Branson set to pump extra £40m into Australian budget airline Virgin Blue

Sir Richard Branson's Virgin Group is set to inject A$80m (£40m) into the Australian budget airline Virgin Blue after the carrier warned of looming full-year losses.

Virgin Blue Holdings is carrying out a deeply discounted A$231m rights issue and cancelling its dividend in an effort to shore up a balance sheet battered by an operating environment that the company has called the most challenging in its 10-year history. Virgin Blue is predicting losses of between A$160m and A$165m for the 12 months to the end of June.

Its short-haul operations are profitable and have increased their market share to more than 30 per cent but Virgin Blue's long-haul division, V Australia, has been hit particularly hard by the recession and is forecast to drop to between A$30m and A$35m in the red this year, with another A$60m to A$65m lost on start-up and foreign exchange costs.

Virgin Group, which owns 25.5 per cent of Virgin Blue, has committed to buy 305 million shares itself and is also acting as sub-underwriter for 20 per cent of the retail component of the offer, which could raise its stake to 30.2 per cent.

Sir Richard said yesterday: "Our belief in the future of the business is underlined by our ongoing support and sub-underwriting of the rights offer. Whilst the aviation world faces some tough market conditions, we have faith that Virgin Blue is well placed to meet the challenge with its strong brand and market position."

Virgin Blue reckons the worst is over and is predicting it will break even in 2010. "This is an opportunity to invest in one of the industry's most well-respected airline brands," said Brett Godfrey, the chief executive.

"The proceeds of the raising will significantly strengthen Virgin Blue's capital position and improve liquidity and financial flexibility which we believe is prudent in the light of challenging conditions facing the airline industry."

The money will not be used to offset losses from the last fiscal year, but will help manage the major fleet costs due to come in from 2011 as a string of aircraft leases come up for renewal. Twelve leases will end in 2011 and another 12 the following year.

Mr Godfrey, who has been in the post since the company was founded by Virgin Group in 2000, also announced yesterday that he would be stepping down next year.

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