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Virgin Mortgages Heathrow Slots In £250m Deal

Virgin Mortgages Heathrow Slots In £250m Deal

Virgin Atlantic is finalising a landmark deal that will enable it to raise hundreds of millions of pounds from its lucrative take-off and landing rights at London's Heathrow Airport.

Sky News has learnt that the carrier, which is 49%-owned by Delta Air Lines of the US, is close to striking an agreement to monetise its status as Heathrow's second-biggest customer.

The deal involves placing its pairs of slots at the airport into a new subsidiary, Virgin Atlantic International Ltd, and effectively mortgaging them by paying a dividend to outside investors‎.

Talks with prospective backers of the securitisation have been underway for some time, sources said, with a transaction likely to be signed before the end of the year.

The opportunity to invest in the new entity in which Virgin's slots will be held is said to have proved attractive because of the generous yield it will offer to the new backers.

Sources said the proceeds of the deal would be used to invest in Virgin Atlantic's "customer experience", including upgrades to its fleet of aircraft.

The deal is understood to have been subject to the approval of the Civil Aviation Authority, and has been arranged by Macquarie, an Australian bank which specialises in infrastructure-related transactions.

The CAA is said to have sought assurances about how the rights to the slots would be safeguarded in the event that Virgin Atlantic ran into financial trouble.

Other airlines have examined similar arrangements in the past but have struggled to secure support from investors or regulators.

In a statement issued to Sky News, a spokeswoman said: "Virgin Atlantic does not comment on market speculation.

"We can confirm that the CAA has now granted us an Air Operator Certificate for a new entity called Virgin Atlantic International Ltd, which we plan to use to operate certain Caribbean services on Virgin Atlantic’s behalf starting later this month.

"The service, which commenced on November 25th, is operated by Virgin Atlantic’s own team of pilots and cabin crew, using two of our existing A330-300 aircraft.

"This will make no difference to the destinations served or the experience our customers know and love."

News of the innovative financing deal comes as ministers prepare to announce their long-awaited decision about whether Heathrow, Britain's most overcrowded airport, will be allowed to construct a third runway.

A Cabinet sub-committee has yet to meet to finalise the Government's decision, which follows Sir Howard Davies’s recommendation earlier this year to proceed at Heathrow.

However, industry sources said that an announcement could come as soon as next week, and that David Cameron was likely to indicate his support for Sir Howard’s proposal, subject to commitments from Heathrow’s board about air and noise pollution guarantees.

Virgin Atlantic continues to be majority-owned by Sir Richard Branson's Virgin Group following Delta’s purchase of Singapore Airlines' stake in the company in 2013.

The British airline has since returned to the black after sustaining several years of losses.

In June, it announced that it would cut 500 staff in managerial and support roles as it looks to cut costs in what remains a difficult environment for many airlines.

A Virgin Atlantic spokeswoman declined to comment further on the financing deal.