After months of talking to creditors, it seems that Virgin Atlantic has reached a major milestone towards securing its future today, by announcing plans for a private-only recapitalisation of the airline.
The plan is based on a five-year business plan, with the support of Virgin Group, Delta Air Lines, new private investors and existing creditors to allow the airline to rebuild its balance sheet and return to profitability from 2022.
The recapitalisation will deliver a refinancing package worth £1.2bn over the next 18 months in addition to the self-help measures already taken, including cost savings of £280m per year and £880m delaying and financing of aircraft deliveries over the next five years.
So where is the money coming from?
- Shareholders are providing £600m in support over the life of The Plan including a £200m investment from Virgin Group, and the deferral of £400m of shareholder deferrals and waivers
- Virgin Atlantic welcomes new partner Davidson Kempner Capital Management LP, a global institutional investment management firm which is providing £170m of secured financing
- Creditors will support the airline with over £450m of deferrals
- The airline continues to have the support of credit card acquirers (Merchant Service Providers) Lloyd’s Cardnet and First Data.
The airline will need to secure approval from all relevant creditors before implementation. With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect late Summer 2020.
Actions the airline has taken leading up to the plan included taking up the UK Government’s Coronavirus Job Retention Scheme. This was combined with efforts to preserve cash and minimise costs. This helped – as flying activity dropped by 98% compared to last year. Capacity is further reduced to 60% (compared to 2019), with the airline predicting pre-crisis levels of flying unlikely to return until 2023. During Q2, the airline took to flying cargo flights, with 1,400 operated during April, May and June.
Meanwhile, during May, the airline parted ways with 3,500 staff and closed its London Gatwick base, preferring to consolidate at London Heathrow and Manchester Airport.
In terms of fleet, the airline has consolidated onto twin-engined jet flying, with the airline withdrawing its Boeing 747 fleet. It is also withdrawing its Airbus A330-200 fleet. This will leave it with the Airbus A330-300, Airbus A330-900neo (when delivered), Airbus A350-1000 and Boeing 787-9 Dreamliner.
Finally, to aid cash flow, deliveries of the outstanding Airbus A350-1000 and Airbus A330-900neo aircraft will be rescheduled.
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.”
With Virgin Atlantic in a position to move ahead after contracting, shedding both fleet and staff – and finally obtaining financial support from investors it needs to keep going with no thanks to COVID-19.
Is it enough to keep going in the longer term? That will depend on many things – least of all if borders continue to open and how COVID-19 continues to be managed by countries.
And of course – the will of the public to fly again.
The challenges will remain for now – and it will be up to Virgin Atlantic (as well as others) to meet that challenge.
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