Richard Branson supports Virgin Blue despite huge losses

Virgin Blue’s biggest shareholder, Sir Richard Branson’s Virgin Group, will invest between $61 million and $80 million in the struggling airline as it looks to raise $231 million to improve its balance sheet flexibility.

In another shock, the airline has announced its chief executive Brett Godfrey will retire at the end of 2010 after establishing the airline and leading it through its share market float.

Branson, who owns just over 25.5% of Virgin Blue, will buy up to $80 million of new shares in the capital raising (or around 35% of the new shares on offer) to ensure his stake stays at that level.

He has also agreed to act as underwriter for 20% of the retail portion of the capital raising – that means if mum and dad investors don’t support the capital rising, Virgin Group’s stake could balloon to just over 30%.

Branson’s support of the airline is crucial, as figures released today show just how hard the biggest decline in the airline sector’s history has hurt the company.

Virgin Blue expects a net loss after tax of up to $165 million for 2008-09, compared with a net profit of $98 million in 2007-08.

While Virgin Blue’s short haul domestic operations are expected to make a profit of $25-30 million, its newly-launched overseas airline VAustralia is expected to record a trading loss of $30-35 million.

However, the airline remains confident of better times ahead and says that while the key drivers of the business such as capacity, demand and fuel remain volatile, it should break even in 2009-10.

“The strengthening of Virgin Blue’s capital position combined with the current strategic initiatives will position the business to weather the current market environment and move quickly to participate in the upside as markets recover,” the airline said in a statement.

The share offering is priced at just 20c a share, which represents a 31% discount to the price of 39c at which Virgin traded on Friday.

The company’s shares have crashed from around $1.15 over the last 12 months as the airline industry has been rocked by the global financial crisis.