Virgin Atlantic has become the latest airline to secure funding to guarantee its future following the severe impact of the COVID-19 pandemic.
The airline has launched a court-backed process as part of a private-only solvent recapitalisation with a five-year restructuring plan. The refinancing package is worth around £1.2 billion over the next 18 months and includes approximately £880 million rephasing and financing of aircraft deliveries over the next five years.
It is expected that the restructuring plan and recapitalisation will come into effect late Summer 2020.
The airline will operate a streamlined fleet of 37 twin engine aircraft following the retirement of 7 x 747s and 4 x A332s by Q1 2022, with rescheduled delivery of outstanding A350s and A339s. The simplified fleet will be 10% more efficient than it was pre-crisis.
According to Dr Darren Ellis, a lecturer in air transport management at Cranfield University, “It seems apparent that certain investors have decided that the risks associated with the industry’s uncertain future – particularly the timeframe for recovery to 2019 demand levels – are at a tolerable point.”
Ellis believes investors are optimistic about the future commenting: “There is a real sense of first mover advantage here, or at least fast follower, whereby the quickest airlines to literally get off the ground will enjoy competitive advantages including capturing substantial market share, and for some time to come.”
However, Deutsche Bank is anticipating a “major deleveraging cycle as the industry will have no choice but to address its significant debt load” for 2021 and beyond. Airlines for America (A4A) has also pointed to S&P lowering its credit ratings on every US airline since March this year. To improve cash flow, airlines are also negotiating with vendors such as caterers, content service providers, IFEC suppliers and others.
A4A is predicting that it will take years to address their debt and interest payments, limiting their ability and willingness to rehire and reinvest. A view at odds with the findings of a study conducted by Inmarsat as part of its online FlightPlan broadcast. Despite the financial impact that many airlines are facing, almost half of respondents (45%) believe that in terms of passenger experience, the crisis will only cause a short-term reduction in investment, and almost a third (32%) believe there will be an overall increase in investment.
As A4A identify, the economic and consumer psychological effects of COVID-19 are deep and global, and until this reverses, individuals will remain reluctant to travel.
