantic has orders for one Boeing 747 and 10 Airbus A340s, scheduled for delivery between now and the end of next year. They could cost about Pounds 1 billion.

A Branson spokesman denied the company needed cash and said Pounds 150 million was 'Not Virgin's estimate' of likely losses.

He said that the carrier had Pounds 200 million of cash as the downturn started and said Deutsche Bank's figures were probably calculated without taking account of the job cuts and 32 per cent capacity reductions Virgin has made.

Dealing with SIA, Branson holds an important card.

He knows that Virgin Atlantic fits perfectly into SIA's long-term strategy; it would not be in SIA's interests to see its 49 per cent stake jeopardised. But Branson also knows that in today's climate, it would be hard to raise money elsewhere.

SIA executives would clearly drive a hard bargain if asked for cash. And some of their demands would be profoundly unpalatable to Branson.

If SIA provided further funds for Virgin, it would have to be a loan.

SIA cannot increase its Virgin stake beyond 49 per cent without Branson losing the right to fly to the US, which provides about 75 per cent of Virgin Atlantic's business.

SIA is thought likely to insist that cash should be accompanied by a truce in the Australian market with Virgin Blue joining the reconstruction of Ansett, which will be controlled by SIA.

Most unpalatable to Branson, industry insiders expect the Singaporeans would demand a form of management control at Virgin Atlantic, including a say over aircraft purchases and a veto on Branson using the airline's revenues to fund other parts of his empire.

One aviation expert concluded: 'Sir Richard might have control over his airline for the moment, but at what cost? If he alienates SIA he may cut off the source of funding that his airline desperately needs.'

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RE: Branson: Cash Crisis? (VS / SIA Article)

Tue Oct 16, 2001 3:56 pm

Thanks for the stars but no replies  Sad
Anyone can fly, only the best Soar.

RE: Branson: Cash Crisis? (VS / SIA Article)

Tue Oct 16, 2001 4:59 pm

I hear from my sources at VS that Friday's meeting was very acrimonious - Branson was indeed there to beg for cash and SQ were not going to give it unless they got a number of concessions out of him - including Virgin Blue which he refused to give. As I understand it, the reason for the smiling public faces and statements like that above is that any sign of weakness on VS' part would put it on a cash in advance payment basis with its suppliers and that would bring everything tumbling down - and would of course mean the loss of all of SQ's investment.

SQ are deeply upset that they have been taken for a ride by Branson and you know what the Chinese are like - they harbour grudges big time! CCK has become personally linked with the fiasco, so he now has to find a way out of it.

Interesting times ahead...
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RE: Branson: Cash Crisis? (VS / SIA Article)

Tue Oct 16, 2001 5:06 pm

Let's hope DJ isn't given up and swallowed by SIA. THere goes our last low cost carrier if it happens
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RE: Branson: Cash Crisis? (VS / SIA Article)

Tue Oct 16, 2001 8:57 pm

is VS business really 75 % driven by the US, this number sounds really high.
any confirmation
brgds Ol

RE: Branson: Cash Crisis? (VS / SIA Article)

Tue Oct 16, 2001 10:00 pm

To quote Sir Richard himself:

On the performance of his various business lines since September 11:

Some [have performed] badly. Some, believe it or not, well. The ``badly'' is at Virgin Atlantic [airline]. Seventy-seven percent of our business was over the North Atlantic. [The airline has] been severely affected by the lack of business travel, though economy and freight are holding up well....

On the potential impact if the bad times drag on for a full year:

We should deal with the situation if the problem goes on.... By reducing capacity to meet new demand, airlines should survive.

Source: Business Week
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 12:58 am

SIA thought they were invincible but turns even they can't control the direction of the US economy. So their investment turned to crap (just like anyone else who invested in airline equity over the past 2-3 years).
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 1:33 am

The comment, "SIA thought they were invincible" is totally void and false.

Just think, if their flights to the US had a load factor of 1%, I would think that they would think there was a problem..wouldn't you?

Anyway, interesting points. I will get on the case. The Straits Times has done an interview with "dick" (as some of you like to call him for a reason unknown to me)
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 7:50 am

Singapore_Air - if you think that the Straits Times will print any thing but Branson's "happy face - all is OK" then you will be sadly mislead.

I can report that Ceilidh's comments were a lot closer to the mark. Just watch how "fast" Branson picks up the Sabena pickings now that cash is in short supply.

And we still have no further word on all the extra B737-700/800's he was going to flood into Australia. Could it be he has shallow pockets?

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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 12:33 pm

Just like with NZ I'm sure CK Cheong is again remembering that age old Chines proverb, "Revenge is a dish best eaten cold!"
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 12:44 pm

SIA do think they are invinciple - well maybe they used to think that  Smile I think SIA has an arrogance that we don't often see in business and it will do them some good to be brought back down to earth. Personally having done business in Singapore, I think this is partially due to the culture and also the aggressiveness of Singapore Inc.
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 2:10 pm

I tihnk after the the souring of investments made by Singapore and the SAir group cash strapped airlines will have a much more difficult time raising money in the future...

At any rate, maybe its just me, but Branson reminds me of a rich mans Laker- Building what many outsiders belived to be a very strong airline despite all odds and BA, once agian only to have the glorious facade ripped down?

Also, does anyone think UALs position will affrect this? SIA could now potentialy have even more slack to pick up for star in the asia pacific region, and a few more 340s couldn't hurt.
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 4:13 pm

OZ777: I'll rise up to your challenge:

Clear skies in 6 months: Branson
Tycoon expects the airline industry to turn around by April next year; rules out further job cuts by Virgin Atlantic

By Nicholas Fang

BRITISH tycoon Richard Branson arrived in Singapore last night brimming with confidence for the crisis-hit global airline industry - predicting a turnaround in as little as six months.

Outrageous celebrations will be put on hold when Sir Richard launches Virgin Mobile on Friday. -- STEPHANIE YEOW
The high-profile entrepreneur said that based on the experiences of the Gulf War in 1991, airlines would suffer a marked downturn owing to the outbreak of war in Afghanistan but could see a recovery by April next year.

And Sir Richard is putting his money where his mouth is by stating firmly that there would be no more staff cuts at Virgin Atlantic, which is 49 per cent owned by Singapore Airlines (SIA).

Indeed, he hopes to rehire those already laid off by next year.

Airlines around the world, already hit by the global economic slowdown, were battered further by the Sept 11 terrorist attacks on the United States and this week's military retaliation.

Speaking exclusively to The Straits Times at Changi Airport last night, Sir Richard said of his Virgin Atlantic carrier: 'Obviously, load factors have been affected, particularly across the Atlantic.

'But we had a similar situation in the Gulf War, and we are hopeful that there will be something like a six-month downturn and then things will be back to normal.

'We have already cut back on three routes and tightened our belts. Several airlines have also cut back on capacity so while there are fewer passengers, there are also fewer seats to fill.'

Virgin Atlantic was one of the first carriers to announce layoffs and cost-cutting measures. They included a 20 per cent reduction in capacity and the cutting of 1,200 jobs, or some 13 per cent of its workforce.

When asked if any more cost-cutting measures were on the way, he said: 'I think we have done everything that needs to be done.

'There will be no more layoffs. In the Gulf War, we did something similar, and in six months, we had taken back everyone we had laid off. We hope the same thing will happen this time.'

Sir Richard flew in from Dubai in the Middle East where he had officiated at the opening of a chain of Virgin Megastore shopping centres in the region.

In Singapore, where he will stay for three days, he will launch Virgin Mobile, the country's fourth mobile operator, and a new line of soft drinks called Virgin Colours.

He will also call on SIA chief executive officer Cheong Choong Kong to discuss Virgin Atlantic's operations.

Sir Richard quashed speculation that Virgin Atlantic and SIA were considering a joint bid for embattled Australian carrier Ansett, dismissing the talk as 'rumours'.
I can imagine what all of you will say about the next article....

SIA's investment in Virgin could 'double in two years'
SINGAPORE Airlines' (SIA's) returns on its £600 million (S$1.59 billion) investment in Virgin Atlantic could double in two to three years' time, Virgin Atlantic boss Richard Branson told The Straits Times in a phone interview yesterday.

SIA had taken a 49 per cent stake in the British-based carrier at the end of 1999 at a price that many analysts had said was high at the time.


Asked when SIA would see returns on its investment in the London-based carrier, Sir Richard said: 'Your investment only pays off when you sell your shares.

'But if anyone sells their shares today in the airline business, these shares would be worth a lot less than they would have been a year or two ago.

'However, in two or three years' time, I very much hope that Virgin Atlantic's market capitalisation is double of what Singapore paid for it.'

He was quick to point out that Virgin Atlantic has been profitable 'almost every single year' of its operations, ever since it began flying in 1984.

'However, it will be miracle for any airline to be profitable this year given the events of the past six weeks,' he said, alluding to the terrorist attacks in the United States and the superpower's retaliation.

Exceptions to that, he said, would be airlines in Australia, which have seen demand for flights increase after embattled carrier Ansett ceased operations last month.

Sir Richard said he also recognised the challenges that face airlines following the Sept 11 attacks in the US and the subsequent retaliation.

'We will have to work hard to overcome this particular upheaval in the airline business and get it back on track again.

'We want to make sure that SIA gets the return on their money that they deserve for their commitment in us.'

He had said in an earlier interview that he expected the airline industry to be hit hard in the first six months following the attacks in the US.

But he added that he believed they could stage a recovery soon after that.--Nicholas Fang
SIA, Virgin Blue can 'renew rivalry'
The airlines can once again compete in Australia if SIA takes on a managerial role in the new Ansett, says Sir Richard

By Nicholas Fang

SINGAPORE Airlines (SIA) and Virgin Blue could renew 'gentlemanly competition' in Australia should SIA decide to take on a managerial role in a revamped version of Ansett, said Virgin Blue owner Richard Branson.

Sir Richard, in Singapore to launch a mobile communications venture, told The Straits Times yesterday that there had been friendly airline rivalry between SIA - which has an indirect stake in former Australian No 2 carrier Ansett - and his low-cost Virgin Blue airline.


'It is a distinctly unique situation in Australia because we are in competition with SIA there, but friends everywhere else,' he said in a telephone interview.

His wholly owned Virgin Blue carrier and SIA have been on a collision course ever since the former said in July that it was considering moving across the Tasman - something which did not sit well with SIA chief executive Cheong Choong Kong.

After all, such a move would have put Virgin Blue in direct competition with SIA associate Air New Zealand (Air NZ).

To make matters worse, Virgin Blue said later it would sell shares in Australia to help fund a fleet expansion and intensify its challenge to Qantas and Air NZ's Ansett.

SIA owns 49 per cent of Sir Richard's London-based Virgin Atlantic carrier.

Virgin Blue is not affiliated to Virgin Atlantic.

'There was the potential for conflict with SIA when Ansett was still operating as SIA had a 25 per cent share in Ansett's former parent Air New Zealand,' said the flamboyant entrepreneur.

'However, this competition went away following the demise of Ansett.'

Embattled Ansett was put under voluntary administration last month after Air NZ, itself facing financial difficulties, cut the Australian airline adrift.

That put 16,000 jobs on the line.

Since then, Ansett administrators Andersen have been busy hammering out a rescue plan for the ailing carrier.

It approached SIA recently about the possibility of providing managerial assistance to a revamped Ansett, dubbed Ansett Mark II, and possibly taking an equity stake in the carrier at a later date.

Although the talks are still ongoing and no agreement has been signed, Sir Richard said that if SIA does decide to play a role in the new Ansett, then SIA will become 'friendly competitors again' with Virgin Blue.

He added that he will be meeting SIA executives later this week to discuss Virgin Atlantic's operations as part of a schedule of monthly meetings between the two companies.

Anyone can fly, only the best Soar.
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RE: Branson: Cash Crisis? (VS / SIA Article)

Wed Oct 17, 2001 10:08 pm

So, how long do we give Virgin Atlantic... Three months?
Greetings from Hong Kong.... a subsidiary of China Inc.
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RE: Branson: Cash Crisis? (VS / SIA Article)

Thu Oct 18, 2001 12:05 am

How do you mean?
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RE: Branson: Cash Crisis? (VS / SIA Article)

Thu Oct 18, 2001 1:47 am

He doesn't need money, he's a billionaire!

 Big thumbs up£££££ Big thumbs up

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