Richard Branson's Virgin Atlantic Is Seeking Chapter 15 Bankruptcy Protection in the U.S. While It Scrambles to Finalize a Rescue Plan
Richard Branson's Virgin Atlantic airline filed for Chapter 15 bankruptcy protection in New York on Tuesday.
Virgin Atlantic filed for Chapter 15 bankruptcy in New York on Tuesday, part of a process to protect its assets from US creditors as it scrambles to finalize a rescue plan with the aid of the UK court system.
Virgin Atlantic not the only one of the Virgin Group's airlines to struggle during the downturn. Virgin Australia filed for voluntary administration — a form of bankruptcy in Australia — in April.
London-based Virgin Atlantic, 49 percent of which is owned by Delta Air Lines, flies exclusively long-haul international routes. It suspended all passenger operations in April when the coronavirus pandemic triggered a crash in travel demand. It began flying passengers again in July.
Chapter 15 is a form of bankruptcy designed for cases involving multiple countries, providing a mechanism for foreign-based companies undergoing bankruptcy proceedings in their own country to access the US court system. It effectively protects Virgin's US assets from creditors as the airline works to finalize a private rescue plan, which is being aided by the UK court system.
Virgin Atlantic announced a £1.2 billion ($1.57 billion) private rescue package in July but had not finalized the agreement. The airline had also appealed unsuccessfully for a bailout from the British government. Richard Branson, the Virgin Group founder, has offered his private island as collateral for a bailout or loan.
The airline said during a court hearing in London on Tuesday that it would effectively run out of cash in September, Bloomberg reported. Tuesday's US filing appeared to be linked to the London hearing, at which a judge gave the go-ahead for a meeting allowing creditors to vote on the restructuring plan.
Virgin has not entered administration, a form of bankruptcy in the UK.
"One of the most important goals of Chapter 15 is to promote cooperation and communication between US courts and parties of interest with foreign courts and parties of interest in cross-border cases," the US court system says on a website explaining the setup.
In May, Virgin Atlantic said it would cut more than 3,000 jobs and close its base at London's Gatwick Airport, consolidating operations at London Heathrow to cut costs. The airline also retired its iconic Boeing 747-400 fleet as a cost-saving measure.
US and European airlines saw a modest recovery in domestic travel demand in May and June, though that has since reversed in the US as COVID-19 cases have spiked.
For Virgin Atlantic, which operates long-haul flights through its UK hubs, options during the pandemic have been scarce. The airline had planned to build up a domestic network through its acquisition of a regional airline, Flybe, in 2019, but that smaller carrier became the first airline victim of the pandemic, collapsing in early March.
Delta CEO Ed Bastian has said that Delta would not offer a cash injection to save Virgin from a bankruptcy restructuring. UK foreign-ownership laws would prevent Delta or any other foreign investor from increasing its stake.
Delta deferred comment to Virgin Atlantic.
In a statement, a Virgin Atlantic spokesperson said that the airline had made the filing as part of its recapitalization and restructuring process.
"Following the UK hearing held earlier today, ancillary proceedings in support of the solvent recapitalisation were also filed in the US under their Chapter 15 process," the spokesperson said. "These ancillary US proceedings have been commenced under provisions that allow US courts to recognise foreign restructuring processes."