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Virgin Atlantic Awaiting Key Vote Outcome to Secure Future

Posted on 25th August 2020

Airline, Virgin Atlantic is awaiting the outcome of a key vote, which will be vital in the hopes of securing its future after the pandemic.

In July, the airline agreed a £1.2bn rescue deal, however, this needs to be agreed by creditors; the key vote is in regards to a restructuring plan that is believed to be the answer to securing a future for the company. The airline’s lawyers have said that although the firm is ‘fundamentally sound’, a restructuring, along with a cash injection is critical. If the new restructuring plan is not approved, it is thought the airline may run out of cash by the end of September.

The deal will be made up of £400m cash from the airline’s main shareholder, Sir Richard Branson’s Virgin Group, with the remainder coming from investors and creditors, who are now required to give their approval in the High Court hearing on Tuesday. Aside from Virgin Group, the second main shareholder in the company is US airline, Delta, who have a 49% stake.

The drastic decline in air travel due to the Coronavirus pandemic has caused Virgin Atlantic’s finances to take a sharp hit, and the airline has announced it will be cutting staff numbers by 3,500.

IAG’s former Director of Strategy, Robert Boyle, said that the extra cash Virgin Atlantic are planning on doesn’t seem sufficient to him to get it out of danger. Mr Boyle, who now has his own aviation company, stated that the creditors of Virgin Atlantic would have to agree to accept 20% less than what they were owed at present. He added: “It will get them through maybe the next six months, when they might be in a better position to ask for more money from somewhere.”

A UK court has heard that should the deal not win the votes, then the airline could run out of cash as soon as next month. The restructuring plan now requires approval from the creditors, ‘under a count-sanctioned process.’ As part of this process, the airline is also currently seeking protection under Chapter 15 of the US Bankruptcy Code.
The London court was told how the airline’s cash flow is expected to drop to “critical levels” by mid-September, and that it would completely run dry by the week commencing 28th September.

QC for Virgin Atlantic, David Allison, said that “Passenger demand has plummeted to a level that would, until recently, have been unthinkable. […] As a result of the Covid-19 pandemic, the group is now undergoing a liquidity crisis.”

Last week, Virgin Atlantic said that it was continuing with its limited schedule of flights, stating: “With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect in September. We remain confident in the plan.”