Virgin Atlantic Retains Advisers Amid Insolvency Risk

UK carrier Virgin Atlantic continues to look for ways to keep itself alive amid the drastic downturn in passenger traffic. Beyond seeking government assistance and searching for investors, it appears to have recently retained the services of a professional firm to prepare for a possible insolvency process.

Virgin atlantic livery
Virgin Atlantic has had difficulties securing government assistance. Photo: Getty Images

Exploring all options

According to Sky News, Virgin Atlantic continues to explore its options to obtain additional funding. However, it was recently discovered that the airline has retained the services of Alvarez & Marsal (A&M), a restructuring specialist, earlier this week. The consulting firm has been requested to prepare contingency plans for an insolvency process.

Sources report that A&M’s work would be focused on possibilities for a “pre-pack administration”. According to Company Rescue, this is where a company “arranges a deal to sell its assets to a buyer before appointing administrators to facilitate the sale”. Should the airline need to go this route, it would hopefully lead to a restructured and financially viable carrier emerging from this global pandemic.

Sky News notes that a pre-pack deal would “wipe out the equity” of existing shareholders, meaning Virgin Group’s 51% and Delta Air Lines‘ 49% ownership of the airline will have vanished.

Virgin Atlantic, Boeing 747, Retirement
Virgin Atlantic is retiring its fleet of Boeing 747 aircraft. Photo: Getty Images

A sign of the severe situation

While retaining A&M’s services doesn’t guarantee that pre-pack administration is guaranteed, it does highlight the seriousness of the airline’s financial situation. Aviation experts note that it may also reflect the legal obligation of Virgin Atlantic’s directors to prepare for such an outcome.

The airline has already had to take a few strict measures to slow its cash burn. This includes the following actions:

Virgin Group, Richard Branson, Cash Injection
Virgin boss Richard Branson is considering the sale of his stake in Virgin Galactic. Photo: Getty Images

Virgin Atlantic’s board continues to discuss options with the UK government and private investors in the hopes of securing new capital. One notable group involved is Houlihan Lokey, which is an investment bank advising the airline on the process. The global investment bank is said to be in ongoing talks with up to a dozen parties, including Apollo Global Management, Centerbridge and Cerberus Capital Management.

Comments from the airline

Responding to inquiries on the subject, a Virgin Atlantic spokesperson said the following:

“Because of significant costs to our business caused by unprecedented market conditions which the COVID-19 crisis has brought with it, we are exploring all available options to obtain additional external funding…Discussions with a number of stakeholders continue and are constructive, meanwhile the airline remains in a stable position.”

The airline adds that it is committed to continuing the provision of essential connectivity on competitive terms to consumers and businesses in Britain and beyond, once it emerges from this crisis.

What do you think will happen to Virgin Atlantic? Will we see the government step in? Or is it headed towards administration? Let us know in the comments.