Coronavirus: Virgin Atlantic lenders brace for restructuring hit

May 24, 2020

Lenders to Virgin Atlantic Airways have drafted in City advisers as they brace for the impact of a restructuring of Sir Richard Branson's flagship company.

Sky News has learnt that a syndicate of banks has appointed Deloitte, the professional services firm, to advise them on their financial exposure to the airline.

One aviation source said the banks had at least £250m owed to them by Virgin Atlantic, which is conducting parallel talks with the government and private investors about a financial rescue package that would exceed £500m.

The company, which recently announced that it was making close to a third of its workforce redundant, has also placed insolvency practitioners on standby to handle an administration process, if one proves necessary.

Like much of the global aviation industry, Virgin Atlantic has been left reeling by the coronavirus pandemic, and has warned that the government's 14-day quarantine policy for passengers flying into the UK will mean it cannot resume flying until August.

Sir Richard is expected to inject a substantial sum into the company he founded in 1984, having raised more than $350m from the sale of part of his shareholding in Virgin Galactic last week.

The negotiations over Virgin Atlantic's future remain precarious, with the airline asking ministers to guarantee hundreds of millions of pounds of private investment and various costs related to its operations.

Some of the private investors with which it is holding discussions - which include the hedge funds Davidson Kempner Capital Management and Elliott Advisers, Greybull Capital and Centerbridge - want to know the outcome of talks with the government before committing new capital to the business.

A pre-pack insolvency process would impact Virgin Atlantic's current borrowing arrangements, and could complicate its attempts to continue flying because of the conditions of its Civil Aviation Authority licence.

Its aircraft leasing and take-off and landing slot agreements would also be terminated by an administration process.

A pre-pack deal would wipe out the equity of existing shareholders - Sir Richard's holding company and Delta Air Lines, the US carrier which has itself been rescued by American taxpayers in recent weeks.

Virgin Atlantic chief executive Shai Weiss announced a cost-cutting plan last month that involves axing more than 3,000 jobs - joining the likes of British Airways and Ryanair in slashing substantial proportions of their workforces.

The company's plans include ending its 36-year tenure at Gatwick Airport, reducing the size of its fleet and putting its Boeing 747s into early retirement.

Virgin Atlantic is already anticipating that customer demand will be at least 40% lower during 2020, with only a gradual recovery next year.

It has furloughed thousands of staff and seen its top executives agree substantial pay cuts because of the COVID-19 outbreak.

Fewer than a handful of Virgin Atlantic's planes have been flying since the UK lockdown began in March, when Peter Norris, Virgin Group's chairman, urged Mr Johnson to establish an industry-wide support package that could cost in the region of £7.5bn.

Sir Richard recently made an impassioned defence of his group's financial affairs, warning that the transatlantic airline he founded in the 1980s was likely to collapse without government support.

He has already seen Virgin Australia fall into a process called voluntary administration, putting thousands of jobs at risk.

The UK Treasury has, to date, appeared lukewarm about the prospect of bailing out a company which counts billionaire Sir Richard and Delta as its owners.

Virgin Atlantic said recently that it remained in talks with private investors and the government.

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