Virgin Atlantic runs out of money, files for bankruptcy due to pandemic

*Cash flow drops to ‘critical levels’, would ‘run out of money altogether’ by week beginning September 28 ─Report

*Firm ‘fundamentally sound’ but restructuring, fresh injection of funds critical to securing its future

Isola Moses | ConsumerConnect

In what some analysts have described as the ‘devastated airline industry’ due to the damaging impacts of the novel Coronavirus disease (COVID-19) on the sector, Sir Richard Branson’s Virgin Atlantic has filed for bankruptcy as it currently battles to secure its rescue deal.

ConsumerConnect reports that the leading airline has disclosed it could run out of cash September 2020 if creditors do not approve a £1.2billion rescue deal.

Quoting a court in the United Kingdom (UK), the aviation firm’s lawyers disclosed that the airline is “fundamentally sound” but a restructuring and fresh injection of money is critical to securing its future, Virgin’s lawyers said.

The plans need approval from creditors under a court-sanctioned process.

It was learnt that as part of that process Virgin Atlantic is also seeking protection under Chapter 15 of the US bankruptcy code.

The Virgin Atlantic move in this regard, according to report, enables a foreign debtor to shield assets in the country.

Having reached ‘critical levels’ like other airlines as a result of the disruption occasioned by the virus, Virgin Atlantic’s finances have been hit hard by the collapse in air travel due to the pandemic, sources said.

The court in London heard that the airline’s cash flow would drop to “critical levels” by the middle of next month, and it would “run out of money altogether” by the week beginning September 28, 2020.

It is recalled the aviation company July 2020 agreed to a rescue deal worth £1.2billion ($1.6billion) to secure its future beyond the Coronavirus crisis.

Mr. David Allison QC, for Virgin Atlantic, told Mr. Justice Trower in written submissions that the group had “a fundamentally sound business model which was not in any problems at all before the COVID-19 pandemic.”

Allison said: “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.”

According to the company’s lawyer, without a “solvent recapitalization”, including an injection of new money, Virgin Atlantic’s Directors would have “no choice” but to place the company into administration in mid-September 2020 in order to wind down the business and sell any assets, where possible.

He said the restructuring needed to be sanctioned by early September. Mr Justice Trower gave the go-ahead for a meeting of creditors August 25.

Meanwhile, Virgin Atlantic has filed for US bankruptcy protection, saying it had negotiated a deal with stakeholders “for a consensual recapitalisation” that will get debt off its balance sheet and “immediately position it for sustainable long-term growth”.

The company firm, in a statement Wednesday, August 5 explained that it continues to operate its limited flight schedule.

The statement indicates that “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.”

Under the airline’s restructuring plan, Sir Richard’s Virgin Group will inject £200million with additional funds provided by investors and creditors, report stated.

Earlier during the pandemic, the billionaire Branson had a request for UK Government money rejected, thereby leaving the airline in a race against time to secure new investment.

In May, Virgin Atlantic, which is 51% owned by Virgin Group and 49% by US airline Delta, announced that it would cut more than 3,000 jobs in the UK and close its operation at Gatwick airport.

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