Virgin Atlantic Airways filed for Chapter 15 bankruptcy protection in the US this week, as part of moves to keep the company in the air in coming years.
US Chapter 15 protection allows foreign companies with US assets to protect themselves against claims while they work on a turnaround plan at home.
Like all other airlines, Virgin’s reservations have been decimated by the Covid-19 crisis, and demand for the second half of 2020 is at approximately 25% of 2019 levels, according to court papers.
On 14 July, Virgin Atlantic announced it had reached a “major milestone towards securing its future, by 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, says the airline in an official statement, keep Virgin Atlantic flying.
Shai Weiss, CEO, Virgin Atlantic commented: “Few could have predicted the scale of the Covid-19 crisis we have witnessed and undoubtedly, the last six months have been the toughest we have faced in our 36-year history. We have taken painful measures, but we have accomplished what many thought impossible. The solvent recapitalisation of Virgin Atlantic will ensure that we can continue to provide vital connectivity and competition to consumers and businesses in Britain and beyond. We greatly appreciate the support of our shareholders, creditors and new private investors and together, we will ensure that Virgin Atlantic can emerge a sustainably profitable airline, with a healthy balance sheet. Once our plan is approved, we will continue to focus on providing our customers with the service they have come to expect. Despite the incredible efforts of our teams, through cancelled flights and delayed refunds we have not lived up to the high standards we set ourselves, but we will do everything in our power to earn back their trust. While we must not underestimate the challenges ahead and the need to continuously respond to this crisis, I know that now, more than ever before, our people are what sets us apart. I have been humbled by their support and unwavering solidarity throughout. The pursuit of our vision continues and that is down to each one of them.”
The Restructuring Plan 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 welcomes new partner Davidson Kempner Capital Management LP, a global institutional investment management firm which is providing £170m of secured financing
- Creditors will support the airline with over £450m of deferrals
- The airline continues to have the support of credit card acquirers (Merchant Service Providers) Lloyd’s Cardnet and First Data.
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’s expected that the Restructuring Plan and recapitalisation will come into effect late Summer 2020. Virgin Atlantic was advised by Houlihan Lokey and Allen & Overy.
The airline has already taken a number of actions to ensure its survival. In March, the Leadership Team took voluntary pay cuts and since April, more than 80% of the workforce has benefitted from the Government’s Coronavirus Job Retention Scheme, supporting efforts to preserve cash and minimise costs. In Q2, flying fell by 98% and in the second half of 2020, capacity is expected to reduce by at least 60% compared to 2019, with pre-crisis levels of flying unlikely to return until 2023. With the suspension of passenger flying in April, the airline delivered an unparalleled network of cargo-only flying, operating more than 1400 cargo flights in April, May and June.
In May, the airline took what it described as the difficult decision to “reshape and resize” in order to emerge from the crisis sustainably profitable, and regrettably the airline had to reduce the number of people it employs by 3,550 across all functions.
Having closed its London Gatwick base, while retaining a slot portfolio at the airport to protect opportunities for future growth, leisure flying is now consolidated at London Heathrow and Manchester. By 2022 Virgin Atlantic will fly the same number of sectors as 2019 despite its smaller scale, demonstrating productivity and efficiency improvements. The airline will operate a streamlined fleet of 37 twin engine aircraft following the retirement of 7 x 747s and 4 x A332s by Q1 2022, with rescheduled delivery of outstanding A350s and A339s.
From 20 July Virgin Atlantic has restarted passenger flying. Virgin Atlantic and Virgin Atlantic Holidays continue to support global supply chains. While demand will be slow to recover, Virgin Atlantic says it will ensure its customers always feel confident to fly by continuing to prioritise the health, safety and security of its people and customers throughout their journey.
Sustainability remains central to the airline, and its simplified fleet will be 10% more efficient than it was pre-crisis.