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Virgin territory

21 April 2020 By Ed Cropley

For one of Britain’s richest men, Richard Branson is having a hard time finding emergency cash. With the UK government balking at his stricken airline’s request for a 500 million pound bailout, the billionaire Virgin boss may have to dig deeper into his own pockets. His asset-light approach to business leaves him with few options, though.

According to Forbes, the 69-year-old entrepreneur is worth $3.4 billion. But as Branson pointed out in a message to his Virgin empire’s 69,000 employees on Monday, that’s not cash in the bank. And the group’s hefty exposure to leisure and travel – airline Virgin Australia went into administration on Tuesday – means the coronavirus has taken a hefty toll.

Branson has pledged $250 million to buoy sinking parts of the fleet. It’s unclear how much of this will go to Virgin Atlantic, although the government appears to have concluded it’s not enough.

There’s little he can quickly convert into hard cash, though. Branson built his empire by setting up businesses and then selling stakes to other investors. He then charges licence payments for using the Virgin brand and funnels this cash into new ventures.

His first fundraising stop should probably be Necker, Branson’s private island. Based on the $42,000 it costs to rent for a night, the place might be worth 100 million pounds, assuming 50% occupancy and a 6% yield. Mortgaging the family home would also help blunt some of the criticism generated by the British Virgin Islands’ tax-haven status.

To raise more serious cash, however, Branson may need to turn to U.S.-listed Virgin Galactic. His stake in the space tourism startup is valued at 1.4 billion pounds. Though it’s a speculative business, he might get a secured loan for a third of the shares’ worth. Borrowing against Virgin Orbit, the private satellite business in which he has invested $600 million, would probably require a bigger haircut.

Virgin Atlantic has even less to borrow against. Its fleet of planes is largely leased, and its airport landing slots largely refinanced. Even if Branson surrenders the 20 million pounds a year he extracts in brand royalties, the airline, which made a 45 million pound operating loss in 2018, is unlikely to get back into the black. The founder’s brand-centric business model may have reached its limit.

 

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