Airbus has salvaged Virgin Atlantic's vital A340-600 launch contract after agreeing to revised financial terms. The rescue of the $1.9 billion deal, the subject of intense talks for five months, ensures Virgin will be the first airline to receive the aircraft in June as originally contracted.

Industry sources say Virgin has negotiated an extremely favourable deal involving manufacturer-arranged funding in excess of $1 billion, a partial deferral of deliveries, and the return of some of the airline's existing A340s. However, the airline's decision to accept the Airbus offer is believed to have angered Virgin's 49% shareholder Singapore Airlines (SIA), which is deferring Airbus and Boeing orders.

Virgin signed up as launch customer for the Rolls-Royce Trent 500-powered widebody in 1997, with firm orders for 10 aircraft and eight options. But following the collapse in transatlantic traffic after 11 September, the airline entered talks with Airbus about deferring this year's deliveries.

Having lost its other launch customer Swissair following the airline's collapse, Airbus was determined to retain Virgin. An initial round of talks in November ended with Airbus's offer being rejected (Flight International, 4-10 December 2001). According to sources, the airline's management was in favour of that deal, but it was rejected after pressure from SIA.

Airbus tabled a revised offer meeting all Virgin's conditions, and this was accepted last week. It involves the delivery of the first four aircraft this year as scheduled, but they will be supplied on operating leases understood to have fixed-price purchase options. Airbus has also agreed to stretch out the six remaining orders to 2006, and arrange around $1 billion worth of financing through a loan. Virgin has also cancelled its eight options, and will return at least four of its 10 A340-300s to the manufacturer this summer, earlier than first planned.

Virgin declines to comment on the financial aspects of the deal, but confirms it has cancelled its options, and will phase out some A340-300s as the -600s are delivered. While Virgin says that SIA "has been extremely supportive of our strategy since 11 September", the airline is believed to have told Virgin to push for even better terms.

Meanwhile, Virgin is increasing capacity for the first time since the 11 September terrorist attacks on the USA, after a rise in load factors and bookings. Capacity, cut by 20%, will be increased by 5% overall.

Source: Flight International