Virgin Atlantic Secures New Financing

Filed Under: Virgin Atlantic

There has been lots of uncertainty about Virgin Atlantic’s future. While the airline is resuming service as of July 20 and is undergoing a major restructuring, up until now the airline lacked the financing to continue operations for much longer.

Virgin Atlantic has today revealed details of a major new recapitalization, which should secure the carrier’s future, at least for the next couple of years.

Virgin Atlantic’s private-only recapitalization

Virgin Atlantic has today announced a private-only solvent recapitalization, based on a five year business plan that has the support of Virgin Group and Delta Air Lines, as well as new private investors and creditors.

The airline will be getting a refinancing package worth a total of £1.2 billion over the next 18 months, in addition to self-help measures already taken, including cost savings of £280m annually, as well as adjustments to aircraft deliveries over the next five years.

Here’s what the £1.2 billion in additional financing is comprised of:

  • The Virgin Group is investing a further £200 million
  • Shareholders are deferring £400 million of shareholder deferrals and waivers
  • Davidson Kempner Capital Management LP, a global institutional investment management firm, is providing £170 million of secured financing
  • Creditors will support the airline with over £450 million of deferrals

With this new plan, Virgin Atlantic hopes to return to profitability by 2022, though that seems like far from a sure bet, given the uncertainty in the industry.

To secure approval from all relevant creditors, the plan will go through a court-sanctioned process, which is expected to be completed by late summer 2020. Given that support has already been secured by a majority of stakeholders, this isn’t expected to be an issue.

Virgin Atlantic has secured new financing

Virgin Atlantic deferring A350-900 & A330-900neo deliveries

This shouldn’t come as much of a surprise, but Virgin Atlantic has announced plans to reschedule delivery of its remaining A350-900 and A330-900neo orders:

  • Virgin Atlantic has 14 A330-900neos on order, which were supposed to be delivered between 2021 and 2024
  • Virgin Atlantic has ordered a total of 12 A350-900s, four of which the airline has already taken delivery of, meaning eight more are on order

Only time will tell just how long these remaining orders will be deferred, though I’d imagine the airline will push out the deliveries as far as possible.

Virgin Atlantic is deferring remaining deliveries

Virgin Atlantic’s long-term plans

With new financing, Virgin Atlantic will continue with the strategy that was announced a few weeks back:

  • Virgin Atlantic is closing its London Gatwick base, while retaining its slots there, to protect opportunities for future growth
  • Virgin Atlantic will operate a streamlined fleet of 37 twin engine aircraft, as the airline retires seven 747-400s and four A330-200s by the first quarter of 2022
  • By 2022 Virgin Atlantic hopes to offer the same number of seats as it did in 2019, through productivity and efficiency improvements
  • Virgin Atlantic is reducing its workforce by 3,550 people across all functions

Virgin Atlantic 747Virgin Atlantic is retiring its 747-400s

Bottom line

Virgin Atlantic has revealed its recapitalization plan, which will come mostly in the form of deferrals to shareholders and creditors, a further investment from the Virgin Group, and secured financing from an investment management firm.

While the path back to profitability is a tough one, this seems like the best case scenario, based on the fact that Virgin Atlantic will remain independent, and won’t undergo a major ownership change. Before there were rumors that Richard Branson was looking to sell his stake in the airline.

Furthermore, we’ve now learned that Virgin Atlantic intends to defer A330-900neo and A350-900 deliveries, which doesn’t come as much of a surprise.

What do you make of Virgin Atlantic’s plan and future?

Comments
  1. This is good news. My flight to Europe (finally) got canceled. It was using Virgin miles for a Delta flight.
    Glad that it appears that Virgin will survive the pandemic so that when we can fly again to Europe, I can use the credit.

  2. This makes me feel better about the 480k points I have tied up in ANA F flights for November and February that will most likely get canceled

  3. Are they going to start processing refunds? I have a ANA trip in September booked with VS miles that will almost certainly not happen. Heard others were waiting 90+ days for taxes and surcharge refunds…

  4. Random train of thought but I remember they were going to fly to GRU. Which got me thinking, did Latam end up finishing its 777 refurb program? I know you were posting some good updates pre-covid.

  5. My ANA flights on F got cancelled a month ago. I got the points back immediately but it’s been over 30 days and no refund yet. I suspect it’s going to be another 2 to 3 months before anything happens. Still, this is good news in that they aren’t going bankrupt!

  6. My ANA first and F flights were cancelled over three months ago and I still haven’t seen my $800 + in taxes refunded… Hopefully this give them the cash to start doing refunds. (the policy for those ANA flights is 90 days)… Thankfully ANA just dropped their taxes a ton.

  7. I wonder what Delta’s stake has been diluted to. Not that it really matters now Virgin is in the JV. Delta have got more than enough strategic value out of that transaction and it doesn’t look like they been completely diluted out. (Unlike Virgin Australia Shareholders)

  8. Current estimates, from the airline itself, is that refunds will take 120 days from the date of request. In truth, there is only £370 million of ‘new money’ the rest of the deal appears to be deferments which won’t go to pay anything at all. Quite how they intend to get back to profitability when the majority of their business is transatlantic is far from clear since there are travel bans eastbound and westbound. Interesting times ahead it seems

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