Virgin Atlantic has filed for bankruptcy protection in the United States, in a bid to secure its £1.2 billion rescue deal.
Sir Richard Branson's beleaguered airline made a Chapter 15 filing in US federal bankruptcy court in New York on Tuesday. The move followed a UK court hearing earlier the same day, where the company obtained approval to convene a meeting of creditors on August 25 to vote on a restructuring plan. If the deal is given the go-ahead, it will need final approval at a hearing scheduled for September 2.
The US court order is crucial as it shelters the American assets of foreign companies undergoing restructuring proceedings in their home country.
After the filing a spokesperson for the airline said: “Virgin Atlantic attended court [on Tuesday] as part of a solvent recapitalisation process under 26(A) of the UK Companies Act 2006. That process is proceeding with the support of the majority of our creditors.
“Following the UK hearing, ancillary proceedings in support of the solvent recapitalisation were also filed in the US under their Chapter 15 process. These ancillary US proceedings have been commenced under provisions that allow US courts to recognise foreign restructuring processes.
“In the case of Virgin Atlantic, the process we have asked to be recognised is a solvent restructuring of an English company under Part 26A of the English Companies Act 2006.”
But what does the move mean for travellers going forward? Below we break down how the filing will impact those with bookings and explore what might happen next.
What is the Virgin Atlantic rescue deal?
After being flatly refused a state bailout, on July 14 Virgin Atlantic announced a £1.2 billion plan to keep the 36-year-old airline solvent. The restructuring deal includes a £200m cash injection from Branson’s Virgin Group, while Wall Street hedge fund Davidson Kempner will provide loans of around £170m.
A further £400m will come from the deferral of fees owed to the Virgin Group and the airline’s minority shareholder, US carrier Delta, over the next three to five years.
A Virgin Atlantic spokesperson said: “With support already secured from the majority of stakeholders, it’s expected that the restructuring plan and recapitalisation will come into effect in September.” They added: “We remain confident in the plan.”
There is no doubt that the rescue deal is crucial for the airline’s survival. The court in London was told by Virgin Atlantic’s lawyers that without the restructuring plan the company would "run out of money altogether" by the end of September.
Even if the deal is passed, the outlook remains troubling for both the airline and aviation industry as a whole. Leading trade body the International Air Transport Association (Iata) doesn’t expect pre-pandemic flying levels to recover until 2024.
Under the plan, some 3,150 jobs will still be cut and operations at Gatwick airport ceased. However, the airline is aiming by 2022 to fly the same number of seats as in 2019 despite its smaller scale.
The carrier is expected to operate a streamlined fleet of 37 aircraft, following the retirement of seven B747s and four A330s. The delivery of outstanding A350 and A330-900 orders have apparently been “rescheduled”. It is likely, therefore, that consumers will have fewer flights and routes to choose from for the forseeable future. What impact this has on prices remains to be seen.
Are Virgin Atlantic flights still operating?
The filing has not affected the number of flights operating, which remain limited due to the ongoing pandemic. Virgin Atlantic has confirmed that all upcoming flight and holiday bookings remain valid and that Flying Club members can still earn and redeem their miles as usual. Furthermore, customers with cancellations can continue to request refunds, which are being processed as normal.
A spokesperson for the company said: “We’re continuing to operate a limited schedule flying to Hong Kong, New York, Los Angeles and Barbados from our London Heathrow base and these flights will continue as normal.”
They revealed that passenger loads vary greatly between destinations; Barbados relaunched with high demand, while US routes remain quiet. The company continues to operate strong cargo loads on its passenger routes.