Tuesday, 14 July 2020

Virgin Atlantic confirms restructuring plan to keep it flying.

The UK based airline Virgin Atlantic that's partly owned by U.S. carrier has released more details of a special major refinancing plan that will keep it flying in the wake of the global COVID-19 crisis. 

On Tuesday the airline published details for the private-only solvent recapitalisation of the airline after talks with the UK government over a bailout failed to achieve the £500+ million it had asked for. 

This new solvent recapitalisation plan for the airline and holiday business will see the company through the worst of the crisis and enable to carry on flying, albeit with a smaller fleet and less staff.  The bulk of the plan isn't exactly new money,  it is more of deferring debt owed to creditors (£450 million) deferring payments to shareholders - Delta & Virgin Group mainly (£400 million).  New investment from Virgin Group (£200 million - partly proceeds from a sale of stock in Virgin Galactic). New investment from Davidson Kempner Capital Management LP - an investment management firm (£170 million) 

The company says it also has the support of its credit card merchant service providers Lloyd’s Cardnet and First Data, which means it can carry on taking card payments and doesn't have to pay them any money yet. 

The whole recapitalisation is expected to be worth £1.2 billion over the next 18 months and is in addition to the other steps that the airline has already announced, including laying of 3500 staff,  ending operations at London Gatwick,  retiring its 747, A340, A330 aircraft and refinancing and altering the delivery of new aircraft. 

The company has retained its slots at Gatwick but is looking to lease and sell some of those as it moves forward with its new flying operations from Heathrow and Manchester.  The plan is for it to operate a fleet of  37 twin-engine aircraft but the spring of 2022. It is no secret, that from 20 July Virgin Atlantic will restart passenger flying, although during the grounding it has operated more than 1400 cargo flights. 

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.”

Some commentators have questioned why U.S. partner Delta had not taken a bigger step forward with Virgin,  recently Ed Bastion said "We're supporting them in doing everything we can, helping them through a restructuring, hopefully, to avoid an in-court process, and I'm still optimistic, cautiously optimistic that we'll be able to get there.".  The American carrier has also downrated its investment in Virgin resulting in a $200 charge.  

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