Virgin Atlantic faces running out of cash by the end of September if creditors do not approve a £1.2 billion bailout deal, a court heard.
The airline’s cash flow is projected to drop to “critical levels” by the middle of next month and that it will “run out of money altogether” by the week beginning September 28, without a restructuring and an injection of new capital.
David Allison, QC, for the airline, told Mr Justice Trower sitting in the High Court in London, that the Virgin Atlantic Group had “a fundamentally sound business model which was not in any problems at all before the Covid-19 pandemic”.
The judge gave the go-ahead for meetings of groups of creditors to be convened to enable them to vote on the refinancing package. The meetings are due to take place on August 25.
A plan to secure the future of Virgin Atlantic involving only private funds was outlined last month, but the proposal needs to win approval from creditors under a court-sanctioned process.
At the same time, Virgin Atlantic is seeking protection from creditors in the US.
The airline’s filing under Chapter 15 of the Bankruptcy Code, which allows a foreign debtor to shield assets in the country, was made in a bankruptcy court in New York on Tuesday.
The filing said that the airline had negotiated a deal with stakeholders “for a consensual recapitalisation” that would get debt off its balance sheet and “immediately position it for sustainable long-term growth”.
Non-US companies use Chapter 15 to block creditors who want to file lawsuits or tie up assets.
A Virgin Atlantic spokesperson said: “Virgin Atlantic attended court yesterday as part of a solvent recapitalisation process under 26(A) of the UK Companies Act 2006. That process is proceeding with the support of the majority of our creditors.
“Following the UK hearing held yesterday, ancillary proceedings in support of the solvent recapitalisation were also filed in the US under their Chapter 15 process. These ancillary US proceedings have been commenced under provisions that allow US courts to recognise foreign restructuring processes.
“In the case of Virgin Atlantic, the process we have asked to be recognised is a solvent restructuring of an English company under Part 26A of the English Companies Act 2006.”
The spokesperson added: “In order to progress the private-only solvent recapitalisation of the airline, the restructuring plan is going through a court-sanctioned process under Part 26A of the Companies Act 2006, to secure approval from all relevant creditors before implementation.
“With support already secured from the majority of stakeholders, it’s expected that the restructuring plan and recapitalisation will come into effect in September. We remain confident in the plan.”
The restructuring is based on a five-year business plan which envisages the carrier returning to profitability from 2022.
The refinancing includes cost savings of about £280 million a year and £880 million in re-phasing and financing of aircraft deliveries over the next five years.
Virgin Group, which owns 51% of the carrier, and US shareholder Delta Air Lines, will provide £600 million in support, including a £200 million investment by Virgin Group and £400 million in shareholder deferrals and waivers of payments.
US hedge fund Davidson Kempner Capital Management will provide £170 million in financing.
The airline’s creditors said they “would support the airline with over £450 million of deferrals”.
The carrier returned with services from Heathrow to Hong Kong, New York JFK and Los Angeles with 17 more routes from August 1, including to the Caribbean, Canada and other parts of the US.
Private investment firm Bain Capital entered into an agreement with the administrators of Virgin Australia in June to become owners of the airline.
The offshoot of Sir Richard’s Virgin Group was the second largest airline in Australia when it collapsed in April.
Boston-based Bain Capital, a joint venture partner of start-up cruise line Virgin Voyages, reached the agreement with administrators Deloitte.
Virgin Australia is to cut to a third of its workforce, affecting 3,000 staff, and focus on being a short-haul operator as part of a new business plan.