Private recapitalisation move confirmed by Virgin Atlantic

Virgin Atlantic is about to recommence passenger services using an all twin-jet fleet. (KEY- Tom Allett)

Virgin Atlantic has confirmed plans to secure its future via a private-only solvent recapitalisation of the airline, following the severe impact of the Covid-19 pandemic upon the aviation industry.

The airline said it is launching a court backed process as part of a solvent recapitalisation of the airline and holiday business, with a Restructuring Plan that, once approved and implemented, will keep Virgin Atlantic flying.

It explained that the move is based on a five year business plan, and with the support of shareholders Virgin Group and Delta, new private investors and existing creditors, it paves the way for the airline to rebuild its balance sheet and return to profitability from 2022.

The recapitalisation will deliver a refinancing package worth c.£1.2bn over the next 18 months in addition to the self-help measures already taken, including cost savings of c.£280m per year and c.£880m re-phasing and financing of aircraft deliveries over the next five years. Shareholders are providing c.£600m in support over the life of the Plan, including a £200m investment from Virgin Group, and the deferral of c.£400m of shareholder deferrals and waivers.

Virgin Atlantic said it welcomes new partner Davidson Kempner Capital Management LP, an institutional investment management firm which is providing £170m of secured financing.

Creditors will support the airline with over £450m of deferrals and the airline said it continues to have the support of credit card acquirers (Merchant Service Providers) Lloyd’s Cardnet and First Data.

The airline noted that to secure approval from all relevant creditors before implementation, the Restructuring Plan will go through a court-sanctioned process under Part 26A of the Companies Act 2006 (the “Restructuring Plan”). With support already secured from the majority of stakeholders, it is expected that the Restructuring Plan and recapitalisation will come into effect late Summer 2020.

As a result of the Covid-19 pandemic, 98% of flights were cancelled in Q2 as commercial aviation effectively shut down. As a result, in March, the airline’s Leadership Team took voluntary pay cuts and since April, more than 80% of the workforce has benefitted from the UK Government’s Coronavirus Job Retention Scheme, which enabled the airline to minimise its costs. Although some 1,400 cargo-only services were flown between April and June using some of Virgin Atlantic’s passenger aircraft, they could not compensate for the loss of passenger traffic.

In May, it decided to reduce staff numbers by 3,550 – including 400 who chose to take voluntary redundancy – as it reshaped the company for the post COVID-19 scenario.

Many of the carrier’s passenger flights served the US market, which continues to be significantly affected by the COVID-19 pandemic and the airline expects its capacity for the second half of 2020 to be reduced by at least 60% compared to that of 2019. It envisages that pre-crisis levels of flying are unlikely to return until 2023.

It has closed its London Gatwick base, but currently retains some slots there that could enable it to resume Gatwick flights when demand returns.

For now, leisure flying will be consolidated at Heathrow and Manchester, but Virgin said that in 2022, it will fly the same number of sectors as 2019 despite its smaller scale, thereby “demonstrating productivity and efficiency improvements”.

The airline has already retired its Boeing 747 and Airbus A340-600 fleets and will have withdrawn a further four Airbus A330s by the end of Q1 2022. This will leave it with 37 aircraft.

Virgin Atlantic will relaunch a limited number of passenger services on July 20.