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.
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
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