Virgin Atlantic's Bankruptcy

Virgin Atlantic's Bankruptcy

over 3 years ago2 mins

Virgin Atlantic filed for US bankruptcy protection this week, and it was an awkward and disappointing experience for all involved.

What does this mean?

American companies that file for bankruptcy usually file for Chapter 11, which allows them to reorganize in order to make sure any money they owe gets repaid. But Virgin filed for Chapter 15 bankruptcy protection, which is designed for companies with significant non-US assets at risk of going under. And in Virgin’s case, that’s a real possibility: it’s seen an almost 90% drop in reservations this year, and is depending on a $1.6 billion rescue deal to keep it from running out of cash by the end of next month. And that’s after it cut 3,000 UK jobs and said goodbye to one of the country’s biggest airports…

Why should I care?

Airlines all over the world increased flight capacity last month as people started going on vacation again. But new coronavirus spikes in Asia and Europe have quickly put paid to hopes of a brisk recovery, and boosted the risk that more travel companies will – like Virgin Australia and four regional US carriers before them – go broke. And now that the International Air Transport Association predicts air traffic probably won’t go back to normal until 2024, demand-hungry and cost-heavy airlines are likely to keep burning through cash for the foreseeable future.

French hotel company Accor reported a pandemic-driven loss for the first half of the year this week, and said it’d cut 1,000 jobs to save $240 million annually. And while investors sold its shares on Wednesday, they did buy travel-related stocks whose futures seemed a little more certain: British Airways owner IAG – which sold $3 billion worth of stock last week – saw its share price rise 10%, while low-cost carrier Easyjet – which has actually had to increase capacity to meet demand – saw its stock rise 6%.

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