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Virgin Atlantic files for bankruptcy protection in US, Branson warns over cashburn as clock runs down for rescue deal

The transatlantic airline must seal its £1.2bn rescue deal in the coming weeks in order to avoid administration.

Virgin Galactic Holdings Inc - Virgin Atlantic files for bankruptcy protection in US, Branson warns over cashburn as clock runs down for rescue deal

Wannabe spaceman Richard Branson is again being brought down to earth as Virgin Atlantic has filed for bankruptcy protection in the United States, in order to seal a proposed £1.2bn rescue package for the airline.

If approved, the Bankruptcy protection will permit the company to shield assets in the United States.

The move comes as the transatlantic carrier seeks to get creditor backing for a debt restructuring rescue deal. The US protection is necessary to ensure that terms of the rescue will apply within the US, according to Virgin.

READ: Virgin Atlantic gets backing for £1.2bn rescue deal

The airline, practically a sibling company of space tourism aspirer Virgin Galactic Holdings Inc (NYSE:SPCE), had its flights grounded between April and July as a result of the COVID-19 pandemic.

Virgin shed more than 3,000 jobs and scaled back operations, including an exit from London Gatwick airport.

Previously, Branson unsuccessfully pleaded for a UK government bailout and offered his private Caribbean island as collateral.

Virgin meanwhile claimed that the airline will run out of cash in a matter of weeks if the £1.2bn rescue deal doesn’t go through.

It told a UK court on Tuesday that cash reserves would fall to £49mln by late September, which is way below the £75mln mandated by its creditors.

Creditor meetings and a further hearing is slated before early September, by which time the package must be secured otherwise it is predicted that the airline will face asset fire sales and/or administration.

The proposed rescue sees US hedge fund Davidson Kempner Capital provide £170mln of secured financing, alongside Branson who will provide £200mln of his funds generated out Virgin Galactic equity.

A substantial part of the deal, meanwhile, comes via creditor deferrals (US$400mln) and waivers (£450mln) from Branson owned Virgin Group and Delta Air Lines (NYSE:DAL).

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