Virgin Atlantic said it has passed a “significant milestone” in securing the airline’s future, after a group of creditors voted overwhelmingly to back a £1.2bn rescue deal following the coronavirus crisis.
Ninety-nine per cent of the almost 200 trade creditors, each of whom is owed more than £50,000 by the airline, voted on Tuesday to approve the deal at a hearing at the high court in London. Virgin Atlantic needed to gain support equivalent to 75% of the overall outstanding value of money owed.
The airline had warned it could run out of cash next month if the rescue deal was not approved, after its finances were hit along with other airlines by the collapse in air travel during the Covid-19 pandemic.
Virgin Atlantic, which is 51%-owned by Sir Richard Branson’s Virgin Group and 49% by the US airline Delta, has taken drastic action to conserve cash after grounding its passenger planes for four months, as traffic plummeted on its long-haul routes.
The airline has closed its base at Gatwick airport and is cutting more than 3,500 jobs – about a third of its workforce – as it grapples with the fallout from Covid-19. It has also reduced the size of its fleet, including retiring some of its Boeing 747s, and has pushed back orders for new planes.
Under the terms of the rescue deal, each creditor will receive only 80% of the money owed by Virgin Atlantic, to be paid in instalments. The alternative, the airline had warned, was to risk all with a potential collapse into administration if creditors did not back the deal.
Virgin’s biggest creditors – the banks lending it money, its shareholders, and the aircraft leasing firms – had already agreed to the deal, when the airline unveiled its privately funded recapitalisation last month, after its attempts to win UK state support were unsuccessful. The plan is designed to help it survive another 18 months of travel turmoil, with a return to profit in 2022.
Branson is injecting £200m of his own money as part of the rescue, which was raised through selling off a stake in the space division Virgin Galactic.
The airline said it was confident that a further UK court hearing to take place on 2 September would give final approval to the plan, to be rubber-stamped at a procedural hearing that will take place in the US the following day.
A spokesperson for the the airline said: “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 carrier resumed passenger flights from Heathrow in late July, and is flying 14 return flights a week to six destinations: Hong Kong, Shanghai, Barbados, New York, Los Angeles and Miami.
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.
It has been partly sustained through the crisis by launching cargo-only flights in March, including filling passenger cabins with goods, including medical equipment. It has expanded its cargo operations, flying more than 150 flights a week on average.
Virgin’s request for state funding from the UK government earlier in the coronavirus crisis was rebuffed, even though its competitors such as British Airways and easyJet obtained loans worth hundreds of millions of pounds from the Bank of England to help tide them over.
