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Virgin Atlantic has confirmed plans to raise £220 million through a ground-breaking bond sale secured against its take off and landing slots at Heathrow.
The airline pans to use the funds to invest in new aircraft such as the 17 Boeing 787s it has on order. A deal for 20 to 25 more widebody aircraft is expected in January, according to reports.
Chief financial officer, Shai Weiss, said the “innovative financing arrangement” strengthened the carrier’s financial position after returning to profit in 2014 following four years of losses and the sale of a 49% stake to Delta Air Lines.
The deal was made possible by the creation of an airline company – Virgin Atlantic International – which will be on standby to take over the slots if the main airline goes bust.
The new offshoot will be used to fly two Airbus A330s between Gatwick and Caribbean destinations, including Barbados and St Lucia.
The parent company, which is the third-largest slot holder at Heathrow, retains the legal title to the slots.
In the event of a default it could sell them to repay investors, reducing the risk that they would not get their money back.
The majority of Virgin’s Heathrow slots, which have a value far higher than the bond issue, have been assigned to the new unit, so that the deal “ creates almost permanent capital for the company,” should it want to raise further funds.
Weiss said Virgin Atlantic has spent the past year working on the transaction.
“We had to find the right structure that achieves the purpose for both lenders and Virgin Atlantic,” told the Financial Times.
“We’re strengthening our position so that we can invest more into our customer proposition.
“We’ve now unleashed the value of these landing and airport slots which we couldn’t realise the value before.”