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Virgin Atlantic announces its £1.2 billion rescue plan – but is it enough?

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Virgin Atlantic will continue to fly – at least for the medium term.  The airline has just announced its £1.2 billion recapitalisation which will hopefully provide enough liquidity to see it through the worst of the coronavirus crisis.

Here are the headline details:

The rescue package has a headline value of £1.2 billion over the next 18 months

This excludes cost savings of around £280 million per year from the recent cost-cutting and redundancy programme, and £880 million of deferred payments for new aircraft deliveries over the next five years

Virgin Group is putting in £200 million of new money

Hedge fund Davidson Kempner is putting in £170 million of new money

Virgin Atlantic announces its £1.2 billion rescue plan

Delta is not allowed to invest new money under the terms of its US bailout but is writing off some existing payments due to it

Whilst not mentioned in the press release, it is understood that Virgin’s credit card processors have agreed to release ticket revenue which they had been retaining to help fund their Section 75 refund commitments if the airline failed

Virgin Group and Delta will be waiving some future fees, presumably around the use of the Virgin brand and the use of Delta’s technology platform

Creditors have ‘deferred’ £450 million of outstanding money – it is not clear what this represents

It appears that shareholdings are unchanged, with Virgin Group retaining 51% and Delta Air Lines 49%.  The Air France KLM joint venture will also remain.

This process is subject to a court-sanctioned process under Part 26A of the Companies Act 2006.  I am not sure why this is necessary, to be honest, unless some creditors are having their rights reduced.  It is likely to revolve around the rights of Virgin Atlantic bond holders who currently hold security over the Heathrow landing and take-off slots.

Virgin Atlantic is still planning to resume passenger flights next week.  Since passenger flights were suspended in April, the airline has operated over 1,400 cargo only flights.  3,550 redundancies have been made and the base at London Gatwick closed.

The new business plan sees a return to profitability by 2022, which is clearly ambitious.  Interestingly, the airline says that it will fly the same number of sectors in 2022 as it did in 2019, despite having fewer employees and a smaller fleet of 37 aircraft.  It remains to be seen how this is done.

Virgin Atlantic announces its £1.2 billion rescue plan

Shai Weiss, CEO, Virgin Atlantic commented:

“Few could have predicted the scale of the Covid-19 crisis we have witnessed and undoubtedly, the last six months have been the toughest we have faced in our 36-year history. We have taken painful measures, but we have accomplished what many thought impossible. 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.

“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.

“While we must not underestimate the challenges ahead and the need to continuously respond to this crisis, I know that now, more than ever before, our people are what sets us apart. I have been humbled by their support and unwavering solidarity throughout. The pursuit of our vision continues and that is down to each one of them.”

Virgin Atlantic announces its £1.2 billion rescue plan

What do I think?

It is, clearly, great news that Virgin Atlantic will return to the skies next week with a sound(er) balance sheet.

Let’s not pretend that this is the end of the story though:

This deal does not deliver a lot of NEW money – only £370 million, it appears.  Much of it is in the form of deferrals or write-offs of existing debt.  You need new money to pay the bills.

Most of the new money will immediately be heading out of the door to reimburse customers who are currently waiting 3-4 months for refunds.  How much will be left when this is done?

Virgin’s core US market is clearly not coming back to life any time soon.  Whilst the fleet sits idle, the airline will continue to lose money week after week.

Davidson Kempner is not the ideal partner, in my view.  They bring nothing to the table except money, and their only interest is in extracting as much money from the airline as quickly as possible.  If Flybe was a template for this deal, Davidson Kempner will have taken security against everything Virgin Atlantic owns which is not nailed down, which will make any future financing deal harder to achieve.

These are problems for tomorrow though.  For today, we can all be happy that Virgin Atlantic will be back in the air.

HFP Virgin Atlantic Rewards credit card

How to earn Virgin Points from UK credit cards (June 2021)

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

You can choose from two official Virgin Atlantic credit cards (apply here, one has a bonus of 15,000 Points):

Virgin Rewards credit card

Virgin Atlantic Reward Mastercard

The UK’s most generous free Visa or Mastercard at 0.75 points / £1 Read our full review

Virgin Rewards Plus credit card

Virgin Atlantic Reward+ Mastercard

15,000 points bonus and the most generous non-Amex for day to day spending Read our full review

You can also earn Virgin Points from various American Express cards – and these have sign-up bonuses too.

American Express Preferred Rewards Gold is FREE for a year and comes with 20,000 Membership Rewards points, which convert into 20,000 Virgin Points:

Nectar American Express

American Express Preferred Rewards Gold

Your best beginner’s card – 20,000 points, FREE for a year & two airport lounge passes Read our full review

Click here to read our detailed summary of all UK credit cards which earn Virgin Points

(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.)

Comments (55)

  • mr_jetlag says:

    “So Rob what will you be doing with your Virgin points?”

    I kid. Agreed with you that DK brings nothing to the table and in fact will only accelerate the eventual breakup/winding down – in fact this may be the ultimate end goal shared with the gov/investors but with a politically palatable “rescue deal” trotted out for the public.

  • jessiefan says:

    IMHO Virgin and RB have shown much more initiative and balls than any other airline in getting to this point with no help from the muppets in the UK Gov/Treasury, good on them I hope they survive. And glad I kept my FC miles.

    • Mr(s) Entitled says:

      Yes, but they will be paying a lot more for the privilege of not borrowing from the Muppets.

    • insider says:

      i don’t think they had a choice – their first port of call was to go begging to the government, but when that didn’t work out, what was left on the table?

      You can call it initiative and balls, but at the end of the day this was the only option if they didn’t want to bankrupt the airline

      I’d say that Rishi S did a good job in not calling Branson’s bluff. Remember it wasn’t that long ago that Branson was asking the taxpayer to bail them out

      • james says:

        Yes, like every other airline, many of which had a tenuous link with the British taxpayer, nice one Rishi

  • solartravels says:

    Would be a shame to see them go, and hope they pull through.
    I also hope they settle (Virgin Holidays) my outstanding refund (£8k) in the interim. Nearly at 100 days since cancellation. And Virgin Money (Virgin Atlantic Premium Card) have been woeful in my S75 attempt too. It has left a really sour taste to Virgin Holidays/Atlantic/Money. Amex have been superb in comparison on a claim.

    • Mr(s) Entitled says:

      Virgin Money is owned by Clydesdale and Yorkshire Bank. Wholly different company. But not necessarily a better one.

      • solartravels says:

        Yes, just wondering if they are also in the business of delaying processes to help VA/VH given their commercial relationship.

  • TripRep says:

    Will Virgin really be restarting flights to Florida next month?

    • dezbez says:

      Agree. Surely VA will be looking at ways to diversify its destination base away from the US more generally, both in the short-term and the longer term. The rewards don’t justify the risks (particularly with Trump in charge).

  • Amber Lynn says:

    Hurrah, I like Beardy airlines.

  • Lady London says:

    ‘profitable by 2022’
    When we know what are they smoking, can they share?

    The only way I can see this even beginning to work is if customer refunds are omitted.

    • Froggee says:

      …well they’ve done a good job of not refunding my £10k stupidly booked via Expedia to make things more difficult!

  • Colin MacKinnon says:

    Nothing makes me regret moving my points to Hilton.

    • Harry T says:

      Agreed, a safe move at the time, and may turn out to be better value long term.

  • Chris Heyes says:

    Can Virgin survive Yes but not easily, all they need to do is keep hold of the refund money off customers for as long as possible. Use the same money to keep afloat
    Fly to the US even if most are not allowed in, as long as they fly it wouldn’t be their fault
    The main problems start to add up when Refunds are being withdrawn in scale
    Plus a second wave will finish them off immediately, without any warning for customers

    • Simon says:

      This is my view. No one it seems has refinanced with a second wave in mind. Probably as it is difficult enough to refinance the current debt let alone plan for another shutdown. Any second wave, if it hits nationally, will be the nail in the coffin for a lot of business, not just airlines.

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