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Virgin Atlantic appoints advisors to manage a bankruptcy process

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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.

Virgin Atlantic appoints advisors to manage a bankruptcy process

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.

Virgin Atlantic appoints advisors to manage a bankruptcy process

How to earn Virgin Atlantic miles from UK credit cards

As a reminder, there are various ways of earning Virgin Flying Club miles from UK credit cards.  Many cards also have generous sign-up bonuses!

Click here to read our detailed summary of all UK credit cards which earn Virgin Flying Club miles.  That page is regularly updated with the latest special offers and will still be accurate even if you are reading this article months after publication.

(Want to earn more Virgin Flying Club miles?  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.)

Comments (135)

  • TGLoyalty says:

    I thought the laws around committing a criminal offence if technically insolvent and taking out debt were relaxed at the start of the lockdown?

    • Rob says:

      Added, thanks.

      • Adam says:

        They haven’t been suspended yet – helpfully the government has said they will suspend them but hasn’t yet modified the law leaving directors in a sticky situation.

        Not to mention the fact that disapplying wrongful trading is only half the battle; creditors will still have a Sequana duty to consider the interests of creditors once there it is reasonably likely they are/will become insolvent, and if they don’t do so will open themselves up to claims for breach of duties that may amount to a similar position as wrongful trading liability. It’s a little half-baked as a protection for died tors! Best to get the administrators in and be protected that way…

  • Neil says:

    Well 286000 virgin miles on the line now! Here we go

    • Secret Squirrel says:

      Get em out quick, best to call as other ways take 3x days!

  • Clive says:

    Rob you transferring out of holding?

    • Rob says:

      No, but my circumstances may not be your circumstances. As I’ve said, I have ZERO requirement for 3 million Hilton points.

      • davvero says:

        I’m sick of people asking you this. How many times do you have to tell them the same thing? The advice will never change.

        • BJ says:

          @RHYS …do you think I should transfer my Virgin miles to Hilton points? I’ve got just over 500 at stake, I was going to ask Rob but…

          • Rhys says:

            For what it’s worth I haven’t transferred my 60k worth out. I want to use them for flying, less interested in a hotel redemption.

      • Al says:

        Oh no…
        That sinks my heart…
        I can do Maldives Waldorf with half of those 3 million points

  • Jonathan Atkins says:

    Rob,
    What would you suggest I do with 400,000 virgin points ?
    Thanks

  • JP says:

    I think the loan against the slots sits with Virgin Atlantic International and not Virgin Atlantic Airways so the pre-pack could be for VAA which carries most of the assets.

    • memesweeper says:

      I think you’re right:

      ‘The deal was made possible by the creation of an airline company – Virgin Atlantic International – which will be on standby to take over the slots if the main airline goes bust.’

      see

      https://www.travelweekly.co.uk/articles/58818/virgin-atlantic-unleashes-value-of-heathrow-slots
      and
      https://www.travelweekly.co.uk/articles/58644/virgin-to-raise-cash-from-heathrow-slots

    • Adam says:

      It matters not too much where the loan sits – if security has been granted over the slots (either by VAA or VAI, even if you secured the debt of the other), that security would prevail through a prepack unless the secured creditors agree to release it (which they of course will not unless the commercially approve the deal).

    • insider says:

      i assume the bondholders could push to liquidate the slots to recover their money. Could leave Virgin in a tricky position?

      • BrightonReader says:

        Who has the money to buy them though?

        It’ll look so good for BA to spend millions on new slots when it’s making thousands of its own staff redundant and shrinking the fleet and will have problems opening all its existing slots anyway unless there is an extended relaxation of the 80/20 rule at all the slot restricted airports on its route network.

  • davvero says:

    Don’t panic, don’t panic! Your Flying Club miles are safe!

    • memesweeper says:

      If the airline goes under, and is bought out, are future bookings going to be honoured by the successor? I think that’s more important than my miles.

      • Rob says:

        Unlikely, you would be expected to get a refund via your credit card.

        • memesweeper says:

          That has the potential to be very brand damaging and materially hurt those that bought with debit cards or from countries without s75 equivalents.

          • Mike says:

            Indeed. But if New Virgin is going to honour existing bookings and existing miles so as not to alienate their most valuable customers, what liabilities exactly is it shedding with a prepack? Some leased aircraft? Unsecured debt, if there is any? What else have I missed?

            Also prepack is not going to help much with the cash burn, which even if they fire a third of the staff is going to be painful, given flying is not going to be back to normal for years.

  • Tom1 says:

    Two virgin a330s went from lhr to dsa this afternoon.

    https://www.instagram.com/p/B_-NkEOB-Zf/?igshid=hzgq2vp9dgmi

    • Josh says:

      I was always hopeful there would one day be a flight from Heathrow to Doncaster 😂

  • Josh says:

    This type of administration is what Debenhams has been through recently isn’t it?

    I won’t transfer out my Virgin miles. No need for further hotel points.

    • Rob says:

      Correct. When done properly it works well (unless you’re owed money, of course). Problem is that Virgin has always championed its support of small British suppliers ….

      For clarity, VS owes us nothing at the moment except a tiny bit of flight commission.

      • kruggs says:

        I don’t understand the New Virgin bit though. I assume it would need agreement from all the lessors and debt holders, presumably at a big haircut? Who would want to lend money against New Virgin in the future if they go through this?

        • Rob says:

          New Virgin would be debt free so easy to get a loan. Probably from the same banks. That’s how it goes.

          An eg – my wife restructures bad shipping debt. Her bank gives soft loans to people to buy ships which have defaulted on their loans so the bank can claim it has got rid of the first problem ….

      • Alex Sm says:

        What is flight commission?

        • Rob says:

          Peanuts. 2% ex taxes and charge, so around £1 on a £300 Economy ticket. Business is better of course.