Virgin Atlantic is in last-minute talks with its creditors in a bid to avoid collapse. The airline previously warned it would run out of money by the end of September if it didn’t receive a £1.2 billion ($1.6 bn) bailout package before then. The creditors will vote tomorrow on the package in the High Court.
Virgin could enter administration by mid-September
Virgin Atlantic is holding its breath for the outcome of a creditor vote tomorrow. The airline is facing a meeting at the High Court to find out whether its creditors approve a package valued at £1.2 bn ($1.6 bn) tomorrow.
The package includes creditors receiving only 80% of the money owed to them. They must also agree to be paid back in installments. Creditors range from aircraft lessors to media agencies and number more than 170 in total.
David Allison QC, for Virgin Atlantic, previously warned that the airline’s cash flow would drop to ‘critical levels’ by mid-September and that it would run out of money altogether by the end of the month if the bailout was not secured. He said that without an injection of money, the directors of Virgin Atlantic would have no choice but to place the airline in administration and sell off its assets.
The creditor meeting, scheduled for tomorrow, will be crunch time for the airline. With around 170 suppliers owed money by Virgin, the airline needs to secure positive support from as many as possible if it is to avoid a disastrous outcome.
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The deal could be forced through
The type of insolvency proceedings being used by Virgin Atlantic is a new scheme introduced with more flexibility than others. The airline is one of the first companies in the UK to make use of the scheme, which, unusually, allows the High Court judge to force the deal through regardless of the votes cast by the creditors.
If the deal is considered to be in the best interests of the majority of Virgin’s creditors, the judge could move to push through the plan to avoid it failing. While the airline has said it ‘remains confident’ that the vote outcome will be positive, this detail provides an additional lifeline, should things not go to plan.
Virgin’s recapitalization plan is complex and includes an investment of £170 million from US hedge fund Davidson Kempner Capital Management. Creditors will be asked to agree to around £450 million in deferred payments, while cost savings of £280 million a year will be sought.
The airline is also targeting a saving over five years of £880 million through rephasing aircraft deliveries. This could mean that its A330neos will not arrive as planned, and other aircraft on order are also pushed back.
Virgin Atlantic was one of the first UK airlines to seek a bailout as a result of the pandemic, appealing to the UK government for support in April. However, the application was rejected on the basis that the airline should seek investment elsewhere first.
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