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Coronavirus: Virgin Atlantic rescue hinges on £200m credit card deal

A £1bn-plus rescue deal for Virgin Atlantic Airways rests on the outcome of crunch talks taking place during the coming days between the airline and two big payment processors.

Sky News has learnt that Virgin Atlantic is in detailed talks with Cardnet, which is owned by Lloyds Banking Group, and First Data, a subsidiary of American Fiserv.

Sources said the airline was hoping to persuade the two companies to release about £200m of funds to aid its working capital as part of a broader rescue deal that in the past week has grown to over £1bn in various financing commitments.

Other strands of the negotiations are now said to have been broadly agreed.

Cardnet and First Data are understood to be “the final piece of the jigsaw” in securing an overall package that would provide substantial breathing space for Virgin Atlantic to continue trading through the aviation industry crisis caused by the coronavirus pandemic.

Banking sources expressed optimism that a deal would be agreed with the merchant acquirers in the next few days, although they cautioned that without their agreement, the entire refinancing of Virgin Atlantic could yet be jeopardised.

Sky News revealed late last month that the company was racing to stitch together a deal, which will include £200m from Sir Richard’s Virgin Group in the form of a capital injection, along with various fee deferrals.

The tycoon, who launched Virgin Atlantic in 1984, will retain a controlling stake in the business if the restructuring is completed.

Delta Air Lines, which owns 49% of the British airline, has also agreed in principle to aid the refinancing plans.

Virgin Atlantic is now aiming to have a deal provisionally signed off by the middle of next week.

Davidson Kempner Capital Management, a hedge fund, has been chosen by Shai Weiss, Virgin Atlantic’s chief executive, as the preferred provider of roughly £150m of new debt funding, while aircraft lessors have also agreed to support a deal.

Approval is also needed from a syndicate of bondholders which lent money to it in 2015 against its take-off and landing slots at Heathrow.

If a private sector solution is concluded, it would be seen to have vindicated the government’s decision to resist Sir Richard’s plea for the government to provide financial support to the company.

Rishi Sunak, the chancellor, indicated in April that state aid would be available to airlines “only as a last resort” and after the support of existing government schemes and companies’ existing shareholders had been pursued.

The sheer multitude of stakeholders whose consent is needed for a rescue deal to be concluded underlines the fact that Virgin Atlantic’s future is not yet assured.

Sky News revealed in May that the company’s board had drafted in Alvarez & Marsal (A&M) to draw up contingency plans for a pre-pack administration or another form of insolvency arrangement.

Virgin Atlantic recently announced a restructuring of its operations designed to save hundreds of millions of pounds annually.

It is cutting 3,150 jobs – almost a third of its workforce – and ceasing flights from London’s Gatwick Airport, concentrating future UK flights at Heathrow and Manchester.

Virgin Atlantic is also cutting the size of its fleet and retiring older planes including its Boeing 747s.

Since the coronavirus outbreak, the company has furloughed thousands of staff and seen its top executives agree substantial pay cuts.

British-based airlines including Virgin Atlantic have been pressing the government to introduce measures that would revive passenger demand for flights between the UK and the US.

Sir Richard’s carrier has said it will aim to resume passenger flights on July 20 to destinations including Hong Kong, Los Angeles and New York, although Delta has warned that the recovery of demand for international travel is likely to lag domestic US aviation by a year.

Virgin Atlantic is anticipating that customer demand will be at least 40% lower during 2020, with only a gradual recovery next year, reinforcing its desire to seek substantially more than its initial funding requirement of about £500m.

A handful of its planes have been flying since the UK lockdown began in March, largely on cargo routes.

Virgin Atlantic declined to comment on Thursday on its talks with the two merchant acquirers.

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