Virgin cash call talk can't excite investors Matt O'Sullivan June 26, 2009 - 11:51AM Investors are expected to take a lukewarm approach to any attempt by Virgin Blue to raise capital to help it steer its way through the worst downturn in aviation. Despite repeatedly ruling out a capital raising, it is understood Virgin management have been canvassing investor appetite for the issue of new shares during a series of broker roadshows. But analysts believe it would be difficult for Virgin to successfully promote a capital raising because the airline would be using the cash to fund losses rather than a new investment. "Their problem is a lack of demand. I certainly wouldn't see [a raising] as a fait accompli,'' an analyst said. "Virgin's problem is that they are losing money. [Investors] would be more inclined to say, 'Why don't you cut loss-making routes?'' Management would also have to win the support of Virgin's largest shareholder, Richard Branson, who has steadfastly ruled out a capital raising for the airline. He would be loath to have to invest more money into Virgin to avoid a dilution of his 25 per cent stake. Despite any misgivings about a capital raising, Virgin's existing shareholders could be compelled to inject new equity into the airline if the alternative was continued losses. Virgin ruled out a capital raising "at this stage'' as recently as February. Qantas raised $526 million through an institutional placement and retail share purchase earlier this year in an attempt to safeguard its investment-grade rating that allows it to finance its operations at a lower cost compared with other carriers. Analysts have put the odds at less than 20 per cent of Qantas resorting to a capital raising for a second time to retain its rating. Virgin expects to post a loss this financial year because of the start-up costs of V Australia, which begins flights between Sydney and Los Angeles in late February. Competition on the trans-Pacific will intensify next week when US carrier Delta Airlines begins daily flights between Sydney and LA, taking the number of carriers on the route to four. Australia's second-largest carrier posted a loss in February of $101 million for the six months to December, compared with a profit of $113 million in the same period a year ago. Shares in Virgin fell 1 cent to 31 cents in early morning trading, while Qantas rose 2.3 per cent after the carrier cancelled an order for 15 Boeing Dreamliners.
VBA Price at posting:
26.6¢ Sentiment: LT Buy Disclosure: Held
