Following a U.S. district court’s recognition on Thursday of the English High Court’s sanctioning of a financial restructuring plan at Virgin Atlantic, the UK airline has completed its private-only solvent recapitalization. The final step in the legal process effectively rescues the company from collapse and allows it to continue its efforts to emerge from the Covid-19 crisis, Virgin Atlantic said on Friday.
Separately, the airline on Friday announced another major job cut affecting 1,150 employees across all functions. A 45-day companywide consultation period with trade unions United and BALPA began on the same day. In an effort to reduce the number of involuntary layoffs, the airline plans to introduce a voluntary furlough scheme for another 600 crewmembers when the UK government’s Coronavirus Job Retention Scheme expires at the end of October.
Announced on July 14, the restructuring hinges on a new five-year business plan endorsed by Virgin Group and 49-percent shareholder Delta Air Lines, along with new private investors and the existing creditors. All four classes of creditors—consisting of the company’s revolving credit facility, aircraft lessors, shareholders, and trade creditors—approved the plan on August 25.
The recapitalization centers on a refinancing package worth £1.2 billion ($1.59 billion) over the next 18 months and “self-help” measures already taken, including cost savings of £280 million per year and an £880 million re-phasing and financing of aircraft deliveries over the next five years.
Shareholders have committed to providing £600 million of support over the life of the plan, including a £200 million investment from Virgin Group and the £400 million worth of shareholder deferrals and waivers. Meanwhile, new partner Davidson Kempner Capital Management, a global institutional investment management firm, has committed to £170 million of secured financing.
In a statement, Virgin Atlantic noted that its core business, namely transatlantic flying, remains curtailed and that until travel returns in greater numbers, survival will depend on further reducing costs and preserving cash. Transatlantic flying accounts for 70 percent of Virgin Atlantic’s network. On the back of its cargo operations, the airline has restarted skeleton passenger service to New York JFK, Los Angeles, Hong Kong, Barbados, Shanghai, Miami, and Delhi. Plans call for service to Tel Aviv to start on September 6.
Meanwhile, U.S. border closings and 14-day quarantine requirements by the UK for travelers from the U.S. continue to suppress the airline’s recovery. “The U.S. border closure and UK quarantine measures have been in place for far longer than originally anticipated,” said Virgin Atlantic in a statement. “As the airline increases passenger operations, the opening of U.S. borders and removal of quarantine is imperative to recovery. These travel restrictions impact Virgin Atlantic disproportionally given its long-haul operations focused on the transatlantic. The airline is calling for both UK and U.S. governments to introduce robust passenger testing regimes to lift travel restrictions whilst protecting public health.”