Virgin Atlantic agrees £1.2bn coronavirus rescue deal

US hedge fund Davidson Kempner Capital Management will pump in £170m in cash, with founder Richard Branson putting in £200m after selling shares in his space travel company 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 will deliver a refinancing package over the next 18 months in addition to cost savings of £280m per year and £880m rephasing and financing of aircraft deliveries over the next five years, Virgin said.

"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," said chief executive Shai Weiss.

A rescue would safeguard thousands of jobs at the carrier, which has been teetering on the edge of administration after the UK government refused to bailout the industry after fleets around the world were grounded by the coronavirus crisis. The airline was burning through millions of pounds monthly in order to stay afloat.

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. Weiss on Tuesday admitted the airline had to win back consumer trust.

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.

Virgin Atlantic has restructured operations in an effort to stem the flow of cash from the business, including cutting 3,150 jobs - almost a third of its workforce - and ending flights from London's Gatwick Airport.

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 it sought in April.

"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," Virgin said.

"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."

“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," he said.