UK – WORLDWIDE – There were howls of complaint from many onlookers when Sir Richard Branson put a call in for government support to save his Virgin Atlantic airline in the wake of the Covid-19 disaster which has impacted the industry so hard. Now it seems he has found the resources to finance the company without state aid.
The proposed solution has an ‘all hands to the pumps’ air about it with the money coming from a variety of sources, and much of it by the clever switching of debt rather than any cash actually changing hands. Whilst the carriage of cargo during the pandemic has proved the only bright spot for many airlines it will be the return to passenger carriage upon which the majority will succeed or fail.
Virgin Atlantic has launched a Court based process as part of a solvent recapitalisation of the airline and holiday business, with a Restructuring Plan that, if and when it is approved and implemented, is tailored to keep the company flying.
The Restructuring Plan is based on a five year business plan and, with the support of shareholders, Virgin Group and Delta (its joint venture partner), new private investors and existing creditors, it is calculated to pave the way for the airline to rebuild its balance sheet and return to profitability from 2022.
The recapitalisation will deliver a refinancing package worth circa £1.2 billion over the next 18 months in addition to the self-help measures already taken, including cost savings of around £280 million per year and £880 million re-phasing and financing of aircraft deliveries over the next five years. The bones of the proposal are:
To secure approval from all relevant creditors before implementation, the Restructuring Plan will go through a Court-sanctioned process under Part 26A of the Companies Act 2006 (the ‘Restructuring Plan’). With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect late Summer 2020.
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 says it took decisive action to ensure its survival. In March, the Leadership Team took voluntary pay cuts and since April, more than 80% of the workforce has benefitted from the Government’s Coronavirus Job Retention Scheme, 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 May, the difficult decision was taken to reshape and resize in order to emerge from the crisis sustainably profitable, and regrettably the airline had to reduce the number of people it employs by 3,550 across all functions, a figure which includes 400 who took voluntary redundancy.
Having closed its London Gatwick base, while retaining a slot portfolio at the airport to protect opportunities for future growth, leisure flying is now consolidated at London Heathrow and Manchester. By 2022 Virgin Atlantic will fly the same number of sectors as 2019 despite its smaller scale, demonstrating it says, productivity and efficiency improvements. The airline will operate a streamlined fleet of 37 twin engine aircraft following the retirement of 7 x 747s and 4 x A332s by Q1 2022, with rescheduled delivery of outstanding A350s and A339s.
From 20 July the airline will restart passenger flying and Virgin Atlantic and Virgin Atlantic Holidays will continue to support global supply chains. While demand will be slow to recover, Virgin Atlantic insists it will ensure its customers always feel confident to fly by continuing to prioritise the health, safety and security of its people and customers throughout their journey. Sustainability remains central to the airline, and its simplified fleet will be 10% more efficient than it was pre-crisis. Shai Weiss, CEO, Virgin Atlantic commented:
“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.”
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