Creditors are on board with Virgin Atlantic’s plans to emerge into clear skies from a period of brinkmanship that had left the long-haul airline staring at bankruptcy.
The business founded by Sir Richard Branson, 69, has won overwhelming support from its creditors for what it calls a £1.2 billion solvent recapitalisation.
Virgin Atlantic said that it would go to the High Court next Wednesday to get final legal clearance for its financial rescue. The creditor support was “a significant milestone in safeguarding our future”, it said in a statement, hailing the scheme as a successful “private-only scheme” after an embarrassing rebuff for its request for taxpayer support during the pandemic.
Sir Richard’s Virgin Group is understood to be pumping £200 million into the airline. It also will receive £170 million of debt finance from Davidson Kempner, an American hedge fund that is a specialist in investing in distressed companies.
It is understood that Virgin Group and Delta Air Lines, of the United States, which holds a 49 per cent stake of Virgin Atlantic, have deferred income and fees from the carrier, as have its credit card merchant partners, totalling another £800 million.
Under the deal, creditors and suppliers will agree to take a 20 per cent cut in what they are owed, will take part-payment of money owed within two years and then will accept further repayments by instalment.
It is believed that the deal cannot come too soon, as otherwise the airline will run out of cash as early as next month. However, the rescue mission is not enough to save the jobs of 3,500 Virgin Atlantic staff, more than a third of the workforce, who are being laid off in an emergency restructuring of the company.
That overhaul will involve Virgin abandoning Gatwick, London’s second biggest airport, where it has been one of the top ten operators, and retrenching to Heathrow. It also will lead to the retirement of Virgin Atlantic’s aged, fuel-guzzling Boeing 747 jumbos in a fleet of aircraft that is already mortgaged to the hilt.
During the depths of the pandemic, Sir Richard, who is based in a Caribbean tax haven, and Virgin Atlantic received a very public refusal to a plea for a government bailout. It is understood that the Treasury was unwilling to commit taxpayers’ money to a business with multibillionaire owners behind it, that could not be described as being a business investing in the green economy and that would be — as almost immediately transpired — laying off thousands of workers.
In recent years Virgin Atlantic has been flying about five million passengers a year. In the plast six financial years, the carrier has lost more money than it made. It said that the redundancies and other measures would bring in annual savings of £280 million and that it had deferred another £880 million of financial commitments by the rephasing of aircraft deliveries over the next five years.
Behind the story: Turbulent times as Branson tried to fly the flag
Virgin Atlantic has spent most of its 36 years in storm-tossed conditions, raging against the inequities of the aviation industry and the iniquities of its rivals — but then again, perhaps Sir Richard Branson, who has enjoyed cultivating a buccaneering persona, wouldn’t have it any other way.
Born out of the failure of Sir Freddie Laker to crack a market for low-cost travel to the United States, Virgin spent its first decade trying to establish a base at Heathrow, while all the time embroiling itself in rows with the dominant, incumbent British Airways.
Sir Richard won the battle, if not the war, in 1993 when the dirty tricks of BA were aired in the High Court in a libel trial. He gave BA another bloody nose over price-fixing in 2006, albeit with his own reputation emerging equally tarnished. Virgin turned Queen’s evidence when it ratted on BA that the two airlines had colluded in increasing fares, adding fuel surcharges in unison. BA was handed £270 million of fines; Virgin escaped prosecution by being awarded immunity for its collaboration with the authorities.
All the while, Sir Richard was thumbing his nose at BA. With its “world’s favourite airline” advertising motto becoming a hollow boast and the carrier pulling back from many services in Britain’s provinces, Virgin splashed some red white and blue on its fleet and began calling itself “Britain’s flag carrier”.
Virgin Atlantic has always had a profile incommensurate with its size and in recent years it has struggled at the hands of the emboldened and enlarged BA, now part of the International Airlines Group, and new players, such as Norwegian Air.
Norwegian may have flown itself into all but insolvency over the past year, but for a time its £150 fares across the Atlantic marked it out as the true heir to Sir Freddie, even if, like Laker Airways, the proposition was not financially sustainable.
As long ago as the turn of the century, Sir Richard had to shore up Virgin Atlantic’s finances by selling a 49 per cent stake to Singapore. That holding transferred to Delta Air Lines of the United States in 2012 in a deal at a third of the price that Singapore had paid. Under Delta’s stewardship, Virgin has been forced to pull away from several of its marquee global routes.