Creditors coming to the rescue during a credit crunch: inside Virgin Atlantic’s £1.2bn rescue deal

Thursday 3rd September 2020

Virgin Atlantic recently received support from its creditors over the proposed £1.2bn rescue package deal. Without the support, the airline would have run out of cash in the next month, so the move came just in time. £400 million of the package is new cash, half of which comes from Branson’s Virgin Group.

The airline stated in July that the plan would be implemented in late summer, and with the backing of the shareholders and suppliers up to 6,500 jobs are expected to be saved under the scheme. Whilst the plan still requires approval from the High Court in London (as per the Companies Act of 2006, the primary source of UK company law), it is a sigh of relief for the company which had to lay off 3,000 staff in May.

The rescue deal also includes yearly cost savings of about £280 million, with an additional £880 million going into rephasing and financing aircraft deliveries. The plan is expected to stretch out over 5 years, so will form the future of Virgin Atlantic’s financial decisions.

The timeline of the airline going bust

The company has been working since March to ensure the survival of their operations. Staff had the option to take eight weeks of unpaid leave and the Leadership Team took pay cuts. The job retention scheme then took place, and more than 80% of their workforce have been on furlough since April. In the second quarter, flying fell by 98% and predicted capacity has significantly dropped. Furthermore, with major competitors such as Ryanair, EasyJet and BA also struggling, it is no surprise that Virgin Atlantic has experienced the turbulence of the aviation industry amidst the pandemic.

With quarantine guidelines updating and changing on a seemingly daily basis, travel companies such as STA Travel have seen the negative effects, with their parent company filing for insolvency. There will be no surprise at the inevitable influx of announced redundancies when the furlough scheme comes to an end in October, not only within the travel sector but within the wider commercial landscape as companies look to reduce fixed costs.