Virgin Atlantic saved, announces long term funding

Virgin Atlantic Airways Limited,

part of the Virgin Group owned by Sir Richard Branson, who control 51% of its shares, with Delta Airlines controlling the other 49%, have agreed to a long term finance deal with US hedge fund Davidson Kempner Capital Management.

DKCM will provide around £170m in secured financing, based largely on taking title to some of the airlines aircraft and slots at Heathrow, while Sir Richard Branson will fund another £200m pounds privately from his own resources, and approximately £400m from the sale of a large part of Virgin Galactic.

The last A340-600’s were an early but already departing victim of the pandemic

The airline also owes some £400m in mortgages and leases and these will be deferred or reduced. On top of that other creditors will assist in deferring another £450m in money owed to creditors.

One of the biggest obstacles the airline has faced is the refusal of credit card companies to pass on the payment for tickets for forward dated flights, because they don’t want to be caught out if the company went bankrupt, having to refund the customer, as is required by law. The card companies have now agreed to pass on the cash as its clear the airline would continue to fly.

The court mandated process will now complete allowing Virgin Atlantic to continue and build its way out of debt. Richard Branson continues to control the 51% majority share of the airline.

The 747 fleet is history

Virgin Atlantic has already taken sharp action to reduce its losses, reluctantly making 3,000 staff redundant, a move Branson would have personally hated to make, seeing the company as a ‘family’ operation, disposing of its entire 747 fleet and closing down its operations at Gatwick Airport, moving them all to Heathrow.

Its been highly active in maintaining as many aircraft as is possible, mostly its A350-1000’s and 787-9’s on cargo operations, being extremely successful at filling them and running multiple daily flights from Heathrow around the world.

There was considerable interest in the deal from hedge fund managers, but DKCM as the largest operator and offered the best terms, outbidding companies like Greybull (whose less than stellar airline rescue record included British icon, Monarch, that it allowed to go bankrupt).

The 787-9 is the backbone of the Virgin Atlantic fleet

Virgin Atlantic’s next steps will be to rebuild its passenger network. However, about five years ago it decided to to cut routes like Tokyo and Sydney and several others, re-focusing its fleet operations on the US and Carribbean, with a smaller sideline operation at Shanghai, Hong Kong and Cape Town/Johannesburg and Mumbai. These had been popular destinations for UK travellers.

The argument I made and so did many others was that all it would take was another 9-11 type crash in the US market and the airline would be in dire straights, serving as it does, Atlanta, Washington DC, Boston, JFK, (it cut Newark permanently as the pandemic began), Seattle, LAX and SFO, Miami, Orlando and Las Vegas.

Just when Europe is waking up from the Covid pandemic, slowly realising a ‘new normal’, and preparing to deal with a possible return of it this winter, but in as manageable a way as is viable, the US is buried under an avalanche of new cases. Trump refuses to acknowledge the problem and states like California and Oregon have already begun closing back down. Florida is now the world epicentre of the disease and US passengers arriving in the UK and Europe must quarantine for 14 days before being allowed out. That is unlikely to change for months, hardly the time for airlines to fly passengers into the eye of the Covid storm.

Which therefore makes you wonder exactly who is going to fly on the aircraft Virgin Atlantic (and BA, United, American and Delta), all plan on flying to and from Heathrow?