Virgin Atlantic has announced that it is nearing completion of a privately-funded solvent recapitalisation programme, following the negative impacts of the Covid-19 pandemic on the operations of the airline and its holiday business. The court-backed process includes a restructuring plan that once approved and implemented, will help safeguard Virgin Atlantic as aviation moves towards recovery.
The restructuring scheme is based on a five-year business plan, and with the support of Virgin Group and Delta (Virgin Atlantic shareholders), new private investors and existing creditors, the aim is to enable the airline to rebuild its balance sheet and return to profitability from 2022. Virgin Atlantic has a new partner in Davidson Kempner Capital Management LP, a global institutional investment management firm, which is providing £170 million of secured financing.
Shareholders are providing £600 million of support over the life of the plan – officially titled the Restructuring Plan – including a £200 million investment from Virgin Group, and the deferral of approximately £400 million of shareholder deferrals and waivers.
Overall the recapitalisation will deliver a refinancing package worth around £1.2 billion over the next 18 months in addition to the self-help measures already taken, including cost savings of around £280 million per year and the rephasing and financing of aircraft deliveries over the next five years, worth £880 million. Creditors are also supporting the airline with more than £450 million of deferrals, while credit card acquirers (merchant service providers) Lloyd’s Cardnet and First Data are also supporting the plan.
The plan is in place, but Virgin Atlantic still needs to secure approval from all relevant creditors before implementation, so the restructuring plan will go through a court-sanctioned process under Part 26A of the Companies Act 2006 (the “Restructuring Plan”). With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect in late Summer 2020.
Actions before the Restructuring Plan
As Covid-19 led to restrictions in air travel, Virgin Atlantic began undertaking protective measures to help ensure the survival of the business. In March, the airline’s leadership team took voluntary pay cuts and since April, more than 80% of the workforce was furloughed under the UK Government’s Coronavirus Job Retention Scheme, supporting efforts to preserve cash and minimise costs.
In Q2, flying fell by 98% and in the second half of 2020, the airline expects that its capacity will grow, but still be around 60% of its 2019 figures, with pre-crisis levels of flying unlikely to return until 2023, according to its forecasts. With the suspension of passenger flying in April, the airline switched to a network of cargo-only flying, operating more than 1400 cargo flights in April, May and June.
In May, the airline decided to reshape and resize in order to emerge from the crisis sustainably profitable, including reducing staffing levels by 3,550 across all functions.
Having closed its London Gatwick base, while retaining a slot portfolio at the airport to protect opportunities for future growth, Virgin Atlantic’s leisure flying is now consolidated at London Heathrow and Manchester. By 2022 Virgin Atlantic will fly the same number of sectors as 2019 despite its smaller scale, demonstrating productivity and efficiency improvements. The airline will operate a streamlined fleet of 37 twin-engine aircraft following the retirement of seven Boeing 747s and four Airbus A332s by Q1 2022, with rescheduled delivery of outstanding A350s and A339s.
Returning to the skies
From 20 July Virgin Atlantic will restart passenger flying and has a vital role to play in supporting the UK economy as it recovers from the impact of the pandemic. Virgin Atlantic and Virgin Atlantic Holidays will continue to support global supply chains and flying customers. Sustainability remains central to the airline’s recovery plans, and its simplified fleet will be 10% more efficient than it was pre-crisis.
Shai Weiss, CEO of Virgin Atlantic commented, “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 recapitalisation 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.”