Virgin Atlantic is “confident” in a £1.2bn ($1.6bn) rescue plan to tide the struggling airline through the coronavirus crisis, despite filing for protection under US bankruptcy law.
The company announced a restructuring plan last month to “keep Virgin Atlantic flying,” which would include £400m of deferrals and waivers by shareholders and at least £450m of deferrals by creditors. Past efforts to secure UK government bailout appear to have fallen on deaf ears.
It has said it has the backing of the majority of stakeholders, but secured a UK high court judge’s approval to bring together creditors to meet and vote on the plans on 25 August. The proposals could be made binding on all lenders, whether or not they vote for them.
David Allison, representing Virgin Atlantic, told the court in London on Tuesday (4 August) the group was currently projected to “run out of money altogether” by the first week of October, according to PA.
Without an injection of new cash, airline directors would have little choice but to put the company in administration to wind down the business and sell any assets, Allison said. “This would result in a poor outcome for the company’s creditors,” he added.
Meanwhile documents filed with a US bankruptcy court on Tuesday in New York show the company seeking protection from creditors in the US, using Chapter 15 provisions that allow US courts to recognise foreign restructuring plans.
"The word "bankruptcy" never looks great adjacent to an airline's name," said leading travel journalist Simon Calder. "Sir Richard Branson's carrier is in poor shape. But the US court filing is to protect the airline's American assets and has no direct implications for staff or passengers."
The airline continues to operate a limited schedule from London Heathrow as normal, with flights to New York, Los Angeles, Barbados and Hong Kong.
A spokesperson told Yahoo Finance UK: “With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect in September. We remain confident in the plan.”
Richard Branson’s Virgin Group would also plough another £200m into the business as part of what the airline calls its “solvent recapitalisation” plans. The company has said the proposals will help the airline rebuild its balance sheet and return to profitability by 2022.
The airline has said it has already made cost savings of around £280m a year and £880m in “rephasing and financing” of aircraft deliveries over the next five years.
It announced plans to slash more than 3,000 jobs in May, after failing in its bid to secure a UK government lifeline. It had previously warned it risked collapse without government support. Branson wanted a £500m ($624m) state rescue package involving commercial loans and guarantees.
“Prior to the Covid-19 pandemic, the group was not in any difficulty at all,” Allison also told the court, PA reports. “The problems that the group now faces are not of its own making but are the result of a global health disaster.”
It comes as Virgin Australia, which went into voluntary administration in April, also announced on Wednesday around a third of its workforce could be slashed as part of a sale to investment firm Bain Capital, according to Reuters.