Virgin Atlantic is billionaire Richard Branson's second airline to file for Chapter 15 bankruptcy in the U.S. this year as the coronavirus pandemic continues to plague the industry.
Virgin Atlantic negotiated a stakeholder contract "to reach an amicable recapitalization" in the US bankruptcy court in New York's southern borough on Tuesday that would remove the debt from its balance sheet and "position it immediately for sustainable long-term growth." & # 39;
The US filing complements a case filed in a UK court that gave Virgin Atlantic Tuesday permission to hold meetings of affected creditors to vote on the plan on August 25.
A Virgin Atlantic spokesman said the company is pursuing a "solvent restructuring" under UK law. Filing means the airline is not yet liquidated or is going out of business. However, the company warned that if an agreement is not reached with creditors, cash may run out of cash by September.
The company's filing comes just a day after Branson announced that it could become the first passenger to take off into space aboard its Virgin Galactic aircraft in early 2021, which could potentially pave the way for commercial flights.
Virgin Atlantic is billionaire Richard Branson's second airline to file for bankruptcy this year as the coronavirus pandemic continues to hit the industry
This is another blow to Branson's Virgin brand, coming just months after sister airline Virgin Australia's April application for voluntary administration as well as Chapter 15 protection in the US.
Virgin Australia announced Wednesday that it would permanently cut a third of its workforce and focus on being a short haul operator as part of a new business plan owned by Bain Capital.
The country's second largest airline had entered voluntary administration in April for owing nearly A $ 7 billion to creditors after being unprofitable for seven straight years before the coronavirus pandemic hit.
Virgin said 3,000 of its 9,000 employees would be affected by the cuts.
What is Chapter 15 Bankruptcy?
Under Chapter 15 of the US Bankruptcy Act, foreign debtors can seek protection of their assets in America from US creditors.
A filing according to Chapter 15 usually goes hand in hand with bankruptcy or equivalent filing in the company's home country.
The law allows cooperation between the United States courts and the foreign courts and other foreign authorities involved in cross-border bankruptcy cases.
Airlines have been hardest hit by the pandemic as borders were closed and travel bans were put in place when nations were locked down earlier this year.
Virgin Atlantic, based in London and 49 percent owned by Delta Air Lines, had to cease all passenger operations in April.
The airline re-took its planes to the skies in July, but with travel restrictions still in place and low consumer confidence, it has failed to attract the crowd again.
"The ongoing COVID-19 pandemic has adversely affected not just (Virgin Atlantic) but the aviation industry as a whole, causing the global shutdown of the global passenger aviation industry," the company's lawyers wrote on the file filed Tuesday.
& # 39; While (Virgin Atlantic) has taken various steps to manage its liquidity in the face of unprecedented financial and operational conditions, a broader recapitalization is needed to secure the future of its business and ensure it is able to meet its liabilities and commitments to meet funding needs after mid-September 2020. "
Chapter 15 is a form of bankruptcy protection for companies in multiple countries, providing foreign companies with the ability to protect US assets from creditors.
Richard Branson has announced that he will be selling his private island to save his troubled tour company
The Virgin Group airline filed for Chapter 15 bankruptcy protection in the southern borough of New York on Tuesday, just hours after the company told a London court it will be forced to work if a bailout deal is not reached by next month
The filing marks the latest alerts for the airline.
At a court hearing in London earlier Tuesday, Virgin Atlantic said there would be no money as early as September unless a bailout deal is swiftly approved.
The company is looking for a $ 1.6 billion bailout package and said that without this package, available cash will plummet and be forced to fold.
The restructuring package was announced last month but has yet to be finalized despite the support of most stakeholders.
This would allow Branson, who has been criticized for asking the UK government to bail out, to keep his 51 percent stake in the company.
Branson has also said he will sell his private island to save the ailing company.
A UK judge gave the go-ahead for four creditors' meetings to be convened on August 25 to vote on the restructuring plan.
Virgin Atlantic's check-in area at Heathrow Airport in London in April is considered empty as the coronavirus pandemic has devastated the aviation industry
"With the support already received from a majority of stakeholders, the restructuring plan and recapitalization is expected to take effect in September," said a Virgin Atlantic spokeswoman.
"We remain confident in the plan."
This is the result of various efforts to save the struggling company.
The airline, 51 percent owned by Branson's Virgin Group and 49 percent owned by U.S. airline Delta, closed its Gatwick base and cut more than 3,500 jobs to cope with the aftermath of the COVID-19 pandemic being grounded, the planes and the demand for air travel.
It said it needed to be recapitalized "not only to survive the urgent threats posed by the global COVID-19 pandemic, but to thrive once the immediate global health crisis is over".
In July, Virgin Atlantic announced it had signed a £ 1.2 billion ($ 1.57 billion) bailout deal with shareholders and creditors to secure its future beyond the coronavirus crisis.
Virgin said in a court that reservations were down 89 percent year over year and current demand for the second half of 2020 is about 25 percent of 2019 levels. Virgin Atlantic also owns Virgin Atlantic Holidays, a tour operator company, and Virgin Atlantic Cargo.
The high-profile Branson drew criticism after seeking government assistance from Virgin Atlantic to weather the downturn.
Ed Bastian, Delta CEO, previously made it clear that, according to Business Insider, Delta will not be offering a cash injection to save Virgin Atlantic from bankruptcy.
Virgin Atlantic operates primarily in the UK and has administrative offices in Atlanta, Georgia and New York.
On Monday, Branson said he could be the first passenger on board his Virgin Galactic aircraft to take off into space in early 2021.
Billionaire Richard Branson could be the first passenger on board his Virgin Galactic aircraft to take off into space in early 2021, potentially paving the way for commercial flights
The company has repeatedly postponed the date when the first tourists will be out of the Earth's atmosphere, but said 600 "future astronauts" have already paid $ 250,000 to reserve a seat
The company has repeatedly postponed the date when the first tourists will be out of the Earth's atmosphere, but said 600 "future astronauts" have already paid $ 250,000 to reserve a seat.
Branson's journey into space depends on the success of two upcoming flight test programs, said Virgin Galactic Holdings Inc, with the first motorized space flight scheduled for this fall from Spaceport America.
Virgin Galactic competes with billionaire-backed companies like Jeff Bezos Blue Origin, all of whom are trying to usher in a new era in space tourism. They are the first to offer suborbital flights to civil space travelers.
Virgin Galactic offers its customers zero gravity experiences with its central SpaceShipTwo aircraft and has long-term point-to-point travel plans that allow passengers to be transported quickly from city to city at near-spatial heights.
Virgin Galactic said Monday it expects to move into the next phase of its flight test program with two manned flights this fall.
"Assuming that both flights show the expected results, Virgin Galactic expects Sir Richard Branson's flight to take place in the first quarter of 2021," the company said in a statement.
The spaceship is picked up by a special aircraft and released at high altitude. Seconds later, the spaceship ignites its engine and bursts upwards with an acceleration of 3.5 g, which is three and a half times the force of gravity
Virgin Galactic revealed the design of the spacecraft cabin and seats last month on a live stream on YouTube that showcased its interior in virtual reality for people to truly experience
Virgin Galactic worked with London-based design agency Seymourpowell on the interior of the cabin, which they call "a sleek but progressive, experiential concept".
The groundbreaking flight from Branson, the founder of Virgin Galactic, would pave the way for commercial travel.
However, serious problems have plagued the program. In 2014, there was a devastating crash caused by pilot errors that delayed the development of the SpaceShipTwo passenger aircraft.
Getting tourists into space is not an easy exercise.
The spaceship is picked up by a special aircraft and released at high altitude. Seconds later, the spaceship ignites its engine and bursts upwards with an acceleration of 3.5 g, which is three and a half times the force of gravity.
It will then shut off the engine, which creates a feeling of weightlessness for a few minutes when the spaceship reaches its highest point, about 50 miles above the planet, and then begins its descent
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