Virgin Atlantic could run out of funds if its creditors do not approve a £1.2 billion bailout package, a court has heard. The airline is most likely to run out of money by the end of September.
However, if the airline does not get the new cash, it is most likely that its cash flow will drop to critical levels by the middle of next month. However, it will run out of money altogether by the week beginning September 28.
The Restructuring Plan
The airline unveiled a restructuring plan to secure its future, involving only private funds, last month. However, it has to take the approval of the creditors under a court-sanction process.
At a High Court hearing on Tuesday, David Allison QC, for Virgin Atlantic Airways Limited told Mr. Justice Trower that the Virgin Atlantic Group has “a fundamentally sound business model. Which was not in any problems at all before the Covid-19 pandemic.
In written submissions to the court, Mr. Allison said, “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.”
“Passenger demand has plummeted to a level that would, until recently, have been unthinkable.”
In addition, he said, “As a result of the Covid-19 pandemic, the group is now undergoing a liquidity crisis.”
“Absent 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 21 September 2020.”
Mr. Allison said this would trigger the rights of some creditors to “commence an enforcement process” over Virgin Atlantic’s landing slots at Heathrow Airport. “If they remove the slots from the control and usage of the company, ultimately destroy the group’s business”.
He said, “This would result in a poor outcome for the company’s creditors, especially its unsecured creditors. Since the value of the company’s assets and business would likely be subject to a significant reduction in the event of a formal insolvency proceeding.”
“Such an outcome would be particularly unfortunate because the group’s business is fundamentally sound.”
“Prior to the Covid-19 pandemic, the group was not in any difficulty at all. The group remains one of the leading airlines in the world and is an icon of British business and aviation.”
“The problems that the group now faces are not of its own making. But are the result of a global health disaster.”
Current Court Scenario
During Tuesday’s hearing, Mr Allison told the court, “We say it is in the best interests of all stakeholders to reach a position which avoids administration and enables the group to continue as a going concern.”
At the hearing, Mr. Allison asked Mr. Justice Trower to issue an order regarding the meetings of groups of creditors. In which they can convince the creditors to enable them to vote on the restructuring plan.
The senior judge issued the orders for the meetings however, these meetings are due to take place on August 25.
However,Virgin Atlantic believes that the demand for air travel will not return to pre-coronavirus pandemic levels until 2023.