Flying Without Wings: Virgin Atlantic Wins Backing For £1.2bn Rescue Plan

Virgin Atlantic has won backing from its creditors for a £1.2bn rescue plan that would secure its future for at least 18 months and save 6,500 jobs.

The airlines creditors overwhelmingly backed a £1.2bn rescue package for the cash-strapped airline on Tuesday in a vote that opens the door to a full recapitalization early next month.

Virgin Atlantic said the agreement puts it in a position to “rebuild its balance sheet” and “welcome passengers back”.

The airline had earlier warned that it will run out of money by late September without the rescue deal, which was agreed in July and includes a cash injection from Richard Branson’s Virgin Group.

“Virgin Atlantic has reached a significant milestone in safeguarding its future,” the company said. Ninety-nine per cent of the airline’s trade creditors backed the proposal, which also received the full support of shareholders, aircraft lessors and creditors under the company’s revolving credit facility. Virgin Atlantic now expects the package of support to be rubber-stamped in the UK and US courts before a full recapitalisation next week.

It is the culmination of a months-long process, with the airline scrambling to pull together a funding package after the coronavirus pandemic brought commercial aviation to a standstill.

The company has been hit by the near-closure of lucrative transatlantic routes as demand for business travel has fallen and strict immigration and quarantine rules in the US and UK have stifled passenger numbers further.

The long-haul focused airline is only flying to six destinations from London at present. It intends to build up slowly flights to a wider set of destinations during the next two months.

Virgin Atlantic restarted flying in late July and its rescue package will inject about £1.2bn over the next 18 months.  the airline, which owns a 51 per cent stake in the airline, has committed £200m while US hedge fund Davidson Kempner Capital Management will provide £170m in debt funding.

The deal includes £400m of fee deferrals from shareholders, Virgin Group and Delta Air Lines, which owns 49 per cent. Creditors have also agreed to postpone payments worth a further £450m.

Additionally, Virgin Atlantic has committed to a range of cost-cutting measures, including job cuts, the closure of operations at London Gatwick airport and the downsizing of its fleet. Unlike rivals including British Airways and easyJet, the airline was not able to access UK government support at the height of the crisis.

In April, Virgin Australia – a separately run business – went into voluntary administration, making it Australia’s first big corporate casualty of the coronavirus crisis. Sir Richard Branson’s 10% shareholding was wiped out as a result.

The following month it was bought by Bain Capital, which said it supported the airline’s current management team and its turnaround plan for the business.

Last month, Virgin Atlantic faced enforcement action over its delays in processing refunds for flights cancelled during the pandemic.

It was the only airline threatened with action by the Civil Aviation Authority (CAA), which has reviewed the refund waiting times of 18 major airlines.

Virgin has been making consumers wait up to 120 days for a refund and the CAA said it was “not satisfied”.


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