UK long-haul airline Virgin Atlantic has today announced that it has firmed up the final details of its recapitalization plan. The privately secured bailout is worth around £1.2bn ($1.5bn) in total and includes cash injections, commercial loans, efficiency savings, and payment deferrals. It is accompanied by a five-year restructuring plan, which will see it become a smaller yet more efficient airline long term.
Details of the recapitalization plan
Virgin Atlantic’s future looks a whole lot rosier today as the airline has announced the firming up of its recapitalization package. With no help forthcoming from the UK government, Virgin set about raising its own bailout package, seeking investment and recapitalization from private markets only.
Today, it has launched a court backed process of both the airline and its sister business, Virgin Holidays. This is accompanied by a restructuring plan which the airline says will be sure to keep Virgin flying long term once approved and implemented.
The recapitalization plan is a mix of savings, rephasing, and financing of aircraft and secured financing. Specifically, the airline says this encompasses a £200m ($250m) investment from Virgin Group and £400m ($500m) of shareholder deferrals and waivers.
Further support is from creditors, who have allowed the airline over £450m of deferrals, while Davidson Kempner Capital Management LP, a global institutional investment management firm, is providing £170m ($213m) of secured financing. Self-help measures, the airline says, will save it approximately £280m ($380m) per year.
Restoration of network by 2022
Despite the challenges posed by COVID-19, the airline is confident in the future of its operations. It says that, by 2022, it will operate all the segments it flew in 2019, despite its smaller scale.
It says these are a product of its efficiency improvements, which will see if refocusing operations and fleet diversity. Gatwick operations have closed, so now the airline will focus only on Heathrow and Manchester for its leisure flights.
Having maintained a highly diverse fleet historically, Virgin is looking to a smaller, simpler fleet in the future. By 2022, it will operate only 37 twin engine aircraft, with the remaining four A330-200s phased out by Q1 that year.
Vital connectivity and competition
The news of the firming up of this bailout package will come as a welcome relief to Virgin employees and frequent fliers alike. The airline is clear that the COVID crisis has not dulled its ambitions to be Britain’s second flag carrier, and to provide heathy competition to the incumbent airlines around the world. CEO Shai Weiss commented in a statement,
“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 recapitalization 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.
“Once our plan is approved, we will continue to focus on providing our customers with the service they have come to expect. Despite the incredible efforts of our teams, through cancelled flights and delayed refunds we have not lived up to the high standards we set ourselves, but we will do everything in our power to earn back their trust.
“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.”
Virgin is planning a return to the skies from July 20th, as passenger flights restart. Both Virgin Atlantic and their partner business Virgin Atlantic Holidays see a vital role for themselves in stimulating the recovery of the tourism industry.
This restart will be as a leaner, more efficient airline. Virgin’s retirement of a number of older and less efficient aircraft, most notably its fleet of iconic Boeing 747s, mans it will come back slightly smaller, with a simplified fleet that is 10% more efficient than the pre-crisis line up.
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