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Virgin Atlantic is seeking protection from creditors in the US as it struggles to survive the coronavirus pandemic’s devastating effect on the airline industry, a court has heard.
The airline, founded by billionaire Sir Richard Branson, could run out of money by the end of September if creditors do not approve a £1.2bn bailout package.
The news comes after Virgin Atlantic announced it was closing its Gatwick operation and axing 3,150 jobs – around a third of its workforce – in May.
The company had previously told staff to take eight weeks of unpaid leave, and called on the UK government to offer emergency the airline industry credit facilities worth up to £7.5bn.
Although further redundancies cannot be ruled out, the latest update has no direct impact on more job cuts and the airline says it is confident it will continue running flights.
At a High Court hearing in London on Tuesday, a lawyer representing Virgin Atlantic told the judge the company was “undergoing a liquidity crisis” as a result of the coronavirus pandemic.
“The group’s financial position has been severely affected by the ongoing Covid-19 pandemic, which has caused unprecedented disruption to the global aviation industry,” David Allison QC said in written submissions to the court.
“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.
“[Without] a restructuring and an injection of new money, it is projected that the group’s cash flow would drop to a critical level by the week commencing September 21, 2020.”
He added: “It is projected that the group would run out of money altogether during the week commencing September 28, 2020.”
In a connected move later on Tuesday, Virgin Atlantic filed for protection in a US federal bankruptcy court in New York.
The company is seeking protection under chapter 15 of the US bankruptcy code, which allows a foreign debtor to shield assets in the country.
In April, Virgin Australia went into administration. Its new owner Bain Capital today announced it is set to cut 3,000 jobs.
Virgin Atlantic has previously said it does not expect demand for air travel to return to pre-coronavirus levels until 2023.
A Virgin Atlantic spokesperson said: “Virgin Atlantic attended court yesterday (4th August) as part of a solvent recapitalisation process under 26(A) of the UK Companies Act 2006. That process is proceeding with the support of the majority of our creditors.
“Following the UK hearing held yesterday (4th August), ancillary proceedings in support of the solvent recapitalisation were also filed in the US under their Chapter 15 process. These ancillary US proceedings have been commenced under provisions that allow US courts to recognise foreign restructuring processes.
“In the case of Virgin Atlantic, the process we have asked to be recognised is a solvent restructuring of an English company under Part 26A of the English Companies Act 2006.”