Virgin Atlantic faces anxious wait as creditors vote on whether £1.2bn Covid bailout is going to fly
- Airline could run out of cash in September if survival deal is not approved
- Virgin Atlantic is 51% owned by Richard Branson’s Virgin Group and 49% by Delta
- The embattled airline owes more than £50m to trade creditors and suppliers
Virgin Atlantic is facing an uncertain future but a key vote on a survival deal could ensure the airline carries on beyond September, when it is understood to be in danger of running out of cash.
Creditors will vote on a £1.2billion ($1.6billion) rescue plan on Tuesday which could prove a vital lifeline to the company and an industry devastated by the Covid-19 pandemic.
Like other airlines Virgin Atlantic, which is 51 per cent owned by Richard Branson’s Virgin Group and 49 per cent by U.S. airline Delta, has been severely impacted by the collapse of air travel due to the pandemic as well as lockdown, travel and quarantine restrictions.
A Virgin Atlantic plane is ready for take-off in Manchester. However, the airline has had to cut jobs and pull out of its base in Gatwick
However, Virgin said it remains confident in the restructuring plan and is on track to finalise its solvent recapitalisation in the first week of September.
Tuesday’s vote of affected trade creditors includes nearly 200 suppliers that the airline owes more than £50,000 to.
To get the rescue deal approved, it needs 75 per cent support of the overall outstanding value of money owed at a hearing at London’s High Court.
If successful, another UK court hearing will be held on 2 Sept to approve the plan, and a procedural hearing is scheduled for 3 Sept in the United States.
Should the creditors fail to support the plan, the judge can still rule that it is in their interests for it to go ahead.
Cost cutting measures
Virgin Atlantic has resorted to several measures to ensure the survival of the business.
It has had to close its base at London’s Gatwick Airport and cut more than 3,500 jobs scale back its business and deal with the impact of Covid-19 pandemic, which has grounded planes and hammered demand for air travel.
Airlines are set for a long journey to recovery. Global airline body IATA has said that the industry will not return to pre-crisis levels until 2024.
As a last resort, the airline could be bailed out by the British taxpayer to save jobs. Countries like Germany and the United States have given bailouts to major carriers such as Lufthansa, Delta and Southwest.
However, Virgin Atlantic agreed a private-only restructuring deal after Britain said state support would only be considered after all other avenues had been exhausted.
Virgin Atlantic is 51% owned by Richard Branson’s Virgin Group and 49% by U.S. airline Delta
Airline struggle has a wider impact
Companies facilitating airlines have also been adversely affected. Last week hundreds of jobs were deemed to be at risk at Stobart Group as the company announced it will enter consultation with staff affected by the closure of Easyjet’s London bases.
The company, which provides check in and baggage handling services to Easyjet at London Southend and Stansted airports, said this was part of a wider cost management programme within the aviation division.
A source close to the organisation said that 10 per cent of 300 staff at the London Southend Airport (LSA) could lose their jobs while the jobs impacted at Stobart Aviation Services would be in the ‘low hundreds’.
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