Outlook: How Virgin invests in the future

RICHARD Branson was in New York yesterday for the US launch of Virgin Cola. On this side of the Atlantic, however, the talk, once again, was not about fizzy drinks but whether and if so when he will float his airline, Virgin Atlantic.

To the Bransonologists, those who follow every twist and turn of his complicated business affairs, the two story lines may be related. The Virgin Cola story has gone a bit flat. It is one of those rare phenomena - a product that has not responded to the Virgin brand magic. Virgin has now taken full control of the Cola business and, while it remains a small part of the overall empire, it will continue to consume cash and offer only losses in return for some while yet.

The picture is similar at a number of other Branson joint ventures such as the financial products business Virgin Direct, Virgin Spirits and Virgin Cinemas. The Branson camp retorts that this is only natural in early, start-up years of such ventures.

But the daddy of them all, when it comes to risk and investment, is Virgin Trains. The word is that despite their abysmal reputation, the two franchises - the West Coast Mainline and Cross Country Trains - are profitable and that Mr Branson will prove the doubters wrong when he successfully floats the business this summer.

Unfortunately, those profits are built on the back of fat subsidies from the taxpayer. From 2002 onwards, Virgin starts to pay an annual rental for the West Coast Line and, by 2012 will have made net payments to the Government of nearly pounds 1bn. In order to make the business pay its way, Virgin will have to double passenger numbers. This is a tall order when the pounds 2bn modernisation of the line will almost certainly mean services deteriorating before they get better.

On top of that, Virgin is introducing tilting trains for both the West Coast and Cross Country franchises at a cost of well over pounds 1bn. Virgin argues that the rental charges will be met out of profits while the rolling stock orders will be off balance sheet since it will merely lease the trains.

Even so, Mr Branson will still require an awful lot of capital to drive the non-travel businesses forward. When he was in a similar fix in 1992 he sold his most profitable business, Virgin Music, to EMI. This time around the cashcow could be Virgin Atlantic which, according to the more heroic estimates, could raise as much as pounds 1bn. And anyway, airline floats are all the rage. Just look at Mr Branson's other quoted airline, Virgin Express, which has risen in value by a half since flotation.

No one at Virgin is anxious to talk up the story. For one thing, it might suggest the train flotation is running off the tracks. But Mr Branson would not be the opportunist he is if he were not seriously tempted by the idea. And, as the Bransonologists know, it would not be the first time Virgin has sold off its past to finance its future.