Virgin Atlantic creditors approve £1.2bn rescue deal

Virgin Atlantic was thrown a lifeline on Tuesday after creditors backed a £1.2bn rescue deal to help it through the Covid-19 crisis.

The company said 99% of trade creditors, each of whom is owed more than £50,000 by the airline, approved the deal at a High Court hearing in London, easily surpassing the 75% threshold of total money owed.

Each creditor will receive 80% of the money owed by Virgin Atlantic which will be paid in instalments. Another UK court hearing will take place on September 2 to approve the plan, and a procedural hearing will take place in the US a day later.

“Today, Virgin Atlantic has reached a significant milestone in safeguarding its future, securing the overwhelming support of all four creditor classes, including 99% support from trade creditors who voted in favour of the plan,” the company said in a statement.

Having been refused a government bailout, the airline was forced to turn to private investors and draw up a recapitalisation plan to give it a buffer for the next 18 months as the industry consolidates after the turbulence caused by the coronavirus pandemic.

The carrier, which has burned through cash reserves as passenger travel collapsed in the wake of the Covid-19 crisis and resultant lockdowns, had warned it could collapse into administration if creditors did not support the deal.

Under the deal, US hedge fund Davidson Kempner Capital Management will pump in between £170m in fresh cash, with founder Richard Branson putting in £200m of his own money, raised through selling off a stake in the space division Virgin Galactic.

There would also be £450m in debt relief from co-owners Delta Air Lines and Branson’s Virgin Group, along with jet-leasing firms, granting concessions on payment terms.

The recapitalisation is in addition to cost savings of £280m per year and £880m re-phasing and financing of aircraft deliveries over the next five years, Virgin said.

Virgin Atlantic is 51%-owned by Virgin Group and 49% by Delta. The pandemic has seen it close its base at London’s Gatwick airport, cut more than 3,500 jobs and retire seven Boeing 747 jumbo jets.

The carrier resumed passenger flights from London’s Heathrow in late July, and is currently flying 14 return flights a week to six destinations: Hong Kong, Shanghai and Barbados, as well as New York, Los Angeles and Miami in the US.

It anticipates customer demand will be at least 40% lower during 2020, with only a gradual recovery next year, meaning it had to increase its funding target well above the £500m originally sought in April.

Virgin intends to restart flights to more destinations, including Lagos, Tel Aviv, Delhi and Mumbai, in the autumn, but expects to reach only 60% of 2019 flight capacity by the end of the year.

The airline has come under severe criticism for holding on to payments from customers and trying to issue vouchers instead of refunds for flights - which is illegal under UK law.

UK Finance Minister Rishi Sunak in April said state aid would be available to airlines "only as a last resort" and after the support of existing government schemes and companies' existing shareholders had been pursued.

"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 seven 747s and four A332s by the first quarter of 2022, with rescheduled delivery of outstanding A350s and A339s," chief executive Shai Weiss said last month.

“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," Weiss said.