LONDON: Virgin Atlantic has filed for bankruptcy protection in the US after telling a UK court that it would run out of money before the end of September unless creditors approve a £1.2 billion rescue deal.
The airline is seeking protection from its creditors under Chapter 15 of the US bankruptcy code, which allows a foreign company to shield assets in the country.
In its court filing in New York on Tuesday, Virgin Atlantic said it had negotiated a deal with stakeholders ‘for a consensual recapitalization’ that will get debt off its balance sheet and ‘immediately position it for sustainable long-term growth’.
The US filing is tied to a separate action filed in the UK High Court yesterday, where Virgin Atlantic obtained approval on Tuesday to convene four meetings of affected creditors to vote on the plan on 25 August.
Virgin told the High Court that bookings are down 89% year-on-year and current demand for the second half of 2020 is at only a quarter of 2019 levels.
It said that without the refinancing package, which will see founder Sir Richard Branson’s Virgin Group pump in a further £200 million, the company will run out of cash in the week beginning 21 September.
A Virgin Atlantic spokesperson said: “In order to progress the private-only solvent recapitalisation of the airline, the Restructuring Plan is going through a court-sanctioned process under Part 26A of the Companies Act 2006, to secure approval from all relevant creditors before implementation. With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect in September. We remain confident in the plan.”
Virgin stressed that the Chapter 15 process ‘supports the solvent recapitalisation of the airline’.
Branson’s earlier calls for UK government support have been rejected.
The airline’s restructure is expected to be completed this summer and spread across the next 18 months.
The airline, 51% owned by Branson’s Virgin Group and 49% by US airline Delta, has closed its Gatwick base and cut more than 3,000 jobs to contend with the fallout from the Covid-19 pandemic, which forced it to ground its entire fleet in April.
It said it needed to recapitalise ‘to not only survive the exigent threats posed by the Covid-19 global pandemic but to thrive once the immediate global health crisis passes’.
Virgin Australia went into administration in April owing $6.8 billion and its new owner, Bain Capital, has announced plans to cut 3,000 jobs.
