Virgin America may seek public offering next year, CEO says

[Blue Dude]

Convincing some investors to participate in a vanity project by sheer force of personality is one thing. Pulling off a successful IPO to bail out those same investors is something else entirely. Bottom line: you still haven't made any money and you keep operating only from cash advances. Sorry, those are the facts.

 

[hyflyin]

Convincing some investors to participate in a vanity project by sheer force of personality is one thing. Pulling off a successful IPO to bail out those same investors is something else entirely. Bottom line: you still haven't made any money and you keep operating only from cash advances. Sorry, those are the facts.

I think I could've gone without being reminded of that.

 

[Chronic Jetlag]

Any private company that wants to go public has to demonstrate a track record of profitability along with other criteria. Not going to happen with VA for a while. Fact remains since their first revenue flight on August 8, 2007 VA has not made money and has had to borrow cash just for day to day working capital.

 

[Flyer1015]

Not entirely true. There was one quarter of profitibility (I believe 3rd quarter 2010).

Anyway, I'm not too concerned right now. The investors are committed to the airline, and financial responsibility has been met for 2013 and 2014 aircraft deliveries. If all of a sudden they pulled out the deliveries, stopped all growth, that may be a cause for concern. But then again, they've already stated that our matured markets have been profitable, and if we stopped growth today, we'd turn a profit. VA has been growing in crazy amounts and that kind of growth comes at a huge added expense. The investors seem committed, and I don't see anyone even close to pulling the plug on the operation. As for the IPO, it is still distant. We need to be profitable for a full year (at least) before going for an IPO.

 

[Tomct]

Sure is a good thing we have all of the "Experts" here on FI telling us that ..."anyday now, they are going to pull the plug at Virgin." Hate to break it to ya boys/girls, NOT GOING TO HAPPEN!! Now go back to your regularly scheduled programming. (hating your jobs...pissed off at all of the grandes and grannies you fly with etc.)

 

[n757st]

Sure is a good thing we have all of the "Experts" here on FI telling us that ..."anyday now, they are going to pull the plug at Virgin." Hate to break it to ya boys/girls, NOT GOING TO HAPPEN!! Now go back to your regularly scheduled programming. (hating your jobs...pissed off at all of the grandes and grannies you fly with etc.)

We are a cocky one aren't we. Tomct, if virgin was to IPO tomorrow would you invest your money in the company?

 

[Chairman]

We are a cocky one aren't we. Tomct, if virgin was to IPO tomorrow would you invest your money in the company?

No more cocky then everyone telling us for the last 5 years we are going to close our doors....Takes a boat load of money and investment to start and airline, open new cities and fund growth. The company will go public and we will post a profit as growth is slowing this year. Investors are making returns on there money. They have invested in expanding HQ and bringing out sim training 100% in house. Just getting tired of year after year watching everyone else be wrong about what is really going on at the company they don't work at..

That is all,

Chairman

 

[Ralph Cramden]

We are a cocky one aren't we. Tomct, if virgin was to IPO tomorrow would you invest your money in the company?

No one in his/her right mind would ever put money in any airline.

Listen to the oracle of Omaha, he knows a thing or two about investing.

I will accept the promised IPO cash, but am not taking out a loan in advance of it, or planning for it to be a big windfall.

 

[ualdriver]

No one in his/her right mind would ever put money in any airline.

Listen to the oracle of Omaha, he knows a thing or two about investing.

I will accept the promised IPO cash, but am not taking out a loan in advance of it, or planning for it to be a big windfall.

Wait, your management promised you guys cash from a future IPO? What exactly was promised to VA pilots if an IPO were to happen? Do VA pilots have an equity stake in this private company? Or is it one of those "super secret" deals that you guys aren't allowed to talk about?

 

[LoveGun]

Wait, your management promised you guys cash from a future IPO? What exactly was promised to VA pilots if an IPO were to happen? Do VA pilots have an equity stake in this private company? Or is it one of those "super secret" deals that you guys aren't allowed to talk about?

The employees own 16.5% of the company. However $100 million was borrowed against the employee's share. At IPO the employee's share will be sold and the loan paid from the proceeds. Any funds remaining are to be paid in cash to the employees. The last time management posted an estimate of employee payout at IPO (a year or two ago - i can't remember) they put up a chart with payouts ranging from $2000 to $30,000. The pay out amount depended on employee longevity and current salary. This info was provided at a company wide meeting a long time back. Since then things could've changed, and my memory of the exact numbers is a bit foggy.

 

[ualdriver]

The employees own 16.5% of the company. However $100 million was borrowed against the employee's share. At IPO the employee's share will be sold and the loan paid from the proceeds. Any funds remaining are to be paid in cash to the employees. The last time management posted an estimate of employee payout at IPO (a year or two ago - i can't remember) they put up a chart with payouts ranging from $2000 to $30,000. The pay out amount depended on employee longevity and current salary. This info was provided at a company wide meeting a long time back. Since then things could've changed, and my memory of the exact numbers is a bit foggy.

Interesting. I'm surprised they could borrow against the employees' shares, unless all of you gave them permission or these shares are just a "verbal" promise.

 

[ackattacker]

The employees own 16.5% of the company. However $100 million was borrowed against the employee's share. At IPO the employee's share will be sold and the loan paid from the proceeds. Any funds remaining are to be paid in cash to the employees. The last time management posted an estimate of employee payout at IPO (a year or two ago - i can't remember) they put up a chart with payouts ranging from $2000 to $30,000. The pay out amount depended on employee longevity and current salary. This info was provided at a company wide meeting a long time back. Since then things could've changed, and my memory of the exact numbers is a bit foggy.

Very interesting. Let's run some back of the envelope calculations.

Employees own 16.5% of the company, and their share was used as collateral for a $100 million loan. This being a few years ago? The numbers may have changed significantly for the worse, but that implies that at the time, if the company had an IPO, they would have to raise a minimum of $606 million just to pay off that loan. Any payouts to the employees and investors would require *significantly* more than $606 million.

Again, keep in mind JetBlue's total market capitalization is $1.36 billion and they have a fleet size of 172, total revenue of $4.5 billion and are doing well.

At the time that JetBlue went public in 2002, they had $320 million in annual revenue, $27 million in annual profit, and raised only $158 million in their IPO. Which was considered wildly successful because they weren't deeply in debt and $158 million was perfectly fine. For VX such an IPO would be disastrous.

At present VX has a fleet size of 52 and a total revenue of around $1 billion and are losing money. They are expecting to reach a fleet count of 111 by 2019... If that happens, and they don't lose a single dime between now and then, then possibly they could have a successful IPO. Maybe.

I'm just saying there's simply no way in hell it's going to happen in 2013 or even 2014. The fact that the company would even suggest it is a possibility is a huge red flag to me. The numbers say it's not even anywhere close to being feasible.

 

[fam62c]

Any private company that wants to go public has to demonstrate a track record of profitability along with other criteria. Not going to happen with VA for a while. Fact remains since their first revenue flight on August 8, 2007 VA has not made money and has had to borrow cash just for day to day working capital.

Nah, plenty of dotcoms did IPO's in the 1990"s without ever earning a penny. However, from a practical standpoint what you say is true if they want to have any chance of generating enough money to make an IPO worth it. To have a successful IPO you need either a very successful business or a very "hot" category like tech or social media at the right time. VA is neither, it's a money losing company in a troubled industry. They wouldn't be able to generate much capital from an IPO, the company isn't worth anything unless maybe fuel prices crash in a huge way. The current investors are stuck and are throwing more money into the fire to fund losses. I'm not sure what they think is going to happen here but who knows if they can wait it out long enough.

 

[Chronic Jetlag]

Nah, plenty of dotcoms did IPO's in the 1990"s without ever earning a penny. However, from a practical standpoint what you say is true if they want to have any chance of generating enough money to make an IPO worth it. To have a successful IPO you need either a very successful business or a very "hot" category like tech or social media at the right time. VA is neither, it's a money losing company in a troubled industry. They wouldn't be able to generate much capital from an IPO, the company isn't worth anything unless maybe fuel prices crash in a huge way. The current investors are stuck and are throwing more money into the fire to fund losses. I'm not sure what they think is going to happen here but who knows if they can wait it out long enough.

Yep, the current investors are from private equity firms with put options just like the initial private equity firms that originally funded VA from day one. They already exercised their put options and got their money back plus %. VA is borrowing $ for day to day working capital at a very expensive rate, the full terms do not have to be disclosed because they're private..

 

[Flyer1015]

I love the analysis by pilot financial gurus. Thanks!