Virgin Atlantic negotiates a private-only solvent recapitalisation of the airline, as the coronavirus pandemic continues to ravage the airline sector.
Virgin says the ‘Solvent Recapitalisation’ of the group is a “big step forward in securing its future”. The court-backed process for the airline and holiday business, provides the group with a Restructuring Plan that once approved and implemented, “will keep Virgin Atlantic flying”, it says.
The Restructuring Plan is based on a five year business plan, and with the support of shareholders Virgin Group and Delta, new private investors and existing creditors, paves the way for the airline to rebuild its balance sheet and return to profitability from 2022.
With the suspension of passenger flying in April, the airline delivered a network of cargo-only flying, operating more than 1,400 cargo flights in April, May and June.”
The recapitalisation will deliver a refinancing package worth GBP 1.2 billion (EUR 1.34 billion) over the next 18 months in addition to the self-help measures already taken, including cost savings of nearly GBP 280 million per year and GBP 880 million re-phasing and financing of aircraft deliveries over the next five years. The package includes:
- Shareholders are providing GBP 600 million in support over the life of The Plan including a GBP 200 million investment from Virgin Group, and the deferral of GBP 400 million of shareholder deferrals and waivers;
- GBP 170 million of secured financing from new partner Davidson Kempner Capital Management, a global institutional investment management firm;
- Creditors will support the airline with GBP 450 million of deferrals;
- The airline continues to have the support of credit card acquirers (Merchant Service Providers) Lloyd’s Cardnet and First Data.
To secure approval from all relevant creditors before implementation, the Restructuring Plan will go through a court-sanctioned process under Part 26A of the Companies Act 2006 (the “Restructuring Plan”). 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.
“Decisive action underpins the Restructuring Plan,” Virgin says. “Global aviation was one of the first industries impacted by the Covid-19 pandemic and will be one of the last to fully recover,.”
The airline notes it took early action to ensure its survival. In March, the Leadership Team took voluntary pay cuts and since April, more than 80 per cent of the workforce has benefitted from the UK Government’s Coronavirus Job Retention Scheme, supporting efforts to preserve cash and minimise costs.
In Q2, flying contracted by 98 per cent and in the second half of 2020, capacity is expected to be nearly 60 per cent of the same period in 2019, with pre-crisis levels of flying unlikely to return until 2023.
With the suspension of passenger flying in April, the airline delivered a network of cargo-only flying, operating more than 1,400 cargo flights in April, May and June.
In May, Virgin says it made the difficult decision to reshape and resize in order to emerge from the crisis sustainably profitable, which included the reduction of staffing by 3,550 across all functions.
Having closed its London Gatwick base, while retaining a slot portfolio at the airport to protect opportunities for future growth, leisure flying is now consolidated at London Heathrow and Manchester.
By 2022 Virgin Atlantic will fly the same number of sectors as 2019 despite its smaller scale, demonstrating productivity and efficiency improvements, it says. The airline will operate a streamlined fleet of 37 twin engine aircraft following the retirement of seven B747s and four A330-200s by Q1 2022, with rescheduled delivery of outstanding A350s and A330-900s.
From 20 July Virgin Atlantic will restart passenger flying as countries slowly open up again. “Virgin Atlantic and Virgin Atlantic Holidays will continue to support global supply chains and flying customers safely to the places they love to travel,” it says.
Shai Weiss, CEO, Virgin Atlantic says: “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.
“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.”