Embattled Virgin Atlantic is in a race for survival as it urgently seeks up to £900m in funding. The airline wants to tie down funding by early July. As the ongoing travel downturn bites, Virgin Atlantic is flirting with collapse and has administrators lined up, should this happen.
Virgin Atlantic urgently seeks up to £900m in funding
Multiple news reports say Virgin Atlantic is pursuing a privately funded rescue deal. According to The Guardian, the airline is attempting to borrow £250m from hedge funds and secure a further £200m from its shareholders.
In the event that funding is not forthcoming, Virgin Atlantic may enter into administration. The airline has appointed Alvarez and Marshall as potential administrators.
Notable shareholders of Virgin Atlantic include Richard Branson and Delta Air Lines. The long-haul airline is expecting to take years to recover from the travel downturn. Virgin Atlantic’s CEO, Shai Weiss, is reported to have been chasing funding over the weekend. Discussions with some 60 parties were ongoing.
In addition, the airline is talking to suppliers and aircraft lessors about deferring payments worth hundreds of millions of pounds. A significant part of any deal would involve deferring payments to help prop up an already battered balance sheet.
Two key hedge funds involved in talks include Davidson Kempner Capital Management and Elliott. At this stage, Elliot appears to be the front runner. Elliot’s offer is believed to be underwritten by Greybull Capital. Greyball formerly owned Monarch Airlines.
In a statement, Virgin Atlantic said;
“We continue to explore all available options to secure additional external funding as part of a comprehensive, solvent recapitalization of the airline.”
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Bonding arrangements and bondholders complicate bid for funding
Virgin Atlantic’s ATOL bonding arrangements have complicated the situation. ATOL (which stands for Air Travel Organiser’s Licence) is a UK financial protection scheme that protects future flight bookings not yet ticketed. Virgin Atlantic is believed to have approached the UK’s Civil Aviation Authority to wind back requirements temporarily.
Also, any deal would need the approval of bondholders who lent Virgin Atlantic £220m in 2015, secured against slots at Heathrow.
The UK Government remains on the sidelines. While it has not ruled out emergency funding, the government views itself as a lender of last resort. Virgin Atlantic would need to unsuccessfully explore all other possible avenues of funding before the government considered stepping up.
In April, Virgin Atlantic approached the UK Government for a £500m package of commercial loans. The government declined assistance at the time.
“As per the chancellor’s letter of 24 March, [the] government is considered as a lender of last resort, and rightly so. We have already made difficult decisions and taken decisive action to reduce our costs, preserve cash and protect as many jobs as possible,” said Virgin Atlantic.
A torrid year for Virgin Atlantic
The race to secure funding caps a torrid year for Virgin Atlantic. As a long-haul international airline, the travel downturn and border closures has hit Virgin Atlantic hard. In the last financial year, the airline lost over £26m. The outlook for this financial year is much bleaker.
Additionally, Virgin Atlantic has closed its Gatwick base and sacked around one-third of its workforce. It is cutting the size of its fleet and retiring its iconic Boeing 747s. The airline expects demand to remain significantly down throughout 2020. Further, demand will be slow to return to 2019 levels.