Virgin Atlantic defers A350s, eyes investors, preps for administration

Virgin Atlantic will chase new investors while also reportedly laying the groundwork to enter administration.

By Bloomberg News, May 10 2020
Virgin Atlantic defers A350s, eyes investors, preps for administration

Virgin Atlantic will begin pitching to potential investors Monday as it seeks to avoid collapse with air travel effectively grounded and the U.K. government reluctant to provide emergency funding, a person with knowledge of the situation said.

The talks follow the UK carrier’s appointment of restructuring specialist Alvarez & Marsal to develop contingency plans for a so-called pre-packaged administration should it fail to secure financial backing, according to the person, who asked not to be named discussing private matters.

Virgin Atlantic CEO Shai Weiss will set out the company’s survival plans and strategy to 12 firms that have emerged as serious contenders for investment out of 100 originally sounded out by Houlihan Lokey, the person said.

The carrier founded by billionaire Richard Branson has enough cash to survive through the summer but is likely to have a better idea about its viability in the next week or two, including a bid to secure about £500 million in state support, according to the person.

British Airways and EasyJet have so far succeeded in tapping U.K. funding, but a special case would need to be made for Virgin because it lacks an investment-grade credit rating.

Virgin Atlantic delays Airbus A350 deliveries

The airline earlier this week revealed plans to abandon London's Gatwick Airport, close to the Virgin's headquarters at Crawley, and shift all flights to London Heathrow, while also eliminating 3,150 jobs – about a third of the workforce – to ride out the coronavirus crisis.

Its fleet of Boeing 747s will be scrapped, and the delivery of six new Airbus A350 jets sporting the latest-design Upper Class business class seat has been deferred.

Government plans to quarantine UK arrivals for 14 days will further cut into already-diminished demand for travel.

Richard Branson, who founded Virgin Atlantic in 1984 and still owns 51% of the airline through his Virgin Group empire, is considering pouring more money into  the company, including raising cash against his Necker Island home in the British Virgin Islands.

Preparing for administration

Virgin Atlantic declined to comment on the hiring of Alvarez & Marsal, which Sky News reported earlier.

“Because of significant costs to our business caused by unprecedented market conditions which the Covid-19 crisis has brought with it, we are exploring all available options to obtain additional external funding,” a spokeswoman said. “Discussions with a number of stakeholders continue and are constructive, meanwhile the airline remains in a stable position.”

The restructuring specialist was hired earlier this week to work on options for a so-called 'pre-pack administration' which allows a business with a viable structure but unmanageable amounts of debt to make a fresh start.

This may cut the equity of Richard Branson’s holding company and Delta Air Lines, according to the report, which cited unidentified people familiar with the matter.

Prime Minister Boris Johnson’s government has so far ruled out a broad bailout of the aviation industry, asking companies to first tap all commercial avenues to raise funds to protect taxpayer interests.

Additional material by David Flynn

This article is published under license from Bloomberg Media: the original article can be viewed here

Virgin Australia - Velocity Rewards

05 Sep 2013

Total posts 47

Unfortunately I feel that administration is now inevitable for Virgin Atlantic. Hopefully most employees will get a job in the new Virgin Atlantic. Administration would probably be the best option for the airline to be restricted for a stronger position in the future post Covid-19. Other airline have gone into administration in the past Virgin Atlantic need to use it as a learning opportunity so that they don't need it again in the future.

UK Government loan is unlikely because Virgin Atlantic lacks an investment-grade credit rating, true but employees won't be voting for the government if it goes bust and they lose there jobs.

Abandon London's Gatwick: Could defiantly benefit the airline cut costs and eliminated the need to have the resources needed to operate two hubs in one city. In the future I would guess that Virgin Atlantic will only use Gatwick in the summer only during peak travel times.

Scrapped Boeing 747s: it was only a matter of time. Sad to see it go, but was inevitable twin engine are preferred than four engine aircraft.

One big issue for Virgin Atlantic is its disjoined fleet type B787, A330 (with A330neo on order) & A350's. They need to simplify it down to one type i.e. an all A350 fleet or all B787 fleet. But cutting it down to one common fleet type they could cut down on costs and simplify their fleet operation.

Fingers crossed it all works out in the end.

28 Aug 2016

Total posts 20

I doubt Virgin Atlantic could even make it to the end of 2020 with current cash reserves, let alone to the end of summer. I think October would be more realistic.

Hi Guest, join in the discussion on Virgin Atlantic defers A350s, eyes investors, preps for administration