LONDON (ShareCast) - (Sharecast News) - The future of Richard Branson's Virgin Atlantic airline hung in the balance on Tuesday as creditors were set to vote on a £1.2bn rescue deal to help it survive in a post-coronavirus industry.
Having been refused a government bailout, the airline was forced to turn to private investors and draw up a recapitalisation plan that should give it a buffer for the next 18 months.

The carrier, which has burned through cash reserves as passenger travel collapsed in the wake of the Covid-19 crisis and resultant lockdowns, said it could collapse into administration if creditors do not support the deal.

Almost 200 of the airline's affected trade creditors, each of whom is owed more than £50,000, will vote on Tuesday at a hearing at the High Court in London. Virgin needs to gain support equivalent to 75% of the overall outstanding value of money owed.

Under the deal, US hedge fund Davidson Kempner Capital Management will pump in between £170m in fresh cash, with founder Richard Branson putting in £200m of his own money, raised through selling off a stake in the space division Virgin Galactic.

There would also be £450m in debt relief from co-owners Delta Air Lines and Branson's Virgin Group, along with jet-leasing firms, granting concessions on payment terms.

The recapitalisation will deliver a refinancing package over the next 18 months in addition to cost savings of £280m per year and £880m rephasing and financing of aircraft deliveries over the next five years, Virgin said.

If successful, another UK court hearing will take place on September 2 to approve the plan, and a procedural hearing will take place in the US a day later. If creditors reject the deal, the judge is still able to rule that it should go ahead.

Virgin Atlantic is 51%-owned by Virgin Group and 49% by Delta. The pandemic has seen it close its base at London's Gatwick airport and cut more than 3,500 jobs.

The carrier resumed passenger flights from London's Heathrow in late July, and is currently flying 14 return flights a week to six destinations: Hong Kong, Shanghai and Barbados, as well as New York, Los Angeles and Miami in the US.

It anticipates customer demand will be at least 40% lower during 2020, with only a gradual recovery next year, meaning it had to increase its funding target well above the £500m it sought in April.

Virgin intends to restart flights to more destinations, including Lagos, Tel Aviv, Delhi and Mumbai, in the autumn, but expects to reach only 60% of 2019 flight capacity by the end of the year.

"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," said chief executive Shai Weiss said last month.

The airline has come under severe criticism for holding on to payments from customers and trying to issue vouchers instead of refunds for flights - which is illegal under UK law. Weiss admitted the airline had to win back consumer trust.

UK Finance Minister Rishi Sunak in April said 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.

"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," Virgin said.

"By 2022 Virgin Atlantic will fly the same number of sectors as 2019 despite its smaller scale, demonstrating productivity and efficiency improvements. The airline will operate a streamlined fleet of 37 twin engine aircraft following the retirement of seven 747s and four A332s by the first quarter of 2022, with rescheduled delivery of outstanding A350s and A339s."

"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," Weiss said.

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