Virgin Atlantic has reached a major milestone towards securing its future by announcing plans for a private-only solvent recapitalisation of the airline following the severe impact of the COVID-19 pandemic.
Virgin Atlantic has launched its restructuring plan that, once approved, will keep Virgin Atlantic flying.
The Restructuring Plan is based on a five year business plan, and with the support of shareholders Virgin Group and Delta, new private investors and existing creditors, it paves the way for the airline to rebuild its balance sheet and return to profitability from 2022.
The recapitalisation will deliver a refinancing package worth c.£1.2bn over the next 18 months in addition to the self-help measures already taken:
- Cost savings of c.£280m per year and c.£880m rephasing and financing of aircraft deliveries over the next five years.
- Shareholders are providing c.£600m in support over the life of The Plan including a £200m investment from Virgin Group, and the deferral of c.£400m of shareholder deferrals and waivers
- Virgin Atlantic welcomes new partner Davidson Kempner Capital Management LP, a global institutional investment management firm which is providing £170m of secured financing
- Creditors will support the airline with over £450m of deferrals
- The airline continues to have the support of credit card acquirers (Merchant Service Providers) Lloyd’s Cardnet and First Data.
The plan will go through a court-sanctioned process and with support already secured from stakeholders, it’s expected that the plan will come into effect late Summer 2020.
Shai Weiss, CEO of Virgin Atlantic, said: “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.”
Josh Bayliss, CEO of Virgin Group, said: “The severe impact of COVID-19 on global aviation has meant Virgin Atlantic has had to reimagine its business and rebuild its finances to put together this £1.2bn solvent recapitalisation plan. We are grateful to the incredibly committed team at the airline who, under the leadership of Shai Weiss, has shown great resilience and unwavering spirit during this challenging time.
“We welcome the new investment from Davidson Kempner and ongoing support from our fellow shareholder Delta. This is the hardest challenge the airline has faced in its 36 years. However, strengthened by the refinancing, support of creditors and its outstanding employees, we are delighted that Virgin Atlantic will be able to continue flying customers to the destinations they most love and providing vital competition and connectivity to and from the UK.”
Global aviation was one of the first industries impacted by the COVID-19 pandemic and will be one of the last to fully recover.
From the start, the airline took decisive action to ensure its survival. In March, its people elected to take eight weeks unpaid leave while the Leadership Team took voluntary pay cuts. Unpaid leave was superseded by the UK government’s Coronavirus Job Retention Scheme and since April, more than 80% of the workforce has been on furlough, supporting efforts to preserve cash and minimise costs.
In Q2, flying fell by 98% and in the second half of 2020, capacity is expected to reduce by at least 60% compared to 2019, with pre-crisis levels of flying unlikely to return until 2023. With the suspension of passenger flying in April, the airline delivered an unparalleled network of cargo-only flying, operating more than 1400 cargo flights in April, May and June.
In response to the COVID-19 crisis, Virgin Atlantic’s path forward has dramatically changed, with a reduced fleet and workforce. In May, the difficult decision was taken to reshape and resize in order to emerge from the crisis sustainably profitable, but this came at a huge cost, as the airline sadly had to reduce the number of people it employs by 3,500*. As demand returns, it hopes to welcome back as many former colleagues as possible.
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.