Refusing to rescue Virgin Atlantic is one of Sunak’s best moves

Linda J. Dodson

The case for a government bailout out of Virgin Atlantic was always weak. Thankfully, in Rishi Sunak we have a savvy Chancellor who set a high bar for taxpayer support of troubled companies from the outset and quickly recognised that it was undeserving of state aid. 

The Government cannot be expected to prop up a struggling airline with a billionaire owner even in the extraordinary circumstances of a global pandemic. 

Sunak could easily have allowed himself to be pressured into stepping in. Virgin is a high profile brand with an even more high profile backer in Sir Richard Branson, and the tycoon had made an impassioned plea for help from his Caribbean hideaway. 

Thousands of jobs are at stake too, and Virgin Atlantic’s sudden disappearance would leave British Airways free to tighten its grip over the lucrative transatlantic market.

But Sunak’s decision to stand firm will be fully vindicated if Branson can pull off a privately funded rescue deal in the coming weeks. Necessity is the mother of invention, as the old saying goes. 

The entrepreneur has been forced to find an alternative solution, one that it has to be said, could end up being a pretty comprehensive rescue package.

Sky News reports that Branson, and the airline’s other major shareholder Delta Air Lines, could pump in a combined £250m of fresh capital. Another £250m of debt funding is expected to come from Wall Street hedge funds, with Davidson Kempner and Elliott battling for contention. 

Leasing companies and credit card providers are being asked to provide further support. The deal could eventually be worth up to £900m – almost double the £500m request made to the Treasury in April, handing it a decent chance of navigating the current storm in air travel.

It is the right outcome but Virgin got this the wrong way round. Self-help should have been Plan A. As Sunak has made it plainly clear, the Treasury should only be called upon when all other emergency financing options have been exhausted. 

The Chancellor has stuck to his guns on the strict requirements of the Project Birch scheme. Just six companies are reported to be in talks about rescue loans, all of which come from strategically important enterprises that would cause disproportionate harm to the economy if they failed – another of the Government’s terms. 

Airlines don’t fit into that category. Steel and carmaking on the other hand do, especially if the UK is going to cling on to what is left of its manufacturing base.

Virgin clearly had other options, they just hadn’t been properly explored, perhaps because its two major shareholders – Branson and Delta – were concerned about possible dilution. Sunak, who brings vital commercial acumen to the role after years working in private equity, would have spotted this a mile off. 

Few ministers will emerge from this crisis with their reputation enhanced but the Chancellor will. The crisis has been a baptism of fire for a young, inexperienced minister but he has responded adeptly, putting other Cabinet members to shame. One of the many things he got right was taking a tough line with those that were quick to get the begging bowl out.

Auditors keep resisting real change

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