Virgin Atlantic Files For U.S. Bankruptcy

London-based Virgin Atlantic has filed for Chapter 15 bankruptcy in the Southern District of New York, allowing U.S. courts to recognize and implement the airline’s restructuring that is proceeding in the U.K.

In its filing it stated its runway ends in September without a new injection of funds. That’s when the airline projects to drain down to $64 million in cash, below the $98 million required by convenants in debt instruments that could allow its lenders to force the carrier to sell its landing slots at London Heathrow to repay debt and effectively end the business.

A cash injection is waiting on the sidelines, a $1.5 billion package was announced in July but is pending renegotiation of aircraft leases and prior debt. About $222 million can be accessed as soon as the airline’s reorganization plan is approved.

While no additional funds come directly from 49% owner Delta – which faces constraints having taken its own U.S. government bailout and with its CEO Ed Bastian stumping for another round of government payroll support – the bulk of the rescue is in the form of deferral of payments by Branson and Delta. (Yes, this is an end run and effectively has a government bailed-out U.S. airline bail out out a U.K. carrier by taking debt-as-equity in lieu of cash.)

Virgin Atlantic will hold four creditor meetings on August 25, and indicates that three of the four groups needed to vote for restructuring have already agreed to do so. The plan is set for approval on September 2.

Here’s the crux of the plan for each of the four creditor groups:

  • $280 million revolving credit secured by aircraft and engines becomes a long-term loan at 1% higher interest with an engine released to securitize a new $30 million loan.

  • Aircraft lessors can choose lower lease payments or termination of leases

  • Delta gets preferred shares in exchange for funds owed

  • Suppliers take less money and payments in quarterly installments for two years though airports and other critical supplies are exempted from the haircut.


Copyright: boarding1now / 123RF Stock Photo

As long as the restructuring is approved, miles are safe – and it seems likely that creditors will approve because in the current environment the value of collateral is likely depressed and liquidation of the carrier isn’t likely to secure greater repayment. Put another way, you want to sell Heathrow slots when they’re worth more, not when they’re likely to secure their lowest prices in years. This assumes, however, that creditors act in what appears to be their long-term interest.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. So as a businessman I understand the filing now what is the “end game” there must be one now that the British Gov. turned Branson down and for fairly good reason. Going forward how many flights back and cross the Atlantic will demand merit? It’s going to be awhile for international travel comes back in any regular form vaccine or not. The economy is going into the toilet next year as well. Delta I am sure has a plan, guess as things unfold we will see what Delta has in mind.

  2. @Ghostrider – What good reason? I’m not disagreeing with you but I hadn’t heard any reasons that sounded valid while there’s certainly a major reason to help Virgin: BA is already acting in a pretty wretched fashion and they’re not even a complete monopoly. If Virgin went away things would get even worse for everyone at Heathrow except IAG.

  3. I found this blog article to be extremely helpful in understanding the status of the VS bankruptcy and the possible path forward… Thank you!

  4. @Christian,

    Well said!

    I agree 100% – if anyone thinks British Airways already abuses its predominant position as the largest by far holder of slot pairs, gates & other facilities at London’s Heathrow Airport, they ain’t seen nothing compared to how horrible & abusive things will be for nearly everyone who lives or works in London – or those heading there for business or pleasure if Virgin Atlantic fails & BA becomes a pure monopoly instead of the quasi-monopoly/duopoly that it already is.

    Make no mistake:

    Love him or hate him, Sir Richard’s Neck Island residency is – or should be – far less of a concern than the consequences sure to arise if Virgin Atlantic is left to die.

    I mean, seriously, has everyone gone mental (or stark raving, barking mad)?

    Why would anyone ever want to deliver on a silver platter a monopoly & an even more impenetrable fortress hub at LHR to BA?

    That’s just beyond words stupid & CRAY-CRAY.

    So, except for the thieves & criminals who stand to profit at flyers’ expense & misery were Virgin Atlantic to become another irreversible consequence of Covid19 & be left to wither & die, we should all be rooting for a successful restructuring of Virgin Atlantic – because the consequences it doesn’t will be anything but good for most of us.

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