Virgin Atlantic has filed for Chapter 15 bankruptcy protection, as the airline warns that they are running out of money. The London-based flagship of the Virgin Group is the second to go under in 2020, after Virgin Australia entered into voluntary administration.
Virgin filed for bankruptcy in the Southern District of New York. According to court documents, the airline is seeking protection from creditors in the United States. The New York filing is in addition to a proceeding filed in a British court. As part of the British case, Virgin Atlantic will facilitate meetings of affected creditors.
In their submission to the New York court, Virgin Atlantic’s legal team said that reservations are down 89 per cent year-on-year. Furthermore, passenger demand for H2 of 2020 is at roughly 25% of the same period in 2019.
“The group and its business have been adversely affected by the ongoing Covid-19 pandemic, which has caused an unprecedented near-shutdown of the global passenger aviation industry…Global aviation was one of the first industries to be impacted by the Covid-19 pandemic and is likely to be one of the last to fully recover.”US Courts (via Bloomberg)
What is Chapter 15 Bankruptcy?
Chapter 15 is a section of the US Bankruptcy Code designed to facilitate cooperation between US courts and foreign bankruptcy courts. It was enacted in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act.
The purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants and other parties of interest involving more than one country.
The Next Steps
In July, Virgin Atlantic said that they needed a £1.2 billion ($1.57 billion) rescue package. The airline told a British court that, without the funds, they would run out of money at an undisclosed date. However, Bloomberg has reported that available cash will drop to about £49 million ($64 million) by late September. That falls below the £75 million ($98 million) which is specified in bondholder contracts.
As part of a future restructuring plan, US hedge fund Davidson Kempner Capital Management will provide about £170 million ($222 million) in bailouts, while Virgin owner, Richard Branson, will contribute £200 million ($261 million) in Virgin Galactic revenues.
Delta, which owns 49% of Virgin Atlantic, has pledged support and will cooperate in the legal process.
Virgin Will Keep Flying
“All our scheduled flights continue as normal. All upcoming flight and holiday bookings remain valid; Flying Club members can continue to earn and redeem their miles as usual; customers with cancellations can continue to make changes or request refunds, which are being processed; and our amazing people are ready to ensure you Fly Safe and Fly Well,”Virgin Atlantic
What do you think the future is for Virgin Atlantic? Let us know in the comments.