Virgin Atlantic – partly owned by British entrepreneur and billionaire Sir Richard Branson – has filed for bankruptcy protection in the US, just weeks after securing a £1.2 billion rescue deal to save the airline from impending collapse.
According to Sky News, a US court has heard that Virgin Atlantic is seeking protection under Chapter 15 of the US Bankruptcy Code, which allows a foreign debtor to shield their assets in the country.
The move comes amid similar court proceedings in the UK, where the firm is looking to secure approval from creditors before it goes ahead with a major restructuring plan.
The company’s lawyers have assured that Virgin Atlantic is ‘financially sound’, but warned that a significant restructuring is necessary to guarantee the airline’s future as the travel industry faces a steep uphill battle before it returns to pre-pandemic normality.
Virgin Atlantic has now become the second of Branson’s airlines to face an insolvency crisis this year, after Virgin Australia went into administration in April, with The Guardian reporting that the airline owed $6.8 billion to more than 12,000 creditors.
Meanwhile, the BBC has divulged that a London court has been told by the company’s lawyers that Virgin Atlantic cash flow is already dropping to ‘critical levels’, and warned that it could run out of cash altogether by the week beginning 28th of September – not even a month since securing a rescue deal with Atlanta-based financial services firm First Data.
The airline operates mainly long-haul flights, with its transatlantic fleet entirely grounded between April and July due to the historic lack of demand. As a result, Virgin Atlantic shut its operations at Gatwick Airport and announced it would be axing up to 3,000 jobs to offset losses.
David Allison QC, a lawyer for Virgin Atlantic, stated that the company had maintained “a fundamentally sound business model which was not in any problems at all before the Covid-19 pandemic”.
Nevertheless, he conceded that the airline was poorly prepared for the catastrophic impact of coronavirus on the travel industry, saying:
“Passenger demand has plummeted to a level that would, until recently, have been unthinkable. As a result of the Covid-19 pandemic, the group is now undergoing a liquidity crisis”.
He warned that without a ‘solvent recapitalisation’, Virgin Atlantic would have no choice but to slip into administration in September and sell its assets. The restructuring plan needs to get approval by early-September, Allison stated, with a creditors meeting set to go ahead on August 25.
Until then, Virgin Atlantic is continuing its flight schedule as usual, saying: “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”.
Earlier this year, Sir Richard Branson came under fire for his plea to the UK government to bail out his struggling airlines, with critics citing his extensive personal wealth. He later pledged to give up his luxury Necker island home in the Caribbean as collateral, but was rejected by UK ministers.
