Virgin's flying bankers


They have particular resonance now. As Joanna Walters has revealed, the Virgin boss has hocked this airline, which is his most precious asset. So the banks - in this case Lloyds TSB - could indeed take control.

The financiers may not be flying the aircraft or wheeling the in-flight trolleys, but they hold a charge against 51 per cent of Virgin Atlantic shares. In a financial sense, they are in the cockpit.

Branson says the charge is nothing out of the ordinary and that the cash freed by the mortgage is funding expansion, but, typically, bankers also ask for this kind of comfort when they think debts are rising to worrying levels.

Their course of action thereafter depends on what kind of facility has been negotiated. If it is a straightforward overdraft guarantee, they can call it in at any time. If it is a term facility, they can only call it in if the borrower breaches agreed covenants.

It is not known what kind of deal Virgin has with Lloyds, and Branson - notoriously secretive and sensitive about his finances - was unwilling to elaborate, apart from saying it was normal business practice and there was no more than £50 million of debt in any part of the Virgin group.

The odds are that as long as he is prudent, Lloyds will not be going into the airline business. Even if the bank decided to call in its debt and Branson could not pay it back, forcing a sale of his controlling stake in the airline, Virgin planes would still fly. It is a profitable operation and a strong brand, so the bank would find buyers easily - in fact, Singapore Air would probably be more than willing to do a deal. That would be its chance to 'average down' the rather full price it paid for its 49 per cent stake last year.

So the airline is far from 'finished' but there are increasing signs that the Virgin dream is over, and that could turn out to be the real significance of the mortgage deal with Lloyds.

Branson has grown his empire by a shrewd cycle of equity sales and cash invest ment. He has never been slow to pull in willing partners from around the globe to share his costs in exchange for a slice of the Virgin name, rather than collateralising his assets. The deal with Singapore was the perfect example of such a move.

For an entrepreneur so reluctant to collateralise, giving Lloyds a charge over his most valuable asset is a different matter. It smacks of desperation, rather than opportunism. For months now, there have been whispers that the big cash-guzzlers within the Virgin empire, such as the mobile phone firm and the trains, were straining his financial resources. Recently the Sunday Times Rich List, and Forbes magazine's forthcoming assessment of Virgin, highlight declining value. The deal with Lloyds looks to be confirmation of that trend.

The last time Lloyds had a serious say in Virgin's affairs, a decade ago, the fledgling air line was in trouble, buffeted by the downturn in transatlantic travel during the Gulf war, and facing fierce competition from the likes of BA and American Airlines.

The bank extended an overdraft facility, but obviously became worried about Branson's ability to repay it. The Virgin chief himself was worried that the bank would foreclose, and in the end took the most drastic action to save his airline - he sold the music business that had been the source of his fortune and his main cash generator.

This time, it is the airline itself that is the main cash-cow for his increasingly stretched empire. The personnel at Lloyds may have changed since Virgin's desperate days of the early Nineties, but bankers are still bankers, and tightly-run Lloyds is perhaps the most prudent of all.

Maybe the days of the flying bank manager are closer than we think.