***Update on 08/04/2020 @ 21:36 UTC – Inserted second statement from Virgin Atlantic***
Breaking news today as Virgin Atlantic has filed for Chapter 15 bankruptcy protection in the United States. The airline has made this step as it undergoes its private recapitalization plan in the UK.
Virgin Atlantic files for bankruptcy protection
Reuters reports that Virgin Atlantic filed under Chapter 15 of the US Bankruptcy Code in the southern district of New York on August 4th. Chapter 15 bankruptcy is for bankruptcy cases in which debtors, assets, and parties of interest are spread across multiple countries. Generally, the case is ancillary to proceedings in another country– in this case, the United Kingdom.
Regarding the filing, a Virgin Atlantic spokesperson told Simple Flying the following:
“Virgin Atlantic attended court today as part of a solvent recapitalisation process under 26(A) of the UK Companies Act 2006. That process is proceeding with the support of the majority of our creditors. Following the UK hearing held earlier today, ancillary proceedings in support of the solvent recapitalisation were also filed in the US under their Chapter 15 process. These ancillary US proceedings have been commenced under provisions that allow US courts to recognise foreign restructuring processes. In the case of Virgin Atlantic, the process we have asked to be recognised is a solvent restructuring of an English company under Part 26A of the English Companies Act 2006.”
The filing comes after the airline spent a few months operating no passenger operations. It was only on July 20th that Virgin Atlantic resumed passenger flights. Like many other airlines around the world, Virgin Atlantic suffered from the ongoing crisis.
Virgin Atlantic had substantial exposure to the key segments of the industry that the crisis has severely impacted. First, the carrier only operates international widebody routes. These routes were hit by border closures and evaporating demand that severely impacted Virgin’s financial state.
On Tuesday, August 4th, Virgin Atlantic told a London court that it was at risk of running out of cash next month unless its July rescue package is approved, according to a report in the Sydney Morning Herald. Without the cash necessary to pay for bondholder contracts, Virgin Atlantic would have to sell coveted Heathrow slots, which the airline says would force it to fold.
Earlier this year, Virgin Atlantic’s sister carrier, Virgin Australia, also filed for Chapter 15 bankruptcy in the US. This came after the airline entered voluntary administration in Australia.
Virgin Atlantic’s recapitalization plan
Back in July, Virgin Atlantic announced a recapitalization plan. The five-year business plan would see the airline rebuild its balance sheet and targeted a return to profitability from 2022. On the progress of that plan, a Virgin Atlantic spokesperson provided Simple Flying with the following statement:
“In order to progress the private-only solvent recapitalisation of the airline, the Restructuring Plan is going through a court-sanctioned process under Part 26A of the Companies Act 2006, to secure approval from all relevant creditors before implementation. 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.”
Virgin Atlantic is owned 49% by Atlanta-based Delta Air Lines. Delta has been supporting Virgin Atlantic’s process. In Delta’s second quarter earning’s call, CEO Ed Bastian stated that Delta was deferring brand fees and other joint venture fees that Virgin Atlantic would owe. Delta is optimistic about the future.
What comes next?
Virgin Atlantic has not officially filed for bankruptcy under the US code like Avianca, LATAM, and Aeromexico have. Instead, it is seeking protection from creditors. The airline is working on its recapitalization plan with creditor meetings later this month. If, for some reason, the plan does not go through, then Virgin Atlantic could be looking at a very different outcome.
What do you make of Virgin Atlantic’s filing? Let us know in the comments!