Virgin Atlantic launches recapitalisation plan

Wednesday, July 15, 2020

Virgin Atlantic recently announced that it has decided to undertake a recapitalisation plan in order to step towards a secure future. The five-year business plan has been planned with the support from shareholders of Virgin Group and Delta as well as new private investors and existing creditors. It is likely to pave the way for the airline to rebuild its balance sheet. The carrier said that it hopes to return to profitability from 2022 and mentioned that the move was necessary following the severe impact of the COVID-19 pandemic on global economy.

The recapitalisation will deliver a refinancing package worth £1.2 billion over the next 18 months. In addition, it will have certain self-help measures that have already been undertaken, including cost savings of £280 million per year and £880 million re-phasing and financing of aircraft deliveries over the next five years. Shareholders are also providing £600 million in support, including a £200 million investment from Virgin Group, and the deferral of £400 million of shareholder deferrals and waivers.

The plan will undergo a court-sanctioned process under Part 26A of the Companies Act 2006 to secure approval from all relevant creditors before implementation. Given that it has already received necessary support from majority of stakeholders, it can be expected that the restructuring plan and recapitalisation will come into effect in late summer. Davidson Kempner Capital Management, a global institutional investment management firm, is also providing £170 million of secured financing as part of the deal.

Virgin Atlantic has already closed its London Gatwick base and retained a slot portfolio at the airport to protect opportunities for future growth. However, leisure flying from Virgin Atlantic is now consolidated at London Heathrow and Manchester. The airline will operate a streamlined fleet of 37 twin engine aircraft following the retirement of seven Boeing 747s and four Airbus A332s by quarter one of 2022. The carrier is also hoping to fly the same number of sectors as 2019 despite its smaller scale by that year. At present, it is rebuilding its route network ahead of the commercial operations that is set to resume next week.

Shai Weiss, Chief Executive, Virgin Atlantic said in a statement that that scale of the coronavirus crisis was unpredictable. He mentioned that the last six months have undoubtedly been the toughest that company has faced in its 36-year history. He shared that though painful measures have been undertaken, the carrier has somewhat achieved what many thought impossible. He informed that the solvent recapitalisation of Virgin Atlantic will ensure that the carrier can continue to provide vital connectivity and competition to consumers and businesses in Britain and beyond. He also greatly appreciated the support of shareholders, creditors and new private investors and mentioned that everyone will come together to ensure that Virgin Atlantic can emerge as a sustainably profitable airline, with a healthy balance sheet.

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