Being an airline carrying the Virgin logo (of Richard Branson) has turned out to be a big bust in the COVID-19 pandemic.
Starting with the failure of Virgin Australia in March, Virgin Atlantic has now joined it in bankruptcy, although the Australian airline seems to be readying itself for take-off under new owners.
And while it is taxing, Virgin Australia is facing considerable turbulence amid the roughest time for aviation since World War 2.
Virgin Australia revealed yesterday that it will try and relaunch a slimmer self by sacking 3,000 staff, or around a third of its workforce, and trying to sell its long-haul international jets and some smaller domestic aircraft.
Virgin said it didn’t want to go down market in its new attempt to come back, but it may not get much of a chance as both it and Qantas remain all but stranded by the continuing impact of COVID-19.
This will be attempted at a time when there are thousands of international jets unused and on the market, so it will be an act of heroic proportions if it can sell any plane.
Bain Capital, the owner of Australia’s number two airline, which went into voluntary administration in April owing $6.8 billion, said on Wednesday outlined a plan to become a “stronger, more profitable and competitive” carrier.
Virgin said it will strip its fleet of 132 aircraft back to just its Boeing 737s, of which it has 79, and offload its long-haul Boeing 777s and Airbus A330s, Tigerair Airbus A320 and ATR turboprops.
While long-haul international flying was an “important part” of Virgin’s future, it would remain suspended until global travel demand recovers from the COVID-19 pandemic, Virgin said.
But the real problem is the still depressed domestic airline sector with Queensland shutting its borders completely again on Wednesday after Victoria locked itself down earlier in the week.
Virgin’s administrator Deloitte signed a deal to sell the airline to US private equity giant Bain Capital in June but they kept key terms of the deal secret, including how large the business will be and how much will be paid to unsecured creditors.
Virgin Australia was the first Virgin branded airline to fail, the second came on Tuesday when Richard Branson’s Virgin Atlantic filed for Chapter 15 bankruptcy protection in the US after telling a London court it was set to run out of cash next month without getting approval for a rescue financing.
The airline filed its petition in the Southern District of New York. Chapter 15 bankruptcy allows foreign companies with US assets to protect themselves against claims while they work on a turnaround plan.
Virgin’s reservations are down 89% year to date and current demand for the second half of 2020 is at approximately 25% of levels for late last year, the airline said in a US court filing.
“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,” according to the court papers. “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.”
IATA, the global aviation industry group said last week it now doesn’t see a full recovery until 2024. Two months ago it said recovery would happen in 2023.
Virgin told a London court that it will run out of cash next month unless it secures approval for a £1.2 billion ($US2.2 billion) rescue package announced in July.
Without the funds, available cash will drop to about 49 million pounds by late September, below the 75 million pounds specified in bondholder contracts. That would require the sale of Heathrow airport slots against which the bonds are secured, forcing the carrier to fold.
Virgin Atlantic said it obtained an order from the court to convene four creditor meetings on August 25 to vote on the restructuring as part of a process that will bind all debt classes to the rescue plan. The carrier said that creditors in three of the groups have agreed in advance to back it.