How Billionaires Become Millionaires: Investing in Airlines

(Bloomberg) – It took Richard Branson’s own 200 million pounds ($ 250 million) to secure the rescue of its Atlantic Bank Limited.

The outlay reflects the latest example of the industry’s enduring ability to shrink fortunes, although the British billionaire may not be surprised, once said: “If you want to be a millionaire, start with a billion dollars and get a new one. Launch the airline. “

The airline business has long proved unique to a cohort of larger life-cycles. From Tony Fernandes of AirAsia Group Bhd to David Nileman, founder of JetBlue Airways Corp, some of the world’s most iconic entrepreneurs have built fortunes to people through the sky. But with air travel declining in lockdown, coronoviruses have also worked hard for long-term capital-intensive industry volatility and thin margins.

The market values ​​of 10 large, publicly traded airlines linked to key magnets tracked by the Bloomberg Billionaires Index have fallen by $ 14 billion since the beginning of the year.

The crisis has already claimed many victims. Earlier this year, Warren Buffett closed a losing stake on four major US airlines, acknowledging that the investment had lost money to Berkshire Hathaway Inc. This was his second goal after swearing before the sector.

Lathem Airlines Group SA, Latin America’s largest carrier, whose shareholders include the Cueto family of Chile, sought bankruptcy court protection in New York. In March, Neeleman – who founded companies including JetBlue and Canada’s WestJet Airlines – landed more than 80% of his preferred shares in Brazilian carrier Azul SA after the margin call began on a $ 30 million personal loan.

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The crisis has brought structural issues or tensions to the surface. The debt load of the Norwegian Air Shuttle ASA forced it into restructuring. The discount airline, whose co-founder Björn Köse was a former fighter pilot who challenged giants such as British Airways on trans-Atlantic routes, is highly indebted and has warned that it will need to raise more capital.

European budget carrier EasyJet PLC, which is departing from just one total fleet grounding, has also struggled with internal conflicts. Its founder and largest shareholder, Stelios Haji-Ioannou, began an unsuccessful effort to exclude executive leadership and block the purchase of Airbus SE aircraft, in which he neither needed nor could afford a carrier.

The family conflict has actually helped mold the Cho family of South Korea, whose holding company Hanjin Kal Corp owns shares of Korean Air Lines Company and Jin Air Company Hanjin Kal, due to the fight for control of the company in 2020 143 % has increased. Shares of individually traded airlines declined.

It is possible that the industry recovers quickly to take some losses. There have been indications that demand for travel has begun to rise, raising hopes that stress on the carrier will be lessened.

But as usual any return to business is far away. Delta Air Lines Inc. ended plans to restore some service following a resurgence in American coronovirus cases to create a nascent recovery in travel demand. Even with the restructuring, Virgin Atlantic said in a statement that it expects only to return to profitability by 2022.

(Updated with details of Delta’s plans in the last paragraph.)

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