Former Monarch owner Greybull Capital is being tipped as supporting one of two potential backers of a rescue package for Virgin Atlantic

Proposals from rival hedge funds Davidson Kempner Capital Management and Elliott to provide up to £250 million in debt funding to the British carrier are being considered.

Elliott’s offer is understood to be supported by Greybull Capital, according to Sky News.

A source close to Virgin Atlantic’s lenders said one of the hedge fund bids was likely to be chosen by the carrier’s board as its preferred funding partner during the course of the week.

Davidson Kempner, an investor in UK companies such as the outsourcer Interserve and Oak Furnitureland, is said to be a marginal frontrunner at this stage.

Any such deal would not dilute Virgin Group’s 51% stake in the company.

The airline is understood to be targeting an overall package of as much as £900 million – up from £750 million originally targeted – as talks continue with a range of stakeholders

Discussions are now focused on “an informal deadline” in early July to have the outline of an agreement in place.

Virgin Group and US partner Delta Air Lines would provide around £250 million of new funding support to Virgin Atlantic as part of the complex funding proposal.

The rescue deal would include several hundred million pounds of support from aircraft lessors and credit card companies, with talks about their support reported to be intensifying in the last few days.

The Civil Aviation Authority has also reportedly been asked to temporarily ease requirements relating to Atol bonding arrangements, which cover Virgin Holidays.

Approval is also needed from a syndicate of bondholders which lent money to it in 2015 against the airline’s take-off and landing slots at Heathrow.

Any deal would also include an ‘amend-and-extend’ agreement with the providers of the airline’s revolving credit facility, accordint to the report.

Negotiations are understood to be proceeding constructively, raising hopes that Virgin Atlantic’s future can be successfully secured early in July.

The airline last month 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 Gatwick, concentrating future UK services at Heathrow and Manchester.

The carrier is also cutting the size of its fleet and retiring older aircraft including its Boeing 747s.

Delta owns 49% of Virgin, but chief executive Ed Bastian confirmed it will not be putting any more cash in and hopes to avoid administration.

“We’re not planning on injecting additional capital into Virgin,” he told the BBC. “We’re supporting them in doing everything we can, helping them through a restructuring, hopefully to avoid an in-court process, and I’m still optimistic, cautiously optimistic that we’ll be able to get there.”

Willie Walsh, chief executive of rival British Airways’ owner IAG, told The Sunday Times that it was “not in anybody’s interest to see them fail”.

But he added: “I don’t think they’re a particularly well-run company, given that they’ve been loss-making at a time when most airlines in the world have been profitable.

“And they’re probably in a unique position in that they’ve got the richest shareholders [Branson and US giant Delta] ever.”

The latest developments came as Bain Capital, the private equity group which is Virgin Atlantic founder Sir Richard Branson’s partner in Virgin Voyages, won an auction to buy Virgin Australia, which had collapsed into administration.

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