Virgin America may seek public offering next year, CEO says

[ualdriver]

I would guess that the debt that is being serviced (assuming the debt service is the difference between the operating profit/loss and the net profit/loss), is that from investment and will be paid down or off as a result of a IPO. This would mean that the operating profit/loss probably paints a more accurate picture of what the airline's results may indicate, post IPO.

S

Yes, it is the difference and there lies the problem. If the company is deeply in debt and is continuing to lose significant amounts of money as it is right now, then that is going to affect the total amount of cash they are going to get if they shoot for an IPO. That debt doesn't just "disappear" in the eyes of an investor just because he is buying shares of this company in an IPO or any sort of offering for that matter. That investor is buying a portion of that debt with his dollars. Do you want to give me some of your hard earned dollars to buy my debt?

If you were looking to invest in an airline, would you invest in an airline that hasn't earned a dime in its entire existence and continues to lose 1 of every 10 dollars it brings in as I type? Or would you look at other possibilities? It's almost like they are using this future IPO as some sort of white night that is going to save the airline when that magic day happens. But if there ever is even any interest in an IPO, the day after it closes VA will likely still be a money losing airline that continues to hemorrhage cash. What is the attraction in that except for the shiny new red shoes their flight attendants will be wearing?

 

[tzskipper]

Yes, it is the difference and there lies the problem. If the company is deeply in debt and is continuing to lose significant amounts of money as it is right now, then that is going to affect the total amount of cash they are going to get if they shoot for an IPO. That debt doesn't just "disappear" in the eyes of an investor just because he is buying shares of this company in an IPO or any sort of offering for that matter. That investor is buying a portion of that debt with his dollars. Do you want to give me some of your hard earned dollars to buy my debt?

If you were looking to invest in an airline, would you invest in an airline that hasn't earned a dime in its entire existence and continues to lose 1 of every 10 dollars it brings in as I type? Or would you look at other possibilities? It's almost like they are using this future IPO as some sort of white night that is going to save the airline when that magic day happens. But if there ever is even any interest in an IPO, the day after it closes VA will likely still be a money losing airline that continues to hemorrhage cash. What is the attraction in that except for the shiny new red shoes their flight attendants will be wearing?

I guess what I was thinking, was that the debt that is being carried is the investment(s)/infusions made by the hedge funds in exchange for stock. The principle which would be paid down or off with IPO proceeds (this would be how the investors "cash out").

In the mean time, the investors appear to be collecting interest payments on their investment? Post IPO, there should be minimal debt remaining which should comfortably be serviced by the operating income/profit the company projects to have this year going forward. Or not...

Thanks for the discussion.

S

 

[ackattacker]

I guess what I was thinking, was that the debt that is being carried is the investment(s)/infusions made by the hedge funds in exchange for stock. The principle which would be paid down or off with IPO proceeds (this would be how the investors "cash out").

Basically correct. However, in order for the principal investors to cash out, the IPO would have to value the company high enough that their share of the company is worth more than the money they put in. The market would have to say "counting current assets and potential for future profits, the company is worth $x billion dollars at the present time.", and that number must be greater than the money the investors have already sunk into the company.

If the company can't muster an IPO worth enough money, there is no reason for the principals to support such an IPO since they would lose big-time. The other two options are, they could just decide to liquidate the company, sell off all the assets, and recoupe at least a portion of their investment. Or continue to operate the company privately and hope the company starts making a profit.

In the mean time, the investors appear to be collecting interest payments on their investment? Post IPO, there should be minimal debt remaining which should comfortably be serviced by the operating income/profit the company projects to have this year going forward. Or not...

Thanks for the discussion.

S

Sure, the investors are collecting interest. But their principal is tied up in a company which is spending more money that they're taking in and has a negative net worth.

Think of it this way... you buy stock in a company at $100 a share, which pays a 3% dividend. Subsequently, that stock drops to $10 a share but continues to pay the dividend. So long as you don't sell, you're still getting money back... but you're uneasy. You have no way to withdraw your principal and stand to lose large amounts of money. You may be worried the company will go bankrupt and the stock will become totally worthless. You may be looking for exit strategies, including supporting a hostile takeover by someone who will just liquidate the company, sell the assets, and pay you back $20 per share.

 

[ualdriver]

I guess what I was thinking, was that the debt that is being carried is the investment(s)/infusions made by the hedge funds in exchange for stock. The principle which would be paid down or off with IPO proceeds (this would be how the investors "cash out").

In the mean time, the investors appear to be collecting interest payments on their investment? Post IPO, there should be minimal debt remaining which should comfortably be serviced by the operating income/profit the company projects to have this year going forward. Or not...

Thanks for the discussion.

S

Ack pretty much answered your questions. To frame the whole IPO thing, think about it like this.....

Remember in the 1990's when internet companies were the latest investing fad? There were tons of "internet companies" that were being created but losing money hand over fist. Investors would give anyone with an idea that involved the internet seed money to start-up the business. The hope of those initial investors was to sell the company at some point in the (near!) future on the promise of "future" profits which were just around the corner. After all, the company's name had ".com" in the title so those future profits were practically a guarantee! So they would get the company going, it would be losing money, but they'd offer an IPO anyway. Because hedge fund mangers, mutual fund mangers, and individual investors were so ga-ga over internet companies, they'd throw tons of cash at these ".com" companies when IPOs became available so that they could own their very own internet company. He11, sometimes these IPOs were so exclusive that a regular Joe Blow couldn't even get a piece of the IPO action!

These IPO's brought the initial investors (who provided the seed money) tons of cash because these new investors wanted to buy these .com companies with their future promise of BIG profits! So we had dot com millionaires selling their crappy, money losing businesses for far more than they were ever worth and who got left holding the bag? The suckers who paid crazy high prices for these .com companies. The companies went bankrupt and their shares became worthless when everything came crashing down. The profits never materialized.

How does this all apply to VA? Well, VA is the money losing internet company that wants to offer an IPO, except airline stocks aren't in fad. Yeah, the owners of VA could say they want to offer the company (or a portion of it) for sale to the public, but who's going to buy? VA is losing money and is deeply in debt. Yeah, sure if VA's owners could put out a really glossy prospectus (and I mean REALLY glossy- and it had better show ALOT of skin!) and convince people like you and me to pay sky-high prices for the shares that will be offered, then yeah, the original owners could walk away with bucketfuls of cash and pay off all that debt.

But do you think that really is going to happen? Do you think individual investors, hedge fund managers, mutual fund managers, etc., are going to pay a lot for VA shares considering its indebtedness and its lack of ability to create a profit? Unless there's something going on that they're not reporting in their press releases, I would think not. But if you VA guys can post a copy of the prospectus when they offer this supposed IPO, I'd LOVE to read it. Maybe the corporation has some gold bars in a vault at corporate headquarters?

 

[Chairman]

Well if you guys are all right like you have been year 1-5 that we were going to close our doors there is nothing to worry about because in those years no one would keep dumping money in a no win venture.....Nothing to see here I am sure you are all correct

 

[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.)