Branson Cedes Virgin Atlantic Control to Safeguard `Crown Jewel'

(Bloomberg) -- Billionaire Richard Branson says he’s ceding control of Virgin Atlantic Airways Ltd. so that the carrier can join what it claims will be “the most significant joint venture in aviation.” For Virgin, the deal may be as much about gaining a lifeline after years struggling to keep up with British Airways.

Branson, 67, said in an open letter when Air France-KLM Group announced the purchase of 31 percent of Virgin Atlantic on Thursday that the deal, tied to an expansive trans-Atlantic alliance, will allow the U.K. carrier to “prosper and grow” in coming decades “as I get a little older.”

The entrepreneur will pay a price for that reassurance, surrendering ownership to the French company and Delta Air Lines Inc., which holds a 49 percent stake, leaving him with just 20 percent of a company launched with cash from his original record label and which he has described as “truly a labor of love.”

Branson acknowledged the forces that have seen Virgin Atlantic lose ground to BA, which he said has a “stranglehold” on slots at London’s Heathrow airport. He added that the biggest U.K. airline is also more dominant after forming IAG SA with Spain’s Iberia and buying up rivals BMI, Aer Lingus and Vueling.

What Branson didn’t say is that Crawley, England-based Virgin Atlantic had an opportunity to make many of the same purchases, but neglected to do so as he spread his energies between Virgin-branded businesses spanning trains, gyms, cola, banking, mobile phones and most recently space travel.

The 220 million pounds ($288 million) that Air France-KLM will pay for its Virgin Atlantic stake hints at the U.K. carrier’s lack of global standing, indicating a valuation of 709 million pounds for the whole of company. IAG is worth 12.4 billion pounds, Air France-KLM 3.5 billion euros ($4 billion) and Delta, which bought its Virgin holding after a deal in 2012, some $36 billion.

No Back Seat

Still, Virgin Atlantic Chief Executive Officer Craig Kreeger said in an interview that he has spoken with Branson, who plans to stay on as chairman, and received assurances of his “continued involvement at exactly the same level” in a company he regards as his brand’s “crown jewel.” Chief Commercial Officer Shai Weiss added that the business guru is “entirely committed” and “doesn’t have a back seat” when it come to management.

Kreeger added that he’s “absolutely thrilled” with the Air France investment and expansion of the existing Delta joint venture to include the Franco-Dutch company and Italy’s Alitalia SpA, suggesting that Virgin instigated the wider alliance and equity sale after a positive experience in its dealings with Delta.

A broader network and expanded scale will create potential new itineraries for Virgin passengers including Air France destinations, attract more French customers, and could allow the U.K. company to open new routes as load factors benefit, the CEO said. The carrier’s ethos will be unchanged, and it will remain U.K.-based with a British license and regulator, he added.

Hipster Pitch

The new agreements will safeguard Virgin Atlantic’s future for at least the 15 years spanned by the alliance agreement, Weiss said. Resurgent U.S. demand that’s seen the carrier perform “much, much better than expected” in recent months might also mean it avoids a full-year loss forecast as the pound slumped in the wake of Britain’s vote to quite the European Union.

Virgin remains a household name despite a limited network and a fleet including aging Boeing Co. 747s and discontinued Airbus SE A340s -- testimony to its continued focus on remaining stylish and youthful even after 33 years of hard slog in the ultra-competitive trans-Atlantic market.

In his letter, Branson claimed victory in a spat with IAG CEO Willie Walsh over Virgin’s continued independence and maverick status dating from the investment by Delta, the second-biggest U.S. carrier and a pillar of the airline establishment that’s refocused the U.K. company on trans-Atlantic services and away from more global routes.

“Willie Walsh predicted that the Virgin Atlantic brand would disappear within five years,” Branson wrote. “Whether childishly or bravely, he also said he’d accept a knee in the groin from me if it didn’t. Well Willie, that five year point is up this December.”

Walsh, announcing a 45 percent jump in second-quarter operating profit that’s forecast to propel full-year earnings above 2.8 billion pounds, said he doesn’t regard Virgin’s Air France tie-up as a major threat and that the carrier surrendered its distinct identity the day it bedded down with Delta.

“It’s just a change of ownership,” Walsh said on a conference call Friday. “I made my views clear five years ago, and I’ve been proven correct. It will be fun to see what happens from here, but you know the issue for us is that that airline has been in effect controlled by Delta for several years.”

That claim is “utter and complete nonsense,” Kreeger said. “Our brand continues to hit above its weight and do exactly what it did prior to the previous transaction, and will continue to do that subsequent to this one.”

To contact the reporters on this story: Thomas Seal in London at tseal@bloomberg.net, Christopher Jasper in London at cjasper@bloomberg.net, Benjamin Katz in London at bkatz38@bloomberg.net.

To contact the editor responsible for this story: Chris Reiter at creiter2@bloomberg.net.

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