LONDON – Following the impact of the COVID-19 pandemic, Virgin Atlantic (VS) creditors voted on Tuesday for a recapitalization deal in London’s High Court.
The recapitalization deal would lead to a 20% reduction in the debt owed by the airline to trade creditors. The remainder of payments would also be staggered over a longer period of time than initially agreed.
The creditors, who range from media planners to lessors, will follow shareholders Delta Air Lines (DL) and asset manager Davidson Kempner, who signed on to the US$1.5bn rescue deal in July.
A Huge Relief for Virgin Atlantic
A VS spokesperson said that the airline had reached a “significant milestone in safeguarding its future” and added that the vote had secured the “overwhelming support of all four creditor classes.” This included 99% support from trade creditors who all voted in favor of the rescue deal.
The written submission to the High Court from early August shows that with creditor claims totaling around US$1.9bn, the airline faced insolvency. If the vote in the High Court had not been successful in its bid to save the airline, the airline was expected to have “run out of cash altogether” by late September.
Virgin Atlantic Reduced Operations
As a result of the COVID19 pandemic, drastic changes have been seen at the airline. So far, 3,550 jobs have been lost, reducing the company’s workforce by 30% from pre-pandemic levels.
There has been no comment from the airline on the likelihood of further job losses in the coming months. As well as the reduction in staff numbers, the airline has also notably closed its London Gatwick (LGW) base and fast-tracked the retirement of its aging Boeing 747 fleet.
Close to the End
Today’s High Court vote concluded an agonizing period for Branson following the grounding of the VS fleet at the start of the pandemic. Virgin Atlantic CEO, Shai Weiss, in May described this as the most “devastating” storm since the airline’s first flight 36 years prior.
An announcement on July 14 confirmed the details of the restructuring of the Virgin Group. Following the sales of US$500m of Virgin Galactic shares throughout May and June, Virgin welcomed new partner Davidson Kempner Capital Management LP.
This investment firm is providing US$233m of secured financing, plus US$587m of deferrals from creditors, US$522m of shareholder deferrals and waivers, and US$783m raised from existing shareholders, including Delta Air Lines (DL) (which owned 49% of Virgin Atlantic with the remaining 51% being controlled by the Virgin Group).
A Virgin insider in July described this period to Forbes as the end of a “three and a half month slog” to secure the future of the entire Virgin group.
In the London High Court, a barrister representing VS, Mr. David Allison QC explained in early August how close the airline came to disaster with bondholders allowed to intervene if the airline’s cash reserves fell below the US$75m mark. Mr. Allison cited the “real risk” that the intervention from bondholders would effectively “destroy” the airline.
It was added that the airline would likely hit that level in mid September and would “run out of cash altogether by September 28.”
End Of Uncertainty for Virgin Atlantic
Whilst today’s decision marks the end of the immediate uncertainty for Branson and the airline, the details will need to pass through a final court hearing in the UK on September 2 and a hearing in the US on September 3.
A spokesperson for the airline said, “We remain confident that the plan represents the best possible outcome for Virgin Atlantic and all its creditors and believe that the court will exercise its power to sanction the Restructuring Plan, at a hearing scheduled on September 2.”
It was also added that “A US Chapter 15 procedural hearing will follow on September 3, ensuring Virgin Atlantic’s Restructuring Plan is recognized in the US, paving the way for the US$1.577bn (GB£1.2bn) private only, solvent recapitalization of Virgin Atlantic.”
Featured Photo: Virgin Atlantic Airbus A330-223 G-VMIK departing Manchester. Photo: © Thomas Saunders.