Virgin Atlantic may be slipping away as UK Government drags its feet

Alarm Bells

In recent days Virgin Atlantic’s desperate plight has become ever more of a concern.

The airline is so desperate for cash that it’s worryingly offering as much as 10,000 reward miles on top of the standard ones for any return flight booked before April 30th and flown within a year, using PayPal as payment.

Why is this an alarm bell? Section 75 is the answer. Its a complex part of the consumer protections laws from the UK/EU that allow credit card companies to hold onto cash that’s due to be paid to airlines, if they think the company is going under and unable to fulfil its obligations.

In UK and EU law customers are entitled to a refund from a credit card issuer – this does not apply to debit or pre-paid cards, if the airline goes bankrupt. So what credit card companies do is hold on to the money to pay the customer back, so they don’t get left holding the liability.

Of course what that does is worsen the situation for the airline, because if the credit card company sits on the cash they’re due, they can’t pay anyone with it for the services they need to run the airline.

PayPal transmits that money – even if its paid from a credit card via PayPal, direct to the airline, giving it access to the cash, because they can transfer that directly into their current account in minutes.

PayPal is also mostly off the hook from having to refund anything because its not a credit provider in this type of transaction. PayPal, by sitting in the space between credit card company and airline, means the credit card company isn’t liable either. So the risk is entirely on the consumer. If you buy and Virgin Atlantic or any other airline goes under, you loose what you paid.

PayPal’s buyer protection scheme is not very clear. It doesn’t rule out airline tickets as being excluded, but all protection stops 180 days after payment, and PayPal has to agree to give you the money back under a set of guidelines that only they know. So you won’t likely see a penny.

Verging on the edge of oblivion

There is a more general concern here, and thats the way Virgin Atlantic is structured. It’s been asked twice to resubmit is application to the British Government for help.

It is a limited liability company, 49% owned by Delta Airlines and 51% by Virgin Group which is owned by Richard Branson, who for many years has lived in the British Virgin Islands. He doesn’t pay personal UK Tax, which is fine, (he doesn’t live here after all) BUT Virgin Atlantic Airways Ltd and Virgin Group both do. They are both registered British companies. They’re not like Amazon and Apple and Google who get away with paying a paltry sum through complex legal setups.

Part of the problem for the Government is the Delta part ownership, another the lack of Branson’s personal taxation but I don’t really see what thats got to do with it as the airline is British.

He’s offered to put in – indeed I understand already has used £250m to keep it going but that money is running out as every day passes. Delta is like “I’m sorry Virgin who?” as it can’t be seen to bail out the airline it part owns when its in receipt of US federal funds to bail itself out.

Hands on hips girls, but where are your friends when you need them? As broke as you are it seems

There’s also the fact that Virgin Atlantic itself is made up of Virgin Atlantic, Virgin Atlantic Holidays and the weird little company they set up to hold ownership of some aircraft they mortgaged.

In fairness what they are asking for is the same as what easyJet got in the drop of a hat, a £600m fully repayable credit facility and guarantees from the Government on that debt to restore confidence and ensure the airline survives.

After everything Richard Branson has done for this country, compare that to many other business leaders, and the importance of keeping the competition alive at Heathrow against the tyranny of British Airways and American who will utterly dominate trans-Atlantic routes if Virgin Atlantic dies, I can’t believe it can be allowed to go like this.

Am I biased? Too right I am, Virgin Atlantic and its staff and crews are the best in the business out of the UK and its an iconic, very British company. It would be a tragedy to see it fail. It survived vicious competition, 9/11, the last great recession ten years ago. I prey it gets past this.