Richard Branson says he will borrow against Necker Island, which he owns and where he lives, to try and save Virgin Atlantic and other Virgin compani
Richard Branson says he will borrow against Necker Island, which he owns and where he lives, to try and save Virgin Atlantic and other Virgin companies that are facing hard times because of the dropoff in travel caused by the coronavirus. The offer is part of a lengthy open letter by the Virgin founder intended to improve Branson’s image with the public, and with the British government in particular, in the hopes of securing a government loan that he says the airline will need to survive.
By any measure, this is a tough time for airlines. United, for example, just announced in a financial filing that it suffered $2.1 billion in losses in the first quarter of 2020, entirely because of the coronavirus. United, however, expects to receive $5 billion in grants and loans from the federal government to help keep it afloat and let it keep paying its employees, and the airline has said it will ask for $4.5 billion more.
The picture is considerably different for Virgin Atlantic, which is based in the U.K. Although the airline has not said exactly how much money it’s lost as a result of the coronavirus, it has said that it’s cutting 80 percent of its service and grounding 75 percent of its fleet. The British government, however, has declared itself reluctant to bail out airlines during the current crisis, and has instructed the nation’s airlines to exhaust all other options before asking the government for money. When Virgin Atlantic submitted a request for a $500 million loan from the government, the airline was told to resubmit its application. Apparently it hadn’t done enough to show it had tried hard to get the money elsewhere.
Bad times for travel and tourism.
These are tough times for Virgin companies in general. It’s not a great time to be offering airplane trips, cruises, resorts, health clubs, and space travel. Branson, who has a reported net worth of $4.4 billion, has pledged $250 million to save as many jobs at Virgin companies as possible. That wasn’t any help for Virgin Australia, though. That troubled airline just announced that it’s going into “voluntary administration” — which resembles Chapter 11 bankruptcy protection in the U.S. — because its request for a $1.4 billion loan from the Australian government was rejected.
Back in the U.K., Virgin Group, and Branson himself, are suffering from negative public opinion for several reasons. Virgin Atlantic employees have been asked to go without pay for eight weeks, which just doesn’t look great when your owner is a kite surfing billionaire who lives on a tropical island that he owns. The island, incidentally, is part of a territory that collects no income tax and Branson hasn’t paid any for the past 14 years. British taxpayers may contemplate that fact as they’re asked to foot the bill for saving his airline.
Recent controversies haven’t helped. In 2016, Virgin Care, a provider of health care services, sued six National Health Service clinical commissioning groups in Surrey claiming their procurement process was flawed. The NHS (which is funded by taxpayers) settled the case by paying Virgin Care an undisclosed amount in 2017. Then there’s the 2 percent processing fee donation site Virgin Money Giving had been collecting, although after a flood of social media criticism it is now waiving that fee for the duration of the coronavirus lockdown.
Can one letter fix everything?
Branson seems to be trying to fix his entire public image in one go with a very lengthy letter that covers all of these issues. He explains that a) no Virgin Atlantic employees have been required to take eight weeks off without pay — they’re doing it voluntarily; b) he and his wife moved to Necker Island because they love it there, not to avoid taxes; c) Virgin Care donated its entire settlement back to the NHS; and d) Virgin Money Giving is a non-profit and it’s not collecting any fees for the moment.
The entire letter clocks in at 1,903 words which I suspect will make it TL;DR for most people who don’t work for Branson. Buried in the twelfth paragraph is this: “As with other Virgin assets, our team will raise as much money against the island as possible to save as many jobs as possible around the Group.” That one sentence grabbed more headlines than the rest of the letter put together.
One estimate put the value of the island (which, besides being the Bransons’ home, is a very small luxury resort) at about $100 million before it was struck by a hurricane in 2017. So the company probably could use it to raise enough to save some number of jobs. But with a single sentence that seems almost an afterthought, it’s hard to guess whether Virgin Group has made any attempts to borrow against the island or even explored the idea. I’ve reached out to Virgin to ask this question and I’ll update this piece if I get an answer. Meantime, press reports, and some comments on the letter itself, suggest that many Britons remained unconvinced.
There’s an important lesson here for any founder. Trailblazing entrepreneurs like Branson tend to follow their instincts without worrying about what others think. That approach can backfire when you need help, say from your nation’s government. If you abruptly find yourself in that situation, don’t try to turn everything around with a single, lengthy communication — instead, accept the fact that rebuilding one’s public image takes a lot of time and effort. Which is why it’s probably smarter to be careful not to damage it in the first place.
Published on: Apr 21, 2020
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