Virgin Orbit plans for insolvency amid rescue talks with investors

Published

1 year ago

March 19, 2023

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Virgin Orbit has begun drawing up detailed contingency plans for its insolvency days after halting its operations and furloughing its workforce.

Sky News has learnt that the commercial space satellite venture founded by Sir Richard Branson‘s Virgin Group is working with Alvarez & Marsal (A&M) and Ducera, two restructuring firms, on fallback plans in the event that it cannot secure new funding.

The decision to line up the advisers underlines the parlous nature of Virgin Orbit’s finances, even as it continues talks with a small number of prospective investors about providing sufficient funding to restart its operations.

Virgin Orbit is 75%-owned by Sir Richard’s holding company, with its shares listed on the Nasdaq exchange in New York.

Its value has further plummeted following the failure of its inaugural British mission in Cornwall in January.

After going public in 2021 through a merger with a special purpose acquisition company in a $3.7bn (£?bn) deal, its listed shares are now valued at just $217m (£177m).

Sources said the insolvency planning work involving A&M and Ducera was being run out of the US.

A&M also worked on plans for the administration of Virgin Atlantic Airways as it raced to recapitalise itself during the COVID-19 pandemic.

The identities of the parties interested in funding Virgin Orbit on an ongoing basis were unclear on Sunday evening, although one source said that Boeing, which has invested in the company previously, was not in talks with it.

Virgin Orbit is understood to be aiming to secure additional capital during the course of this week, they added.

Dan Hart, Virgin Orbit’s chief executive, has been hoping to launch a further mission in the coming weeks, but that prospect is remote unless the company can secure new capital.

A Virgin Orbit spokesperson said last week: “Virgin Orbit is initiating a company-wide operational pause, effective March 16, 2023, and anticipates providing an update on go-forward operations in the coming weeks.

“On the ops side, our investigation is nearly complete and our next production rocket with the needed modification incorporated is in the final stages of integration and test.”

Sources close to Virgin Group said that Sir Richard’s privately held empire had supported Virgin Orbit to the tune of more than $1bn (£818bn), including $60m (£49m) since November 2022.

One insider said the funding provided to the company had not been sufficient to counter the strong headwinds and liquidity crisis facing it.

Virgin Orbit was confident it was taking decisive action to protect employees and the company’s assets while it continued to evaluate alternative options, they added.

Virgin Orbit was established in 2017, with a focus on operating launch missions for small commercial satellites from an adapted Virgin Atlantic Boeing 747 plane.

The company has made four successful missions, launching 33 satellites to their desired orbit, according to a spokesperson.

Taking Virgin Orbit public at a multi-billion dollar valuation was seen as a vindication of Sir Richard’s efforts to construct a lucrative business empire in the space technology sector.

In 2019, he merged Virgin Galactic, his space tourism operation, with Social Capital Hedosophia, another SPAC, in a deal which heralded the ongoing deluge of so-called ‘blank cheque’ companies.

Virgin Orbit was spun out of Virgin Galactic and has been run for years by Mr Hart, a former Boeing executive.

Business

UK interest rates should stay higher for longer, OECD says, in boost for Bank of England strategy

Published

4 hours ago

May 2, 2024

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UK interest rates should stay higher for longer, OECD says, in boost for Bank of England strategy

One of the world’s leading economic authorities has warned the UK that borrowing should remain expensive until the rate of price rises eases further and stays there.

Interest rates, which are at a post-2008-era high of 5.25%, should stay there, according to the Organisation for Economic Co-operation and Development (OECD).

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“The fiscal and monetary policy mix is adequately restrictive and should remain so until inflation returns durably to target,” the OECD’s economic outlook for 2024 said.

It’s an endorsement for the approach of the Bank of England whose statements on inflation have not indicated an imminent rate cut.

UK forecasts

The report from the club of developed nations also said the UK economy will “remain sluggish” with gross domestic product (GDP), a measure of everything produced in the economy, this year expected to grow 0.4% and 1% in 2025.

Some good news is expected for UK workers as the OECD said there will be “stronger” wage growth when inflation is factored in against pay.

This in turn will support a “modest pick-up” in the amount households are consuming.

But the rate of price rises will continue, the OECD said, with inflation anticipated to be “elevated” at 3.3% in 2024 and 2.5% in 2025 – above the Bank’s 2% target.

Such forecasts bolster the idea that rate-setters at the Bank could keep rates higher for longer to draw money out of the economy in an attempt to halt price rises.

No rate cut will come until at least August, the OECD added.

If the inflation forecasts prove to be true, the UK will not be the worst performer among the G20 group of industrialised nations. The average among that collection of countries will be 5.9% this year and 3.6% next year.

Business

Chinese companies receive far more state support – making it harder for Western businesses to compete, data suggests

Published

8 hours ago

May 2, 2024

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Chinese companies receive far more state support - making it harder for Western businesses to compete, data suggests

Chinese manufacturers receive nine times more government support than their Western counterparts, according to calculations from the Organisation for Economic Co-operation and Development (OECD) which help explain the country’s complete dominance in so many sectors, from solar panels and batteries to steel.

The figures produced by the OECD show that Chinese businesses benefit from government subsidies equivalent, on average, to 3.7% of their revenues. This compares to average state aid of only 0.4% of revenues for countries in the rich world.

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The data are a critical part of the explanation for Chinese dominance in certain fields, not to mention part of the explanation for why the UK has seen its manufacturing base shrink so rapidly in recent years.

While China provides large amounts of assistance to key sectors, including its solar photovoltaic sector and base metals producers of aluminium and steel, UK governments have for decades tended to be considerably less interventionist. The upshot is that the UK has seen many plants closing, unable to compete with cheap imports.

Up until now there has been no definitive measure of how much those cheap imports have been influenced by what economists call “state aid” – whereby governments help their companies.

In part this is because measuring state aid is fiendishly difficult.

At its simplest, it can take the form of direct grants from governments, to support a company or help it to build a plant. However, some countries are less transparent than others about these grants. But arguably more important are special low taxes sometimes charged to specific companies or sectors, and lower-than-market interest rates which are sometimes offered to favoured firms.

The OECD analysis, which has yet to be published as a formal report for widespread release, is the most comprehensive attempt yet to quantify those various types of state aid and compare different regions to each other.

Its finding, that China provides significantly more state aid for its manufacturers, is unlikely to come as a surprise – but it provides a statistical backbone for arguments that the global trading system does too little to confront these interventions.

It also finds that the amount of state aid varies significantly from sector to sector, with aluminium smelters, cement manufacturers and solar cell plants receiving most assistance. However, the report pre-dates the rapid increase in Chinese production of batteries in recent years.

Under Joe Biden, the US has introduced a host of measures, from the CHIPS Act to the Inflation Reduction Act, designed to provide subsidies for those making semiconductors and green technology in the US.

However, even after those interventions, total state aid in the US is still likely to be short of the Chinese total.

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Fed holds US interest rates again after three months of disappointing inflation data

Published

14 hours ago

May 1, 2024

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Fed holds US interest rates again after three months of disappointing inflation data

The US central bank, known as the Fed, has again kept interest rates high – at 5.25% to 5.5%.

It comes despite the policymaker signaling in January that interest rate cuts were around the corner.

Progress in bringing down rates and making borrowing cheaper has been hampered by rising inflation in the US.

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It could now be that US rates are only cut once in 2024, less than had been expected, as high rates are deemed necessary to take money out of the economy and slow the pace of price rises.

Data released last week showed inflation grew 3.5% in March, up from 3.2% in February and 3.1% in January – above the Fed’s inflation target and higher than economists expected.

Inflation falls are not guaranteed Mr Powell said on Wednesday, “Further progress in bringing it down is not assured and the path forward is uncertain”.

More confidence that inflation is under control will be needed before policymakers move to cut due to recent inflation figures.

Gaining that confidence will take “longer than previously expected”, he added.

In addition to the typical statement from the Fed in recent months it highlighted this concern: “In recent months, there has been a lack of further progress toward the Committee’s 2% objective.”

It signals that interest rates will remain higher for longer but another hike was said to be “unlikely” by Mr Powell.

“The committee does not expect it will be appropriate to reduce the target range [of interest rates] until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed said.

The Fed chair would not be drawn on if, and possibly when, rates would be cut this year. “There are paths to cutting, there are paths to not cutting”, he told reporters.

Central banks in the UK, US, and EU are all aiming to bring inflation down to 2%.

The Bank of England faces a similar decision next week when it will announce its own interest rate decision.

Markets had been expecting a cut in May, but are now not expecting one until August, according to data from Refinitv.

Unlike the UK, the US interest rate is a range rather than a single percentage – the Fed does not set a specific figure. Instead, the numbers are a target rate to guide lenders.