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.

How to earn Virgin Points from UK credit cards (December 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 Atlantic Reward Mastercard

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

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:

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

The Platinum Card from American Express comes with 30,000 Membership Rewards points, which convert into 30,000 Virgin Points:

The Platinum Card from American Express

30,000 points and an unbeatable set of travel benefits – for a fee 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.)

Category

Virgin Atlantic and Flying Club

This article is closed to new posts. Discussion continues in the HfP Forums.

Phil says:

14 Jul14 July 21:58

Has anybody tried booking KLM Business Class flights with Virgin FC points? I am trying to book EDIAMS for December on the Virgin website and I repeatedly get error messages at the point of payment.
- Jessiefan says:
  
  14 Jul14 July 22:24
  
  I couldnt get Delta or KLM via AMS upper class for points, even though cash fares showing – Economy was available but at high points
  - Mike says:
    
    14 Jul14 July 22:34
    
    There appears to be a lot of “phantom availability” of AF/KL reward flights on the Virgin website.
    
    Getting an error at point of payment is a strong sign of this. Try other dates or flights.
    
    I have been able to redeem a bunch of miles for AF business class long haul, on the VS website, so it is possible, but discovering what is real availability and what is phantom is a real pain in the butt.
Aston100 says:

14 Jul14 July 23:39

Is there anywhere else they can fly to instead of the USA for the next year or so?
More Asian destinations maybe?
I think Sri Lanka for example is underrepresented.
- C77 says:
  
  15 Jul15 July 01:17
  
  Dubai – route cancelled
  Sydney – route cancelled
  St Lucia – route cancelled
  Mauritius – route cancelled
  
  Columbo – BA entered the market briefly a few years ago as a tag on to Maldives but that ended when the Maldives flight became seasonal. Lack of connecting traffic would almost probably make this an unprofitable route for Virgin. Not to mention much Middle Eastern airline competition keeping the prices low. Market confidence in USA flying is really going to hit them hard. I guess with the significant cutbacks in South African Airways flying, there might be other markets they could tap into: Namibia, Botswana, Tanzania, Zambia, Mozambique, Zimbabwe don’t currently benefit from any direct air routes to London, have relatively niche high end tourism markets, local mineral markets and industries requiring cargo demand.
  
  From a leisure perspective I’d be looking to reinstate Indian Ocean (Mauritius) and perhaps tagging on a shuttle to Mombasa or Zanzibar.
- C77 says:
  
  15 Jul15 July 01:19
  
  Flying to a new destination for just a year until your bread and butter destination demand returns isn’t really going to impress anyone. Would need commitment for a good 3-5yrs to build up the demand and get established. You could probably write off any profitability for any new destination in the first year.
  - Nick says:
    
    15 Jul15 July 05:55
    
    True. But I do wonder whether something like a 2 x weekly Bali as a pure holiday route might actually work for them. Biggest challenge I guess is that it’s primarily a millennial/GenZ destination so reliant on the group most likely to be hit by a tanking economy (and who are used to connecting in Dubai so it has to be price competitive). Still, if I were them I would try it in the absence of any realistic US leisure flying for a while.
    
    BA have also found profitable niche cargo ops between the far/near east and US. The aircraft land at LHR on the way but only for refuelling and recrewing, not loaded/unloaded. This must surely be an option for VS too now (there’s plenty of business to go round, but the cargo customers demand higher surety over liquidity before they charter an aircraft than they’ve been able to get from VS recently).
    - C77 says:
      
      15 Jul15 July 06:38
      
      I think the problem with Bali would be the sector length would be pretty much at the crew duty maximum operating limits with little/no room for any flight delay. You’ve got to be approaching 16hrs nonstop which invariably would be longer returning west and require additional downroute time for crew (as per QF LHR-PER crew) due to the ultra long sector so not necessarily good use of resources. Plus given VS would be freeing up A330’s in a leisure config that were based out of MAN/LGW for relatively short by comparison TATL routes, perhaps these aren’t the right aircraft for that sector. Range would most definitely be an issue. Simply swapping out a Dreamliner instead wouldn’t necessarily be feasible either. Also even if the market was there to justify twice weekly service, is essentially going to be from one market without much inbound support from DPS traffic. Then as you mention the market is swamped with competition from Asian and Middle Eastern carriers. You’ve also got the KLM direct (1 stop service) from AMS. I just don’t see Bali being anything near sustainable let alone viable.
      
      VS have generated £100m additional revenue from recent additional cargo flights of late plus repatriation services on behalf of the British Government.
      - Spaghetti Town says:
        
        15 Jul15 July 14:47
        
        A risky destination would be Perth, Direct. Would certainly bring them into the spotlight. I’m not sure virgin has the correct J Class in the 787-9 for it though. Only problem is it takes up 3 aircraft at a time.
      - Spaghetti Town says:
        
        15 Jul15 July 14:48
        
        I also think Sao Paulo may of worked for them if they’ve got there. You can see in recent years VS have tried to break free from relying on the USA (Tel Aviv, Sao Paulo, Cape Town).
Chris says:

15 Jul15 July 06:26

Weiss’s statement leaving out the customers just goes to show how Virgin have completely lost their way. Virgin have lost the trust of past and future customers and as a customer who they except to wait 4 months to be paid I know others like myself will never use Virgin again. Kempner is only going to get richer sometime in the future as usual!
cinereus says:

15 Jul15 July 06:35

I will still be spending 95%+ of my VS miles on Virgin Wines as the risk is too great otherwise.
Phil Gollings says:

15 Jul15 July 06:43

Saw a Virgin uniformed lady on the train from London on Monday so assumed they had already started flying again.
Hope they survive to Xmas when our redemption flight is
southlondonphil says:

15 Jul15 July 08:43

Trivia Note –

Davidson Kempner recently bought Oak Furnitureland out of administration in a pre-pack deal – maybe there will be future opportunities to spend Flying Club points on a sofa? 🙂
- Jessiefan says:
  
  15 Jul15 July 13:12
  
  Sure it wasn’t a flat pack deal?
David S says:

15 Jul15 July 09:31

I would love them to fly to DPS as well. They really need to diversify away from the USA. They also flew briefly to Vancouver I believe and this is a key issue with VS in that they change their routing too frequently.
- marcw says:
  
  15 Jul15 July 09:43
  
  Problem with VS they are a DL muppet. They will fly wherever DL orders them to fly to.
  - Mikeact says:
    
    15 Jul15 July 12:07
    
    Interesting partner news ;
    
    ‘The COVID-19 pandemic continues to wreak havoc for airlines, as evidenced by Delta’s second quarter performance. The Atlanta-based airline announced a GAAP pre-tax loss of $7 billion in the June quarter 2020, reflecting a loss per share of $9.01 on a total revenue of $1.5 billion.’