UK’s Virgin Atlantic is set to retain its majority-share by parent company Virgin Group after all. In a letter to his employees on December 2, president and non-executive director Richard Branson said Virgin Group is to keep its 51 percent-share with Air France-KLM to become just a non-shareholding partner. Delta Airlines owns 49 percent of Virgin Atlantic.
In a deal that was agreed in principle in May 2017 but announced on July 27 that year, Air France-KLM was to get a 31 percent share in Virgin Atlantic for GBP 220 million. Delta was to retain its 49 percent-share purchased in 2012, with Virgin Group keeping 20 percent.
On May 15, 2018, the three partners signed the definitive Joint Venture Agreement including operational, commercial, and governance arrangements with one single target: strengthen the combined share in the transatlantic market which already includes 300 daily flights. In February 2019, Virgin received merger control approval from the European Union for the AF-KLM-deal.
On March 4, Virgin Atlantic offered Air France-KLM codesharing on 58 routes from 18 UK airports that included Edinburgh-Toronto via Amsterdam or London Heathrow-Chicago via Paris. Virgin expected higher load factors and more feed from this codeshare initiative as well as improving its position on the cargo market.
On October 16, Virgin Atlantic revealed it will be included from next year in the existing codeshare agreement between Air France-KLM and China Eastern, who itself has a 10-percent share in the Franco-Dutch airline group with Delta owning 3.5 percent of China Eastern.
With the Delta/Air France-KLM/Virgin Atlantic-joint venture getting antitrust approval from the US Department of Transport on November 21, the partnership is now ready to go full-speed on its expansion strategy. However, the letter by Sir Richard reveals there has been a rethink of the governance and shareholders structure: “Importantly following this news, we have agreed (subject to contract) with our new joint venture partners, that our family will continue to hold the 51 percent of Virgin Atlantic shares we own.”
Branson doesn’t elaborate on what has triggered the rethink and if it has been on his own initiative or Air France-KLM’s, which so far hasn’t confirmed the revised plan. We might have missed indications that something was about to change, as Virgin was absent in AF-KLM’s Investor’s Day presentations on November 5. Also unclear is the impact Brexit will have had on the decision, although this has been on the horizon from the day since the JV was announced in 2017.
Branson stresses that Virgin will continue to be vocal in 2020 with its “Two Flag Carriers”-strategy, in which Virgin vies to become the UK’s second home carrier with a stronger position with more slots at London Heathrow “to shake up the status quo.” (more on this here: http://airinsight.com/how-realistic-is-virgin-atlantics-growth-strategy/)
On December 4, Air France-KLM in a written statement confirmed that it will no longer purchase a share in Virgin Atlantic: “Air France-KLM and Virgin have considered that Air France-KLM’s acquisition of a stake in Virgin Atlantic is no longer necessary and are negotiating an agreement whereby Air France-KLM will not acquire a stake in Virgin Atlantic, without any impact on Air France-KLM’s position in the commercial Delta -Virgin Atlantic- Air France-KLM joint venture. Air France-KLM will pursue its ambitious investment plan to regain its leadership position and will continue final preparations towards the launch of the expanded trans-Atlantic joint venture in the coming weeks.”