The deal will utilise a new court-sanctioned restructuring process to secure Virgin Atlantic’s future.
Sir Richard Branson’s Virgin Atlantic Airways has unveiled a £1.2bn rescue package through a deal that will secure its immediate future.
Within hours of a report by Sky News suggesting that the restructuring package was imminent, the airline confirmed it had secured the backing of key financial stakeholders for a new court-sanctioned process aimed at smoothing corporate rescues during the coronavirus pandemic.
The airline’s chief executive, Shai Weiss, said it should ensure that “Virgin Atlantic can emerge a sustainably profitable airline with a healthy balance sheet.”
He also pledged to win back the trust of customers.
For the deal to complete, expected later this summer, it must be accepted by creditors.
As part of the refinancing of the British-based carrier, Sir Richard Branson‘s Virgin Group will inject £200m in cash, while Davidson Kempner, a hedge fund, will lend the company £170m.
Virgin Group and Delta Air Lines, Virgin Atlantic‘s two shareholders, will collectively defer £400m of fees, with hundreds of millions of pounds more secured in the form of deferrals and advances from payments companies and aircraft lessors.
The backing of First Data, a subsidiary of Nasdaq-listed Fiserv, which had made onerous demands relating to cash collateral, is understood to have been secured in the last few hours, enabling the deal to go ahead, according to banking sources.
Sky News revealed last week that the signatures of the merchant acquirers were “the final piece of the jigsaw” in securing a package that would provide breathing space for Virgin Atlantic to trade through the aviation industry crisis.
A further £280m was expected, by the airline, to be generated under cost savings.
Sir Richard, who launched Virgin Atlantic in 1984, will retain a controlling stake in the business following the restructuring, which will vindicate the government’s decision to resist Sir Richard’s plea for financial support from the taxpayer.
Rishi Sunak, the chancellor, indicated in April that state aid would be available to airlines “only as a last resort” and after the support of existing government schemes and companies’ existing shareholders had been pursued.
Virgin Atlantic recently announced a restructuring of its operations designed to save hundreds of millions of pounds annually.
It is cutting 3,150 jobs – almost a third of its workforce – and ceasing flights from London’s Gatwick Airport, concentrating future UK flights at Heathrow and Manchester.
Virgin Atlantic is also cutting the size of its fleet and retiring older planes including its Boeing 747s.
Since the coronavirus outbreak, the company has furloughed thousands of staff and seen its top executives agree substantial pay cuts.
British-based airlines including Virgin Atlantic have been pressing the government to introduce measures that would revive passenger demand for flights between the UK and the US.
The company is to resume passenger flights on 20 July to destinations including Hong Kong, Los Angeles and New York, although Delta has warned that the recovery of demand for international travel is likely to lag domestic US aviation by a year.
Virgin Atlantic is anticipating that customer demand will be at least 40% lower during 2020, with only a gradual recovery next year, reinforcing its desire to seek substantially more than its initial funding requirement of about £500m.
A handful of its planes have been flying since the UK lockdown began in March, largely on cargo routes.
Mr Weiss said of the rescue package: “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.”