Sky News reported this afternoon that Virgin Atlantic has appointed restructuring specialists Alvarez & Marsal to oversee a potential pre-pack insolvency of the airline.
This does not necessarily mean that administration is inevitable, and as Sky points out it is a legal requirement of the directors to prepare for such an eventually if it looks like it may be necessary.
Because of the way that pre-pack administrations work, this would NOT mean the end of the airline.
Under a pre-pack, the airline would declare itself bankrupt and would be immediately sold to a pre-arranged buyer. This buyer is highly likely to be Sir Richard Branson, potentially with new partners.
The new shareholders would acquire the assets of the existing business but not its liabilities. The airline would therefore emerge debt free. The process would also allow it to shed leases on aircraft which were no longer required.
One issue, however, would be the potential loss of its Heathrow Airport landing and take-off slots. Many people have forgotten that many of Virgin’s slots are secured against a £220 million loan and would be forfeit if that loan was not repaid.
It is possible that any announcement this weekend to force visitors to the UK into 14 days quarantine, including returning UK citizens, could be a trigger for administration.
Changes to UK insolvency proceedings as part of the response to coronavirus allow the airline to continue trading whilst going through a restructuring without the directors being personal liable for the debt. This increases the chances that the airline would be able to emerge intact in some form.
Virgin Flying Club should emerge unscathed, especially as your miles are legally owned by Virgin Red / Virgin Group Loyalty Company. Virgin Atlantic is not a shareholder in this business, which is owned jointly by Virgin Group and Delta Air Lines. However, in reality your miles will have little value if the cannot be redeemed for flights as it is unlikely that Virgin Red has enough funding to pay for redemptions with third parties.
The full Sky News article is here. Mark Kleinman, the author, has had a decent track record recently of accurate scoops covering the problems at Flybe and Virgin Atlantic.
How to earn Virgin Points from UK credit cards (November 2020)
As a reminder, there are various ways of earning Virgin Points from UK credit cards. Many cards also have generous sign-up bonuses!
As well as the two official Virgin Atlantic credit cards (see here, one has a bonus of 15,000 Points), you can also earn from various American Express cards – and these have sign-up bonuses too.
(Want to earn more Virgin Points? Click here to see our recent articles on Virgin Atlantic and Flying Club and click here for our home page with the latest news on earning and spending other airline and hotel points.)