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Virgin Files for US Bankruptcy Protection

Virgin Atlantic Airways, the airline founded in 1984 by Sir Richard Branson, yesterday, Tuesday August 4, filed for debt relief in the U.S. as the toll of Covid-19 on the airline industry continued to mount.

The company said it is not technically bankrupt and that it plans to continue to operate as it restructures, a process it hopes to complete by the end of September. Still, Virgin Atlantic said in a court filing that it will run out of cash and have to shut down by the end of the month if it can't reach a deal before then.

(Image Kevan James)

"With support already secured from the majority of stakeholders, it's expected that the restructuring plan and recapitalisation will come into effect in September," a company spokesperson said in a statement. "We remain confident in the plan."

The airline, which primarily offers long-haul travel between the United Kingdom and other parts of the world, had just over 8,500 employees at the end of 2018, according to company records. It also had $630 million in cash and about $850 million in long-term debt at the time, the latest publicly available financial records for the company, according to FactSet.

The airline's problems however, precede the virus pandemic. In 2018, Virgin Atlantic lost nearly $75 million on revenue of $3 billion. The carrier, which is 49% owned by Delta, has sought to negotiate a $1.6 billion refinancing deal with its creditors and investors.

As part of the deal, Branson was looking to shed part or all of his stake in the airline. He had previously asked the British government for a bailout. It is the second Virgin group airline to seek court protection since the start of the pandemic. Virgin Australia filed for voluntary administration, another form of bankruptcy, in April.

PR image of the new Airbus A330 NEO the airline has on order (Virgin Atlantic Airways)

Technically, what Virgin Atlantic has done this week is file for Chapter 15 protection, a section of the U.S. bankruptcy code for companies that plan to continue to operate but have both U.S. and foreign investors and lenders. The company has previously announced that it planned to lay off 3,000 workers and reduce operations. Virgin Atlantic grounded all of its flights due to the Covid-19 pandemic in April and had only resumed flights in July. A search on Tuesday of Virgin Atlantic's website showed that flights were still available to fly from Newark to London in late September, with a round-trip economy ticket costing about $900. But many of the tickets for sale on the site were for seats on flights being operated by Delta and other airlines.Virgin Atlantic's bankruptcy comes as many airlines announce layoffs and possible furloughs. Also on Tuesday, American Airlines announced it was offering early retirement packages to pilots already on furlough.

US bankruptcy laws allow for cash-strapped companies to continue in business if they can satisfy a US Court that a plan to reduce their debts and come out of protection is viable. The protection as as it suggests and stops creditors from pursuing a company into liquidation (and thus also protecting at least some jobs). With Delta having a 49% share in Virgin, this allows the UK carrier to seek protection in the US Courts.

Delta has its own problems (Kevan James)

Some commentary, particulary on social media, has suggested that Branson himself should bail out Virgin or that Delta should do so. Firstly however, Sir Richard Branson does not have the ready cash to hand. Reports of his wealth being 'worth' substantial amounts does not mean he has ready cash; 'worth' includes other assets apart from cash, Necker Island being one example. Delta Airlines also do not have ready cash to spare, and are suffering from the same problem as Virgin Atlantic and every other airline around the world.

While Virgin carried serious debt before March of 2020, they, along with all airlines, have had their ability to earn a living taken away by government actions over Covid-19. Should Virgin ultimately fail and cease to exist, all governments, including that of the United Kingdom, bear a heavy responsibility for the loss of jobs that are to be the end result. Jobs not just with Virgin Atlantic, but across associated companies and suppliers - and on top of that, job losses in other industries.

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