Coronavirus: Branson’s Virgin Atlantic lands £1.2bn rescue deal
14 July 2020, 10:59 | Updated: 14 July 2020, 12:48
Sir Richard Branson’s Virgin Atlantic Airways is close to unveiling a £1.2bn rescue package that will salvage thousands of British aviation jobs.
Sky News understands that the airline has secured the backing of key financial stakeholders for a deal, with the company now expected to be among the first users of a new court-sanctioned process introduced as part of government reforms to enable smoother corporate restructurings during the coronavirus pandemic.
An announcement is expected to be made as soon as Tuesday afternoon.
As part of the refinancing of the British-based carrier, Sir Richard Branson's Virgin Group will inject £200m in cash, while Davidson Kempner, a hedge fund, will lend the company £170m.
Virgin Group and Delta Air Lines, Virgin Atlantic's two shareholders, will collectively defer approximately £400m of fees, with hundreds of millions of pounds more secured in the form of deferrals and advances from payments companies and aircraft lessors.
The backing of First Data, a subsidiary of Nasdaq-listed Fiserv, which had made onerous demands relating to cash collateral, is understood to have been secured in the last few hours, enabling the deal to go ahead, according to banking sources.
Sky News revealed last week that the signatures of the merchant acquirers were "the final piece of the jigsaw" in securing a package that would provide breathing space for Virgin Atlantic to trade through the aviation industry crisis.
A further £200m or more is expected to be generated by cost savings under a plan drawn up by Shai Weiss, the airline's chief executive.
In total, the package is said to be worth up to £1.2bn over 18 months.
If concluded, the deal would remove the risk of Virgin Atlantic collapsing into administration in the medium term.
Sir Richard, who launched Virgin Atlantic in 1984, will retain a controlling stake in the business following the restructuring, which will vindicate the government's decision to resist Sir Richard's plea for financial support from the taxpayer.
Rishi Sunak, the chancellor, indicated in April that state aid would be available to airlines "only as a last resort" and after the support of existing government schemes and companies' existing shareholders had been pursued.
Virgin Atlantic recently announced a restructuring of its operations designed to save hundreds of millions of pounds annually.
It is cutting 3,150 jobs - almost a third of its workforce - and ceasing flights from London's Gatwick Airport, concentrating future UK flights at Heathrow and Manchester.
Virgin Atlantic is also cutting the size of its fleet and retiring older planes including its Boeing 747s.
Since the coronavirus outbreak, the company has furloughed thousands of staff and seen its top executives agree substantial pay cuts.
British-based airlines including Virgin Atlantic have been pressing the government to introduce measures that would revive passenger demand for flights between the UK and the US.
The company is expected to resume passenger flights on 20 July to destinations including Hong Kong, Los Angeles and New York, although Delta has warned that the recovery of demand for international travel is likely to lag domestic US aviation by a year.
Virgin Atlantic is anticipating that customer demand will be at least 40% lower during 2020, with only a gradual recovery next year, reinforcing its desire to seek substantially more than its initial funding requirement of about £500m.
A handful of its planes have been flying since the UK lockdown began in March, largely on cargo routes.
A spokeswoman for the airline said: "Virgin Atlantic has been working on a comprehensive, solvent recapitalisation of the airline to ensure that we can continue to provide essential connectivity and competition to consumers and businesses in Britain and beyond.
"Since the very beginning of the COVID-19 crisis, we have made difficult decisions and taken decisive action to reduce our costs, preserve cash and protect as many jobs as possible.
"We greatly appreciate the support of our shareholders, creditors and private investors and by working together, we will ensure that Virgin Atlantic can emerge from the crisis a sustainably profitable airline, with a healthy balance sheet."
(c) Sky News 2020: Coronavirus: Branson’s Virgin Atlantic lands £1.2bn rescue deal