Neil Collins’ Notebook – Billionaire to Treasury: please give generously

You can hardly blame him for trying it on. Five hundred million pounds of taxpayers’ money would help no end to keep his flag, and the planes, flying. Fortunately, even run ragged by competing demands from everywhere else, the UK Treasury could see that Richard Branson’s cry for our money to keep Virgin Atlantic aloft was the aeronautical equivalent of the beggar’s sore.

As you would expect, he writes a terrific begging letter. The first shot on April 1 pulled in endorsements from the heavyweights at Rolls-Royce and Airbus, together with a similar plea from Heathrow. Well, nobody lost any orders by endorsing their customer’s demands for state aid.

The latest, much longer, offering contains a typical piece of Branson bravado: an offer to mortgage Necker Island, the epitome of billionaire luxury living, along with the explanation that support “wouldn’t be free money and the airline would pay it back.” Unfortunately his partner, Delta Airlines, rather spoilt things, explaining that it was barred from contributing under the terms of its own domestic bailout, and that Virgin was on its own.

Nobody denies that the crisis facing the world’s airline industry is serious, but the trickier question is: serious for whom? It is obviously serious for Virgin and Delta, since they like losing money as much as the rest of us. But airline finances are opaque at the best of times, and the history of the industry is of billions being syphoned off during the good times, followed by pleas for state aid when things go wrong. From the owners’ point of view, it never seems worth investing in better value for the customer, let alone a robust balance sheet.

Should Virgin go bust, the planes would still be there, the routes and landing slots would not disappear, and the skills of the workforce would remain. Their disruption would be unpleasant, but no worse than millions of other suspended workers elsewhere. Finally, Whatever the airlines might claim, their brand value hardly counts for most people. Even the UK government could probably run an airline for a while.

Sir Richard has claimed to be putting up £250m as part of the rescue, but as we saw with the cynical manipulation over the failure of Flybe, this may not be all, or any, in hard cash. Since the UK Treasury is running before the financial hurricane, throwing money at every special interest group that asks, it may feel it must stop Virgin failing. If it must, then it should insist on part-ownership, dividend and executive pay restrictions and financial transparency. Suddenly, that £500m might not look quite so alluring, and Necker may not turn out to be the next Boris Island.

A moment of truth for Shell

Next week the board of Royal Dutch Shell must take its toughest call since deciding to overpay for BG almost five years ago. Accurate predictions of quarterly results from Big Oil routinely defeat the most diligent analyst, and this year promises to be a horror show. Only one figure will really mean anything, and that is the dividend declaration.

Shell’s quarterly dividend of 47c has come up with the rations, through shortage and glut, and has not been cut for more than half a century. It is a rare income fund that does not have a significant holding, and if dividend cuts elsewhere continue at their current rate, Shell’s contribution could approach a tenth of all UK market payments this year.

That is: if it is paid. Shell is a strong company, and as finance director Jessica Uhl pointed out only three weeks ago,  it has bulked up its cash resources. The quarterly payment will not be earned, but it could be comfortably paid.

And yet…oil stocks have had a terrible year. Shell has fallen twice as far as the market; those who sold then because they considered the oil companies were evil have got the right answer for the wrong reason. The result is that at £13.60 Shell shares return (a historic) 11 per cent at today’s sterling/dollar exchange rate, a yield that in normal circumstances would signal a cut. The latest twist in the crude saga, where the company’s principal product is effectively worthless today, provides a unique opportunity to “rebase” the payment, as cuts are euphemistically termed.

Investment history shows that the first cut is the cheapest, and continuing to pay out money that is not earned is a route to worse pain later. Oil, though, is the ultimate long-term business, and if I had to guess, I’d say that Jessica and her crew will make the payment, to signal their confidence. But then I have been wrong about this share all the way down. Faites vos jeux.