Virgin Atlantic has announced the completion of the £1.2bn private-only solvent recapitalisation of the airline and holiday business. Its Restructuring Plan has now been sanctioned by the English High Court under Part 26A of the UK Companies Act 2006, and formally recognised in the US court. This final step in the legal process paves the way for the Company to continue its efforts to emerge from the Covid-19 crisis a sustainably profitable airline.

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. However, the devastating impact of Covid-19 on global aviation continues unabated and the airline must take further steps to ensure survival.

The solvent recapitalisation is a major step forward in securing the future of Virgin Atlantic

Now the Restructuring Plan has been formally sanctioned by the UK court and given full force and effect in the US, the airline will implement its Restructuring Plan with the support of Virgin Group and Delta, existing creditors and new private investors, keeping Virgin Atlantic flying and providing essential competition and connectivity to customers.

• The Plan delivers a refinancing package worth c.£1.2bn over the next 18 months in addition to the self-help measures already taken: £280m in cost savings per year, £880m reduction in fleet capex in the next five years.
• Shareholders Virgin Group and Delta are providing c.£600m in support over the life of the plan, including a £200m investment from Virgin Group and the deferral of c.£400m of shareholder payments such as brand fees and Joint Venture related costs.
• The airline continues to have the support of credit card acquirers (Merchant Service Providers) Lloyd’s Cardnet, First Data and American Express.
• Davidson Kempner Capital Management, a global institutional investment management firm, is providing £170m of secured financing and the airline’s largest creditors and suppliers are contributing an additional £450m by way of deferrals

Testing to relax travel restrictions and remove quarantine is vital

The outlook for transatlantic flying, which is core to Virgin Atlantic’s business, remains uncertain with US-UK travel curtailed. Until travel returns in greater numbers, survival is predicated on reducing costs further and continuing to preserve cash. On the back of the continued success of Virgin Atlantic Cargo operations, the restart of skeleton passenger operations - with flights to New York JFK, Los Angeles, Hong Kong, Barbados, Shanghai, Miami and Delhi so far and Tel Aviv restarting on Sunday - has been an important achievement.  While performance has been encouraging, it is imperative that every sector the airline operates is cash positive.

Transatlantic flying represents 70% of Virgin Atlantic’s network. Since 16 March it has not been possible for many British nationals to enter the US upon arrival from the UK, Ireland and the Schengen Area. Since June, travellers arriving in the U.K. from the US have been subject to 14 days quarantine. The US border closure and UK quarantine measures have been in place for far longer than originally anticipated. As the airline increases passenger operations, the opening of US borders and removal of quarantine is imperative to recovery. These travel restrictions impact on Virgin Atlantic disproportionally given its long-haul operations focussed on the transatlantic. The airline is calling for both UK and US governments to introduce robust passenger testing regimes to lift travel restrictions whilst protecting public health.

Based on current outlook, the airline is planning to a scenario in which transatlantic flying from the UK does not extend beyond current skeleton operations until the beginning of 2021. In this scenario, capacity operated across its network in Q4 2020 would be c.25% of 2019, and revenues in 2021 could be only 50% of 2019 levels.

The devastating impact of Covid-19 on global aviation continues unabated and further steps must be taken to ensure survival

The last six months have been the most challenging in Virgin Atlantic’s history. Even in the toughest times, the people of Virgin Atlantic are what sets it apart and they have made tremendous sacrifices. Unfortunately, despite actions already taken to reshape and resize the business, regrettably the airline must go further one last time with changes at scale, to ensure it emerges from this crisis.

• Today it is announcing further downsizing across the business, with a planned reduction of 1,150 jobs across all functions. Working closely with unions Unite and BALPA, a company-wide consultation period of 45 days begins today.
• To mitigate as many cabin crew redundancies as possible, additionally, the airline is introducing a voluntary, Company-led and financed furlough scheme for an additional 600 crew when HM Government’s Coronavirus Job Retention Scheme ends at the end of October. Should HM Government extend its Scheme, the airline intends to continue to benefit from it.

Shai Weiss, CEO, Virgin Atlantic commented:

“Together, we have achieved what many thought impossible and that is down to the efforts and sacrifices of so many across the Company. The completion of the private-only, solvent recapitalisation of Virgin Atlantic removes much of the uncertainty we faced and represents a major step forward in our fight for survival. We greatly appreciate the support of our shareholders, creditors and new private investors and together, we will ensure that the airline continues to provide vital connectivity and competition.

“Now we must focus our efforts on securing our long-term future, by ensuring that Virgin Atlantic not only survives but thrives as passenger demand returns. It’s clear that the introduction of passenger testing is the only way to enable the removal of travel restrictions and open up flying to key markets, while protecting public health. We will continue to work with our industry partners to press for urgent government action.

“After the sacrifices so many of our people have made, further reducing the number of people we employ is heart-breaking but essential for survival. I truly hope that as demand returns, we will see many members of our team returning to us. The unique spirit of our people, the passion we have for our customers and each other, and the drive to do things better has been tested but not broken. There will be a recovery, the timing and speed of which is uncertain. When our customers return to the skies we will be there to welcome them onboard with belief in our future. It is then that we will appreciate that everything we have done, painful to so many, was worth it.”