View from City Road: Dan-Air not clear for take-off

DAVID JAMES has yet to lose a patient, but it is going to require all his renowned skills as a company doctor and more to keep Dan-Air alive. The airline's dilemma is put quite starkly in the joint statement issued late last Friday night by Davies & Newman, Dan-Air's parent company, and Richard Branson, the Virgin chairman.

Dan-Air's future depends upon it successfully raising fresh funds - something in the region of pounds 50m appears to be the target.

However, as the statement also makes plain, an 'integral' part of this intended fund-raising will be to secure Virgin Atlantic's participation in the operations and marketing of Dan-Air.

In other words, if the talks with Virgin collapse then so does Dan-Air, along with 2,800 jobs and another slice of Britain's independent airline sector.

But this is not a done deal and there is every reason to fear it may remain so. Mr Branson has offered to inject up to pounds 10m in return for a 51 per cent stake in what would become a new European airline.

These terms would not seem to offer much to Davies & Newman's institutional shareholders, who are being asked to stump up another pounds 40m for a minority stake in a business that may or may not fly.

In any event, there is no guarantee that Mr Branson will go through with a deal whatever the financial terms. Why risk Virgin Atlantic's reputation at all? And why change strategy so comprehensively by plunging into a sector of the market that is quite different from Virgin's carefully targeted long-haul business?

It would be a brave investor who bet on Davies & Newman's shares returning from suspension at all.