Northwest Arkansas Democrat-Gazette
$1.6B Virgin Atlantic restructure plan OK’d
LONDON — Virgin Atlantic’s $1.6 billion restructuring plan was approved Wednesday by the High Court in London, allowing the international airline to continue rebuilding its operations after the devastation caused by the coronavirus pandemic.
The deal, which has already been approved by creditors, must now be confirmed in the U.S. courts.
The airline announced the refinancing package in July to ensure its survival after passenger numbers dropped 98% in the second quarter. It includes $800 million of support from the airline’s owners, Virgin Group and Delta Airlines, $600 million of deferred payments to creditors and $227 million of
financing from U.S.-based Davidson Kempner Capital Management LP.
Virgin Atlantic, founded in 1984 by Richard Branson’s Virgin Group, has already cut 3,550 jobs, shuttered operations at London’s Gatwick Airport and announced plans to retire 11 aircraft as it seeks to weather the slowdown in air travel. The airline says it doesn’t expect passenger volume to return to pre-pandemic levels until 2023.
“Achieving this significant milestone puts Virgin Atlantic in a position to rebuild its balance sheet, restore customer confidence and welcome passengers back to the skies, safely, as soon as they are ready to travel,” the company said in a statement.
Delta invested $360 million in Virgin Atlantic in December 2012, acquiring a 49% stake in the airline. Virgin Group owns the remaining shares.
Virgin flies from London’s Heathrow Airport and Manchester to destinations in the U.S., China, India, Pakistan, South Africa, Nigeria, Israel and the Caribbean.
Branson’s Virgin empire has faced many challenges in its five-decade history, from highprofile legal clashes with British Airways and failed bids to run the U.K. national lottery to abortive forays into vodka, cola and bridal wear.
LAST-DITCH OPTION
The hard-won financing package emerged as the last, desperate option for saving the carrier after it became one of the few worldwide to be refused state support when Britain denied it access to the $440 billion Covid Corporate Financing Facility, a fund tapped by half a dozen airlines.
The deal comes at a cost to Branson, who injected almost $270 million of his own money into the company, raised through the sale of shares in Virgin Galactic Holdings Inc., the orbital tourism venture that had become his obsession in recent years.
“Branson has shown that he has a real attachment to Virgin Atlantic,” said Stephen Furlong, an airline analyst at Davy Stockbrokers in Dublin.
Virgin Atlantic’s challenge now will be to ride out the crisis with minimal cash burn as longhaul routes remain limited by border restrictions, while preserving flying rights at London Heathrow airport.
“They need to get through to next spring and hope that the traffic comes back,” said Nick Cunningham, an analyst at Agency Partners in London who has covered the aviation industry for 30 years. “It’s vital that they preserve cash, and that could mean more job cuts once furloughs end. But they also need to keep operations going and hang on to those slots.”
Branson, who turned 70 in July, was quick to highlight the threat to Virgin Group businesses posed by the virus, given their focus on travel and leisure, sectors that were effectively shut down as the pandemic gathered pace. “They are in a massive battle to survive,” he said in a March blog post. “This is the most significant crisis the world has experienced in my lifetime.”
SALE OF ASSETS
Not long after, Branson said he had little money on hand to fund struggling brands, arguing that he was asset rich but cash poor after extracting little “significant” profit from Virgin and plowing proceeds into new
businesses.
With the U.K. government demanding that Virgin Atlantic exhaust all options for private financing before it would consider any form of assistance, he had no choice but to weigh asset sales, while asking Shai Weiss, the carrier’s chief executive officer, to begin a search for outside funding.
The issue of aid for Virgin Atlantic also took on a political dimension. Branson’s residency in the British Virgin Islands, where residents pay no income or capital-gains tax, together with more than 3,000 job cuts at the airline, stirred hostility to any funding from the public purse.
Virgin Group says it and its brands pay all required taxes, while the carrier points to the quick agreement on redundancies with employees, in contrast to simmering disputes at rival operators including British Airways.
Virgin Atlantic was set to fold later this month without the rescue, Weiss had said, his warning given substance by the collapse of sister carrier Virgin Australia Holdings Ltd., which called in administrators in March.
During Virgin Atlantic’s inaugural flight to Tel Aviv last year, Branson described the carrier as his first love, and one for which his passion had been rekindled in recent years after Delta bought its 49% stake. Information for this article was contributed by staff members of The Associated Press and by Christopher Jasper and Ben Stupples of Bloomberg News.