Branson raises £600m from Virgin airline sale to fund Net expansion

Richard Branson yesterday set the stage for a massive expansion into telecommunications and the Internet after selling a 49 per cent share in his airline, Virgin Atlantic, to Singapore Airlines for £600m in cash.

Richard Branson yesterday set the stage for a massive expansion into telecommunications and the Internet after selling a 49 per cent share in his airline, Virgin Atlantic, to Singapore Airlines for £600m in cash.

The deal, which took the airline industry by surprise, values Virgin Atlantic at £1.225bn. It will also present British Airways with an even greater competitive threat at London's Heathrow airport.

Mr Branson said he would use the proceeds of the deal to launch new e-commerce and telecoms ventures. Virgin intends to bid for a third-generation mobile licence next year, at a likely cost of £500m. Mr Branson has also pledged to turn Virgin.com into one of the world's three leading Internet portals, with plans to sell everything from cars to rail tickets online.

The agreement with Singapore Airlines, one of the world's most profitable carriers, will result in £100m being re-invested in Virgin Atlantic to expand its route network and presence in Asia-Pacific markets. Mr Branson also intends to use some of the proceeds to buy a minority stake of less than 5 per cent in Singapore Airlines.

The Virgin chairman denied that he had been forced into the deal to ensure the corporate survival of his airline, and said he would never surrender control of it. "The airline is not for sale and will never be for sale. It is my baby, and something I am enormously proud of," he said.

Mr Branson also maintained he had no plans to enter the Star airline alliance, of which Singapore Airlines will become a member next next year, along with British Midland.

The Transport minister, Lord Macdonald, and the chairman of the Civil Aviation Authority, Sir Malcolm Field, were informed of the Singapore tie-up early yesterday after the deal was signed on Sunday evening.

Mr Branson said that both men had welcomed the agreement as it posed no competition difficulties. The two airlines do not compete directly on any route in the world. A 49 per cent stake is the maximum Virgin Atlantic could have sold and continue to be classified as a UK airline with rights to operate services out of the UK.

The two airlines expect the alliance to yield benefits of more than £100m a year by feeding more passengers on to each other's route networks through flight code-sharing arrangements. Virgin Atlantic will gain greater access to the Pacific market, while Singapore will transfer traffic on to Virgin's North Atlantic routes.

Mr Branson said a flotation of Virgin Atlantic would have raised less money and subjected the airline to the degree of scrutiny that goes with a public share listing. Dr CK Cheong, the chief executive of Singapore Airlines, denied that he had overpaid for the stake. "Virgin was meant for Singapore and Singapore was meant for Virgin," he said.

Although the two airlines will share codes, frequent flyer programmes and passenger lounges, they will retain their distinct identities and the right to compete with one another.

Despite Mr Branson's denials, aviation analysts believe that Virgin Atlantic will ultimately join the Star alliance. This could raise competition issues as it would strengthen Star's position at Heathrow, where United Airlines, one of the leading members of the alliance, flies most of the transatlantic routes operated by Virgin.

Singapore made after-tax profits of $608m (about£380m) in the year to 31 March 1999 on sales of $4.6bn, and has a fleet of 93 aircraft. Virgin Atlantic, which includes Virgin Holidays, Virgin Sun and the group's cargo and aviation services businesses, made pre-tax profits of about £100m in the same period on sales of more than £1bn.