No Longer Flying High: Virgin Atlantic files for bankruptcy
August 15, 2020
2 min read
What's going on here?
Virgin Atlantic has filed for bankruptcy protection in the US, whilst it waits for creditors to approve a restructuring, to survive the coronavirus pandemic.
What does this mean?
Like most of the aviation industry, the coronavirus pandemic has hit Virgin Atlantic hard. The airline stopped flying in April and only re-started its long-haul flights in July. It has also closed its Gatwick operation resulting in over 3,000 job losses and a reduction of its fleet to 35. Filing for Chapter 15 bankruptcy allows a foreign company to shield its assets in the US. Virgin hopes this will buy more time to allow creditors to approve a £1.2bn bailout. The airline plans to restructure and inject more cash, £1.2bn, or face “running out of money by September 28”. In line with the requirements of a court-sanctioned process, the judge allowed for a meeting of creditors due to take place in late August.
What's the big picture effect?
During court proceedings, the QC for Virgin stated the airline had a “fundamentally sound business model”. He attributed the need for this restructuring to the ongoing pandemic. The International Air Transport Association predicts the aviation industry will not recover until 2024, citing a decline in business travel and consumer confidence as well as the virus.
This is not Virgin’s first attempt at a bailout either. In early 2020 Sir Richard Branson, the airline’s founder, asked the UK government for help even offering his private Caribbean Island as collateral for a loan which was rejected. This followed the bailout of UK regional airline Flybe in February 2020 which was part-owned by Virgin Atlantic (read more about that here). If a bailout is not approved by creditors the airline predicts it will run out of cash in late September and go into administration shortly after. But even if bailed the skies are not clear. Like most of the aviation industry, Virgin faces heavy economic turbulence and a steep climb to regain passenger numbers.
Branson’s Virgin Group has spanned, and still spans, music, travel and telecoms with brands such as Virgin Records, Virgin Media, Virgin Trains, Virgin Galactic to name but a few. At the beginning of the decade, the airline made losses until it partnered with Delta Air Lines in 2015 and found financial support from Air France in 2017. With all this in mind, one should question Virgin Atlantic’s “fundamentally sound business model”. Maybe the Virgin Group should shift its focus to something new again. Virgin Law anyone?
Report written by Michael Johnson
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