Virgin Atlantic filed for Chapter 15 Bankruptcy Protection in New York on August 4th, 2020, to pave the way for an international effort to recapitalise the boutique airline, before funds run out. Despite the news, the airline has not gone out of business, and your miles are fine, for now.
As odd as it sounds, the Chapter 15 Bankruptcy filing is a “good thing” for the future hopes of a Virgin Atlantic survival.
The move, which involves the feared word “bankruptcy”, makes it easier for US court efforts to coincide with those in the UK, where recapitalization efforts are ongoing. The airline has already announced clear plans to keep cash flow in the interim, in hopes of weathering the unprecedented drop in demand, but those plans must first be approved.
Without the Chapter 15 filing, that would’ve been impossible. In the last decade, airlines including Delta, United, and American all filed for bankruptcy in the United States using Chapter 11, and Japan Airlines filed for Chapter 15 in 2010.
Chapter 15 specifically allows for cross border solutions to debt issues, rather than competing interests in different countries, which can end up cancelling each other out.
In July, Virgin Atlantic announced a £1.2 billion ($1.5 billion) proposal to inject funds into the boutique, long haul operation, currently ravaged by the covid-19 global pandemic.
But without protecting airline assets from further US complications, the new funding proposals wouldn’t have the chance to be approved by the four outstanding creditors, in time to save the operation.
Basically, Chapter 15 filings in New York allow Virgin Atlantic to officially pursue their £1.2 billion rescue package and get shareholders and debt obligations, both old and new to go along with it, without outside influences trying to sell assets or tear things apart before the airline has a chance to survive.
According to Bloomberg, in the court filing, Virgin Atlantic stated operations wouldn’t be able to continue past September, if new cash from the proposed rescue package couldn’t be accessed.
After the New York move, Virgin Atlantic must now convince four creditors to approve their new recapitalization plan, which will see a variety of debts deferred to a later date, aircraft leases reduces or terminated early and other measures, including new money injections from the Virgin Group.
Delta Airlines, a 49% owner of Virgin Atlantic will also likely earn preferred stock in exchange for deferring monies owed. Delta recently receives billions in US airline bailouts, and has expressed interest in a second. UK Government has yet to bail out any UK airline.
Three out of four creditor groups have already signed onto the £1.2 billion proposal, and final meetings will take place on August 25th to secure a final vote. Ultimately, the airlines interim fate will not be decided until this date, provided filings in New York go to plan.
But what about flights, and miles?
The court formalities are part of a necessary process to allow votes for new funding to occur, and have no impact on flights in the immediate future, or any value to Virgin Atlantic Flying Club Miles. Flights scheduled to depart this week are still scheduled to depart, at the time of writing.
Airline loyalty programs are often worth more than airlines themselves by a multiple of up to 3X, and even if Virgin is eventually unsuccessful in realizing its £1.2 billion rescue plan, it wouldn’t necessary make Virgin Atlantic Flying Club miles useless.
Virgin Atlantic isn’t out of the woods, but this is far from the end of the story.