Virgin Atlantic has filed for bankruptcy protection in US

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  • cwoodward

    I am not at all certain what this means as regards its continued operation in the UK.

    This from Flight Global:


    It means creditors cant come after them whilst they restructure. This is what all US Carriers have done in the past. I am not sure if a British Company can seek Chapter 15 US protection..


    A balanced view from Bloomberg that seems to indicate that this is part of an overall restructuring plan and that also explains why the filing ws necessary.

    Personally I feel that it will be touch and go as to Virgin surviving to fly another day given that the North America market will take a very long time to be viable again and is absolutely vital cornerstone to Virgins operation.

    “Richard Branson’s Virgin Atlantic Airways Ltd. filed for Chapter 15 bankruptcy protection in the U.S. on Tuesday after telling a London court it was set to run out of cash next month if a pending rescue deal isn’t approved.

    The airline filed its petition in the Southern District of New York. Chapter 15 allows foreign companies with U.S. assets to protect themselves against claims while they work on a turnaround plan at home.

    The company had said during proceedings in the U.K. that it planned to apply for the U.S. protection while it finalizes a rescue plan that’s already supported by a majority of its stakeholders. Virgin is seeking to secure a a 1.2 billion-pound ($1.6 billion) rescue, which was announced in July.

    Read more: Virgin Atlantic Seeks Rescue Approval as Cash Running Out

    Airlines are under pressure as travelers shun flights to avoid exposure to the coronavirus. At least four U.S. regional airlines have gone bankrupt, and revenue at carriers with vast international networks could see sales plunge 66% this year, according to a Bloomberg Intelligence report.

    Since Jan. 1, Virgin’s reservations are down 89% year-over-year and demand for the second half of 2020 is at approximately 25% of 2019 levels, according to court papers.

    “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.”

    Virgin’s restructuring plan in the U.K. depends on the approval of its Chapter 15 filing in the U.S., the company said in its court filing. Without the plan, there’s uncertainty as to whether Virgin could get enough creditor support to implement its restructuring in time to avoid going into formal insolvency proceedings, according to the filing.

    “Because VAAL has material assets and operations in the United States, the recognition of the English proceeding and enforcement of the sanction order and the plan through Chapter 15 of the bankruptcy code are necessary to ensure that the plan is effective and binding,” the filing states.
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    Personally I think that Chapter 15 is too broad in scope and makes it too easy for management who have presided over failure – whether it be of their own making or due to external factors – to remain in control. Where the problem is due to external factors, that seems justifiable, but too often it allows “mis”managers to remain employed at high salaries to try to work out how to fix a problem they themselves caused – and Chapter 15 “proceedings” (I use quotation marks because often very little “proceeds”) can run for many years.

    Having said that, UK insolvency laws arguably don’t go far enough in allowing sufficient leeway for companies, and their management, affected by external factors to restructure (I am looking at general insolvency laws, here, not the special interim laws produced for COVID-19).

    The middle ground is where we should be. I don’t blame VS for using Chapter 15 but I find it a shame that a proudly British airline has to resort to US bankruptcy laws.

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    As an insolvency lawyer I can confirm that what Bloomberg says is right- Chapter 15 of the US bankruptcy code is simply the process whereby a non US company achieves recognition of its restructuring or insolvency in the US jurisdiction. Virgin Atlantic is the first company to use the UK’s new restructuring plan which was introduced in the new UK Corporate Insolvency and Governance Act which came into force at the end of June this year. The US court application is purely procedural, aimed at making the UK plan binding in the US.

    I think other posters’ references to Chapter 15 should in fact be to Chapter 11, which is the process whereby a US company restructures its debts in the US. It’s that which many US corporations , including most major US airlines have used at some point.

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    Like another poster mentioned, USA really is the cornerstone, probably the biggest for VS compared to other EU airlines that until things improve in the US, things won’t improve for VS. I don’t have any comment on this move, as I’m not a guru in this bankruptcy protection topic, however, it really feels like a bandaid, at most. Even if they find someone to take over like Bain did for VA, it’ll be a miracle for VS to survive. Regardless of whether VS survives or doesn’t, VS will be a great case study one day on why NOT to rely on one country so much for your business.

    Even if a vaccine were to drop out of the sky tomorrow, it doesn’t mean US int’l premium travel will pick right up. Most companies, including mine have slashed our T&E budgets by 80%, biz trips are being questioned over and over again (“why can’t you do it over Skype/Teams? You did it successfully the last 4 months”). Another big killer is that most industry events have also moved online. In short, international premium travel out of the USA will be very minimal till at least June 2021 when several companies announce their new fiscal budgets.

    I don’t know if I want to say I feel sorry for VS. They’ve had so many opportunities over the year to learn, grow, think outside the box but they do only one thing well – slate BA at every given opportunity and then make the same mistakes over and over again.

    I suspect a few Clubhouses will be closing soon, my guess is the SFO one will be the next to go.

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