Virgin Atlantic has secured a £1.2bn bailout deal after securing the backing of key financial stakeholders and investors.
As part of the refinancing package, Sir Richard Branson’s Virgin Group, which owns 51 per cent of the airline will inject £200m in cash raised from the sale of shares in Virgin Galactic. US hedge fund Davidson Kempner Capital Management, will lend the company £170m. The five year deal would remove the risk of Virgin Atlantic collapsing into administration and will enable the carrier to return to profitability in 2022.
Virgin Atlantic’s two shareholders, Virgin Group and Delta Air Lines, are among the creditors who are collectively deferring approximately £400m of payments. A further £200m in cost savings is expected to be generated under a plan drawn up by the airline’s chief executive Shai Weiss.
Branson to retain controlling stake
Sir Richard Branson, who launched the airline in 1984, will retain a controlling stake in the business following the restructuring. Branson had previously called for UK taxpayer support for the ailing airline but chancellor Rishi Sunak, said state aid would be available to airlines “only as a last resort” and only after carrier had exhausted existing government support schemes and sought investment from existing shareholders.
Virgin Atlantic has already announced multi-million pound cost cutting measures including the loss of 3,150 jobs – almost a third of its workforce – and ceasing flights from London’s Gatwick Airport. Future UK flights will be concentrated at Heathrow and Manchester. Thousands of staff have been furloughed and the airline’s top executives have agreed to substantial pay cuts.
Passenger flights expected to resume on July 20
The company is expected to resume passenger flights on July 20 to destinations including Hong Kong, Los Angeles and New York, although Delta has warned that demand for international travel is likely to lag domestic US aviation by a year. Virgin Atlantic is anticipating that customer demand will be at least 40 per cent lower during 2020, with only a gradual recovery next year, reinforcing its desire to seek substantially more than its initial funding requirement of about £500m.
A spokeswoman for the airline described the package as a “comprehensive, solvent recapitalisation” of the airline. The airline is now expected to seek approval from the airline’s creditors using a new court-sanctioned process introduced by the government to enable smoother corporate restructuring during the coronavirus pandemic.