Virgin Atlantic wins backing for £1.2bn rescue deal

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Virgin Atlantic has won backing from its creditors for a £1.2bn rescue plan that would secure its future for at least 18 months and save 6,500 jobs.

The airline said shareholders, banks, aircraft owners and suppliers owed money approved the plan.

Virgin Atlantic said the agreement puts it in a position to “rebuild its balance sheet” and “welcome passengers back”.

It had warned it would run out of cash by September without the deal.

The company will now need approval from the High Court in London, which it will seek on 2 September.

The £1.2bn rescue deal involves £400m in new cash, half of which will come from its main shareholder, Sir Richard Branson’s Virgin Group.

Delta, the US-based airline which owns 49% of Virgin Atlantic, said it is “optimistic that this plan will allow Virgin Atlantic to secure its future”, and said it remains “firmly supportive” of the company.

Like other airlines, Virgin Atlantic’s finances have been hit hard by the collapse in air travel due to the pandemic.

It is cutting 3,500 staff, but the airline has said the remaining jobs should be secure.

Mounting losses

The International Air Transport Association warned in June that the slump will drive airline losses of more than $84bn (£64bn) globally this year.

Robert Boyle, a former director of strategy at British Airways-owner IAG who now runs his own aviation consultancy, told the BBC that under the deal, Virgin Atlantic’s unsecured creditors would end up being paid 20% less than they were owed.

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Virgin Atlantic has seen passenger numbers slump as countries close borders and enact travel bans

Their repayments would also be rescheduled.

Mr Boyle said the extra cash secured under the rescue deal did not “seem like enough”, given that Sir Richard had asked the government for £500m and had his request rejected.

In April, Virgin Australia – a separately run business – went into voluntary administration, making it Australia’s first big corporate casualty of the coronavirus crisis. Sir Richard Branson’s 10% shareholding was wiped out as a result.

The following month it was bought by Bain Capital, which said it supported the airline’s current management team and its turnaround plan for the business.

Last month, Virgin Atlantic faced enforcement action over its delays in processing refunds for flights cancelled during the pandemic.

It was the only airline threatened with action by the Civil Aviation Authority (CAA), which has reviewed the refund waiting times of 18 major airlines.

Virgin has been making consumers wait up to 120 days for a refund and the CAA said it was “not satisfied”.