Branson Orders 10 Planes, Rejects British Airways AidBy Steve Rothwell and Mark Barton

June 22 (Bloomberg) — Richard Branson, the billionaire owner of Virgin Atlantic Airways Ltd., said he’s ordering 10 Airbus SAS A330 aircraft worth $2.1 billion and urged the government not to bail out British Airways Plc as travel slumps.

Virgin, the biggest rival to British Airways on long-haul routes from the U.K., has agreed to buy six A330-300 planes and lease four others for use on routes to the U.S. and Caribbean.

Branson has no plans to bid for British Airways because it has too many liabilities and no paper value, he said in a Bloomberg Television interview today at London Heathrow airport.

“If they do go bust the government should let them go bust,” he said. “Just because they were once the flag carrier doesn’t mean the government should come in and bail them out.”

British Airways fell as much as 8.5 percent in London trading, the biggest drop in a month. Chief Executive Officer Willie Walsh is cutting jobs and curbing pay after the airline reported a 375 million-pound ($617 million) loss for the 12 months ended March 31, its first full-year deficit since 2002.

“Willie Walsh is saying they are in a fight for survival and asking his staff to work for a month without pay,” Branson said. “These are obviously fairly desperate measures.” Asked if BA would survive the slump, he said: “I really don’t know.”

British Airways said it has no intention of seeking aid from the U.K. government.

Opposed to Aid

“There are no talks with the government and there will be no talks,” the carrier said in an e-mailed statement. “We have opposed state aid and our position has not changed.”

British Airways fell as much as 11.6 pence to 124.8 pence, the biggest slide since May 22, and was trading at 126.2 pence as of 3:10 p.m. in London. The stock has declined 30 percent this year, reducing the company’s market value to 1.46 billion pounds. Virgin Atlantic is closely held.

Howard Wheeldon, a senior strategist at BGC Partners LP in London, said Branson’s comments were “aimed at creating unnecessary fear amongst BA’s investors, staff and customer base” and that Virgin itself faces similar problems.

Remarks from Walsh regarding the likely duration of the slump in air traffic and its impact on business travel risk damaging British Airways, Branson said in the interview.

‘Early Grave’

“I think Willie Walsh is talking his airline into an early grave,” he said. “It’s up to Virgin Atlantic and other carriers to go out there, to keep improving, buying young planes and competing to get passengers. We have to offer them good value for money.”

Douglas McNeill, an analyst at Astaire Securities in London, said British Airways is likely to survive the recession.

“Business travel will come back and British Airways will cope courtesy of the cash reserves it has built up when times were good,” said McNeill, who recommends buying the stock.

The airline, Europe’s third-biggest, said separately today that it will go ahead with a business-class only service from London City airport to New York beginning Sept. 29. Airbus A318s fitted with 32 flat-bed seats will operate on the route.

“In the harshest trading environment airlines have experienced, we believe it is more important than ever to embrace the future and innovate,” Walsh said in a statement. Passengers will be able to check as little as 15 minutes before departure and the service will offer in-flight Web access.

Walsh said in the ‘BA News’ employee newspaper on June 18 that he sees “no evidence” of the decline in air travel bottoming out and that the outlook will be “very tough for a considerable time.” The CEO wrote that he also questions whether demand for business travel will ever recover to previous levels, particularly on shorthaul routes.

Heathrow Slots

Virgin Atlantic, based in Crawley, south of London, would take up available operating slots at Heathrow airport should British Airways collapse and is prepared to establish a short- haul airline to fill the gap, said Branson, who spoke prior to a flight to the U.S. to mark the carrier’s 25th anniversary.

Virgin will buy six A330 twin-engine planes direct from Toulouse, France-based Airbus and then sell them to Amsterdam- based AerCap Holdings NV before leasing them back, the Dutch company said in a statement. The other four jetliners will be leased direct from AerCap, the lessor said.

The airline currently operates a fleet of 38 aircraft, made up of 25 Airbus A340s and 13 Boeing Co. 747 jumbo jets. The A330s will add capacity as the carrier begins services to Beijing, Vancouver and Cancun and may eventually come to replace six older A340-300s, spokeswoman Polly Durrant said by phone.

The A330-300 is a stretched version of the A330-200 model, one of which crashed into the mid-Atlantic last month, killing all 228 people on board. The Air France plane was en route from Rio de Janeiro to Paris.

Virgin also has orders for 15 Boeing 787 Dreamliners and six Airbus A380 superjumbos.

To contact the reporter on this story: Steve Rothwell in London at srothwell@bloomberg.net.

Last Updated: June 22, 2009 10:39 EDT

from bloomberg.com 6-22-09