Virgin Atlantic secures emergency investment to fund operation

Cargo shown in the hold of a Virgin Atlantic passenger jet. Virgin Atlantic secured private funding to stave off bankruptcy.

Virgin Atlantic Airways said an emergency funding package and plan to restructure operations will keep it afloat as it tries to withstand a steep loss in business stemming from the coronavirus pandemic.

The British carrier, which is scheduled to restart passenger operations on Monday, said its recapitalization effort is worth $1.5 billion. Private investors and existing creditors are contributing £1.2 billion ($1.35 billion) in financing, while the airline is implementing £280 million ($351 million) per year in cost savings and deferring £880 million ($1.1 billion) in Airbus aircraft deliveries over five years. 

Virgin Atlantic officials aren’t calling it bankruptcy, but it essentially is a court-supervised process that protects it from creditors while it reorganizes.

On the financing front, founder Richard Branson’s Virgin Group (NYSE: SPCE), which has many travel sector holdings, is investing £200 million ($251 million), with an additional £400 million ($501 million) provided through shareholder deferrals and waivers. U.S. investment firm David Kempner Capital Management is providing £170 million ($213 million) in secured loans, and creditors will defer more than $564 million in scheduled payments.

Virgin Atlantic has struggled to reach profitability in recent years but was nearing break even before the coronavirus hit and forced airlines to shut down most operations. Delta Air Lines (NYSE: DAL) owns a 49% stake in the company. Branson was set to sell one-third of Virgin to Air France-KLM before nixing the deal in December. 

Airlines in the U.K. have been forced to fend for themselves because the government has opted not to provide an industry-targeted bailout. The U.K.’s approach stands in marked contrast to the U.S. and Europe, where local governments have provided multibillion-dollar packages of grants, loans, loan guarantees, stock purchases and other financial support to airlines. Air France-KLM is receiving nearly $12 billion in aid structured through the French and Dutch governments, while Deutsche Lufthansa AG, Austrian Airlines and Swiss International Air Lines have also received government lifelines.

Each week brings more news about airlines seeking bankruptcy protection or waiting on the edge of their seat for governments to inject liquidity so they can plan future operations. 

Like the rest of the airline industry, Virgin has undergone a significant retrenchment in four months. It suspended passenger flying in April to save money and only expects to be at about 60% of capacity in the second half of the year compared to 2019. In May, Virgin eliminated 3,500 jobs. More than 80% of its workforce has received support from the government’s emergency job protection program.

Virgin Atlantic also closed its base at London Gatwick Airport and consolidated leisure flying at London Heathrow and Manchester airports.

Virgin Atlantic said efficiency improvements will allow it to fly the same number of routes in 2022 as last year despite its smaller scale. The airline said it will retire seven Boeing 747 and four Airbus A330 aircraft by the first quarter of 2022, leaving it with a fleet of 37 twin-engine planes.

“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 recapitalization of Virgin Atlantic will ensure that we can continue to provide vital connectivity and competition to consumers and businesses in Britain and beyond,” CEO Shai Weiss said in a statement.

Auxiliary freighters

When travel flights and the belly space they provide dried up, Virgin set up an extensive cargo-only operation utilizing passenger planes for cargo charters and scheduled cargo routes. Between April and the end of June, Virgin said it operated more than 1,400 mini-freighter flights. Virgin’s cargo operation includes at least 10 Boeing 787-9 and four Airbus A350 widebody aircraft.

Delta Air Lines has been a Virgin joint-venture partner since 2014. In February, Air France-KLM, Delta and Virgin launched an expanded joint venture to give passengers more route choices and flexibility, helping Virgin compete with British Airways. The trilateral venture also created more opportunities for the airlines to expand their cargo business.

Before the pandemic devastated the airline industry, the new partnership offered more than 600,000 tons of annual capacity to shippers, representing 23% of total trans-Atlantic air cargo capacity.

Click here for more FreightWaves/American Shipper articles by Eric Kulisch.


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