Virgin Atlantic is levering up its balance sheet to pay out cash to Delta, in a complicated transaction that worries U.K. regulators.
The airline is mortgaging London Heathrow slots for $330 million to pay out dividends. Virgin is 49% owned by Delta. This entails transferring a large portion of its slot portfolio to a subsidiary, Virgin Atlantic International Ltd, which is also uses to operate some flights (with its own crew and aircraft, so presumably to comply with slot ownership rules).
Ten years ago Virgin executed a similar slot-backed financing, raising £220 million in debt backed by slots. It was Europe’s first-ever slot securitization deal – BA tried to do one in 2012 but found it too complex.
- Virgin is now profitable.
- This financing isn’t to shore up the carrier or invest in product for the future.
- It’s to pay out dividends, with the largest payout going to Delta.
The deal is controversial with regulators, however because (1) the slots are collateral for loans, (2) but they cannot be transferred to foreign control. They don’t want the slots going to Delta and they don’t want a default on the loans to allow the slots to disperse. (Shorter-term leases of these slots to foreign airlines are permitted.)
- Bondholders seizing slots would have to sell to a U.K. buyer, who could in turn lease them out.
- easyJet and Jet2 might be interested in a few slots, though operating from Heathrow is largely outside their model. The only U.K. airline of size capable of swallowing a large Heathrow slot portfolio is British Airways.
- But there are huge competition concerns over BA amassing even more control of Heathrow.
- So it would likely need to be British investors taking control of the slots in order to lease them (U.K. protectionism here becomes a subsidy for these investors, since others couldn’t really compete for the asset).
In parallel with the slot mortgage plan, Virgin Atlantic has been leasing out some of its slots.
- IndiGo: – For Winter 2025/26, Virgin is leasing a daily slot pair (14 slots per week: 7 arrivals and departures) allowing IndiGo to launch Mumbai – Heathrow daily service starting 26 October 2025. IndiGo is wet-leasing a Norse Atlantic Boeing 787-9 for the service, since they only operate narrowbodies. These are the slots Virgin formerly used for Tel Aviv flying.
- Saudia: For Summer 2025, Virgin leased out another daily Heathrow slot pair (14 weekly slots) for a daily Riyadh – Heathrow flight even as Virgin itself launched new Riyadh service. This was actually a slot trade, what appears to have been a re-timed New York JFK flight swapped to Saudia for slots so that each could operate on their preferred schedules.
- El Al: For Winter 2025/26, Virgin Atlantic is leasing out eight weekly slots (4 weekly slot pairs) allowing El Al to boost London Heathrow – Tel Aviv from 11 to 15 roundtrips per week.
The value of a Heathrow slot varies tremendously based on its timing, and given that it’s a fairly thin market without public disclosure of terms there are outlier deals, but famously Oman Air paid $75 million for slots from Kenya Airways in 2016, and American Airlines paid $60 million for slots from SAS the year before that.
Seasonal leases would be a fraction of that, but still represent millions in revenue for the slot holder.
(HT: Enilria via Chuck B.)
Is this a sketchy accounting trick, or more akin to giving a loan to your own family member (say, parent-adult child, brother-to-brother, or cousins) helping the other buy a home, with collateral being their own home? @Tim Dunn, help us sort this out!
@ Gary — Sounds like a DL shell game. They are experts in such shenanigans.
@Gene +1
seems like DL wants to be repaid for the money they injected into VS during the pandemic. Also please mention that virgin group (a uk business) is probably getting cash as well…
Haven’t heard what Richard Branson wants out of this. Virgin Atlantic has been doing better for him as of late, but he’s getting to the age of a bunch of the elderly Flyertalk Moderators — some of which will not be in-person at the imminent FT Mod Do — and may want to cut back involvement and exposure even if not as frustrated as IBJoel who keeps lashing out at his employer and some FTers.
Thankfully, Virgin Atlantic remains a more hospitable experience with better economy class seating on its LHR-US flights than British Airways and all the US airlines flying LHR-US. Will the slot deal make Virgin Atlantic a better airline for consumers? I doubt it.
Hope this woke airline shuts down for good.