Virgin Atlantic taps Alvarez & Marsal for possible insolvency

12 May 2020 3 min. read

As the global aviation industry struggles amid the coronavirus lock-down, a number of firms have entered into administration. Now, as Virgin Atlantic continues to lobby for state aid, it has appointed Alvarez & Marsal to weigh up potential insolvency procedures.

After a period of relative stability, the now infamous collapse of UK-based Monarch commenced a two-year nose-dive for the aviation sector. 15 airlines failed in 2018, and the crisis deepened over 2019, with the likes of Flymbi and Thomas Cook folding, seeing 33 carriers fail over the course of the year. That was all before the situation was dramatically exacerbated by the onset of the coronavirus.

The Covid-19 lock-down was cited by UK airline Flybe as a factor in its collapse earlier in the year, and has brought several more such companies crashing to the ground since then. In April, this saw Virgin Australia appoint Deloitte for its voluntary administration, after requests for a £700 million bailout from the Australian Government were turned down. As reported by the Guardian, Virgin Australia was also turned down by Australia’s Government for an emergency loan of $1.4 billion, and was recently among a number of airlines to have recently announced it was cutting its consulting spend to help it survive the crisis.

Virgin Atlantic taps Alvarez & Marsal for possible insolvency

Now, Virgin Atlantic looks set to follow the example of its cousin. Billionaire owner Richard Branson has already drawn a great deal of public criticism for having gone cap-in-hand to the UK Government for a tax-funded bailout – despite the fact that for the last 14 years he’s lived on a private Caribbean island and not paid UK tax. The founder of the Virgin Group is currently weathering the Covid-19 crisis on that island, but despite his enormous personal wealth, the tycoon has made multiple attempts to convince the UK government to give his Virgin Atlantic airline a £500 million hand-out, to help it survive the current lock-down.

The evidence suggests it is highly unlikely that the UK Government – which is being heavily criticised for its response to the coronavirus – would be willing to face a further storm of public indignation by sanctioning a bail-out – especially as the Virgin Group has only issued Virgin Atlantic with a capital injection of around $100 million (£80.9 million) of its own money. As a result, news has broken that Virgin Atlantic is preparing for a potential administration. Sky News has reported that Virgin Atlantic has retained Alvarez & Marsal (A&M), a restructuring specialist, to assemble contingency plans for an insolvency process at the airline.

According to aviation experts, A&M’s appointment does not mean that insolvency is inevitable, but rather reflects the legal obligation of Virgin Atlantic's directors to prepare for such an outcome – however, the fact remains that healthy companies which have no indicators of collapse do not take such precautions. Sources suggest A&M's work would be focused on options for a pre-pack administration that would see a restructured and financially viable carrier emerge from the Covid-19 crisis.

A&M's role emerged just days after Virgin Atlantic said it would cut more than 3,000 jobs – or about one-third of its workforce – to aid its survival battle. It had already furloughed thousands of staff, but is anticipating that customer demand will be at least 40% lower during 2020, with only a gradual recovery next year. Virgin Atlantic hopes plans including ending its 36-year tenure at Gatwick Airport, reducing the size of its fleet and putting its Boeing 747s into early retirement will also help it avoid administration.