Virgin America Cuts Airbus Order, Delays 30 Jets

[Flyer1015]

Relax, I am still at my Major airline with a 12 year upgrade, my pension, and ALPA chest-thumpers. All those predictions have come true. I am now on 5 yr pay and off reserve. You are correct. If I took the VA offer I would be a senior captain. The fact is my airline just ordered 50 more aircraft to be delivered before VA gets its first NEO and is making more money than any time in its 80 year history. VA has lost $800,000,000.00 and is deferring aircraft. Was it the right choice? Ask me when I retire. I'm comfortable with my choice so far.

What airline is this? Alaska? I wouldn't leave Alaska for VA.

 

[Green Banana]

What airline is this? Alaska? I wouldn't leave Alaska for VA.

I was trying to make the decision in 08'
VA was just a year old and I was just off 1st yr pay at AS. I applied to both companies at the same time and AS just called first. This whole profession is mostly timing and luck. We really have no control of the rise and fall of airlines themselves, just the airplanes.

 

[Flyer1015]

I was trying to make the decision in 08'
VA was just a year old and I was just off 1st yr pay at AS. I applied to both companies at the same time and AS just called first. This whole profession is mostly timing and luck. We really have no control of the rise and fall of airlines themselves, just the airplanes.

I agree, well said. If I was at Alaska, I wouldn't leave it for VA, even in 2008.

 

[tzskipper]

He was spot on Gilligan.

A point that seems to be missed (from my understanding) in the usual FI analysis, is that as a privately owned company VA's debt is owed to it's investors, and that the debt service that pushes the operating income into a net loss, is paid to those same investors. If (when) VA gets to an IPO, the investors cash out and the debt service is reduced due to the reduction in debt. In their eyes, the debt that the company has accumulated as it has grown since inception, will become equity in an IPO.

FWIW.

S

 

[NoPFactor]

A point that seems to be missed (from my understanding) in the usual FI analysis, is that as a privately owned company VA's debt is owed to it's investors, and that the debt service that pushes the operating income into a net loss, is paid to those same investors. If (when) VA gets to an IPO, the investors cash out and the debt service is reduced due to the reduction in debt. In their eyes, the debt that the company has accumulated as it has grown since inception, will become equity in an IPO.

FWIW.

S

One little problem with your theory. No company has ever offered an IPO when riddled with debt and has lost $800,000,000.00 since it's inception.
The financial institutions required to IPO wouldn't even talk to them.

 

[jonjuan]

One little problem with your theory. No company has ever offered an IPO when riddled with debt and has lost $800,000,000.00 since it's inception.
The financial institutions required to IPO wouldn't even talk to them.

A "minor" point often missed here on FI. Ain't no way an ipo is happening.

 

[Flyer1015]

"Ain't no way" = it is happening. Don't be using no double negatives.

 

[Splert]

...the debt that the company has accumulated as it has grown since inception, will become equity in an IPO.

Your wires are crossed and you have been to too many leadership spin sessions.

Equity in an IPO is NEW cash from NEW investors like me and you. We take money out of our pockets and buy a new share or 2 of VA. What VA decides to do with this shareholder equity (new cash) is up to them. They can buy jet A or aircraft or retire debt.

My guess is they will need the new equity for daily expenses NOT capital expenses or debt reduction.

Good luck to VA's employees.

 

[bri5150]

Your wires are crossed and you have been to too many leadership spin sessions.

Equity in an IPO is NEW cash from NEW investors like me and you. We take money out of our pockets and buy a new share or 2 of VA. What VA decides to do with this shareholder equity (new cash) is up to them. They can buy jet A or aircraft or retire debt.

My guess is they will need the new equity for daily expenses NOT capital expenses or debt reduction.

Good luck to VA's employees.

That makes no sense. The issue is the debt, not daily expenses. We made $12 mil this quarter with just paying daily expenses. I am not sure why people here want VA to go away. They don't seem to have a problem with other airlines existing. Everyone bitches that customer sevice is gone, they bitch about wearing hats and ties, they bitch the fa's are triple g's (we have two covered at least), but now an airline comes around that takes care of all that and they want it gone. Whatever, I guess I should stop trying to figure out FI.com.

 

[fam62c]

A point that seems to be missed (from my understanding) in the usual FI analysis, is that as a privately owned company VA's debt is owed to it's investors, and that the debt service that pushes the operating income into a net loss, is paid to those same investors. If (when) VA gets to an IPO, the investors cash out and the debt service is reduced due to the reduction in debt. In their eyes, the debt that the company has accumulated as it has grown since inception, will become equity in an IPO.

FWIW.

S

I don't know for sure but I would think that VA is leveraged meaning that in addition to the equity capital put in by the investors there is debt capital (borrowed money) as well. To say that "as a privately owned company VA's debt is owed to it's investors" is probably false, equity and debt investment are two different things. If VA failed tomorrow the debt holders would have the first crack at repayment from company assets. Until the debt holders were made whole the owners would get nothing. The owners may be putting in additional money to make the debt payments if the operation has a shortfall (which it certainly does) I would be surprised if there was no leverage involved here but I could be wrong.

In the event of an IPO it's very unlikely that outside lenders would convert their debt to equity because equity is not backed by collateral and comes with no guarantee of return. I would think that right now the company has a negative net worth and the owners don't really own anything. The day the investors stop adding new capital to fund losses is the day VA is done for.

 

[fam62c]

That makes no sense. The issue is the debt, not daily expenses. We made $12 mil this quarter with just paying daily expenses. I am not sure why people here want VA to go away. They don't seem to have a problem with other airlines existing. Everyone bitches that customer sevice is gone, they bitch about wearing hats and ties, they bitch the fa's are triple g's (we have two covered at least), but now an airline comes around that takes care of all that and they want it gone. Whatever, I guess I should stop trying to figure out FI.com.

I don't want VA to go away, I don't want to see anybody lose their jobs but that does nothing to change the reality of their financial situation and that's what is being discussed. You can have the best product in the world but if the ticket prices don't cover all the costs (operating cost AND cost of capital) and leave room for some net profit it isn't going to matter at some point.

VA is just following a long standing tradition in this industry that's been practiced by pretty much every airline at some point; pricing your product below cost. Some carriers that did this went on to become profitable, some failed and are gone, some were absorbed by other carriers and some reorganized in bankruptcy and are still with us. Nobody knows which road VA is going to go down. This is probably the worst industry for investment capital in the world.

 

[Splert]

I do not wish VA away.

However, reporting VA's consistent TTM negative double digit OM somehow means that means I do.

Good luck to all.

 

[flyboyike]

This is probably the worst industry for investment capital in the world.

I think we're well beyond probably by now.

 

[LoveGun]

VA's debt is the big question. Who did we borrow all that money from? If it all came from our primary investor, Cyrus Capital, there might be some flexibility. However, if we borrowed the money from banks and other investors, VA might not be able to defer payments. I don't know the answer. I can't find any useful information about Cyrus Capital on the web. My guess is that Cyrus Capital is composed of just a few people, mainly Cyrus Freidheim and Stephen Cyrus Freidheim. But, I could be wrong.

I found this on the Cyrus Capital website:

"Stephen Freidheim and his senior team of investment professionals have more than a ten-year track record, in excess of 225 years combined experience and a significant portion of their liquid net worth invested in the fund. The investment strategy has been developed through years of deep fundamental research, and the philosophy has remained steadfast since the inception of the firm in 1999. The investment and operations teams are highly talented and experienced hedge fund professionals that are committed to making Cyrus Capital a “best in class” firm.

Cyrus Capital Partners invests across the capital structure of leveraged companies throughout their life cycles, including those in financial distress, and seeks to generate attractive absolute returns that are not correlated to or dependent upon the general equity and fixed income markets. The firm currently manages several Master/Feeder hedge fund structures. These funds commenced operations between August 2001 and May 2008.

With offices in New York and London, Cyrus Capital currently has a team of 40 people. As of 7/1/2012 assets under management are approximately $2.2 billion."

 

[climbhappy]

whoever said there's never been a IPO where there was debt on the company balance sheet doesn't have a clue about finance...

the dot com era and the recent virtual company IPOs like facebook and groupon had hundreds of millions in debt and had the prospect of future revenue...future earnings...

debt isn't a bad thing.....many IPOs are done with expectaion of future profits and they are used as third and fourth round financing to continue to expand and provide working capitial for operations...

ever heard of a debt to equity ratio? all companies have them....

some are higher than others ...so to suggest this on FI is pure bs...

and since VA is private you say? guesss what? the shareholders all paid for stock that was issued to start the company...and have all been asked to pony up more dough to cover the losses...or they have borrowed from banks.....if they're private, we dont know how they have financed the losses...could have been done with more stock being issued..... but it only dliutes their initial investment.....

so if the company and grows to the plan they have, and it goes public, then they would recover their outlay from the stock value...

but no one knows how the debt was financed? their may be a foreign bank holding short term debt for them right now....company can offer several debt instruments...for example a debenture is a debt security that is not covered by physical assets....just the creditworthiness of the borrower.....or they could have issued convertible bonds that could be converted to common stock if the company makes it........so the lender if there is one may have a stake in the success of VA also....

and finally, they be be massively behind on lease peayments for the 320s, and since they are private, we dont know how much debt in accounts payable is on the balance sheet....?????????? the leasing companies dont want the planes back....and this why airlines continue to go bankrupt, shareholders get hosed, leasing companies get renegotiated contracts and still have a revenue stream from the lease of planes....

if they are using general accounting principles then if they are showing a quarterly profit then they are not behind on the lease payments...may have renegotiated the leases and put the back payments on the tail end of the lease...a very common thing......

and this what Wells fargo did on my house which was ten months under water last year...

i hate BS when i see it....i hope VA makes it. i have many friends there..