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Looks like it might be over for VA...

BigMotorToter

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Wall Street Journal
By PAULO PRADA

The U.S.-based investors in Virgin America, the discount airline founded by Sir Richard Branson, recently cashed in their stakes in the startup carrier, according to people familiar with the situation -- raising new questions about whether the airline can continue to comply with U.S. airline "citizenship" rules.

Under federal law, a U.S.-based air carrier must be at least 75% owned and controlled by American investors. Since privately held Virgin America's inception, hedge funds Cyrus Capital Partners LP and Black Canyon Capital LLC owned almost 77% of the airline's capital, along with a few other undisclosed U.S. investors. An investment vehicle of London-based Virgin Group Ltd. controls the rest. Under the terms of the British group's agreement with the U.S. investors, the shareholders after a period of time could choose to sell their stakes back to Virgin Group, recouping their full investment plus an 8% return.

After weeks of negotiations, the U.S. investors last week exercised their option to sell, and Virgin Group has already paid them, according to people familiar with the situation. No new investors have committed to buying stakes, according to people familiar with the situation.

Luring new shareholders amid the ongoing recession appears increasingly difficult. Not only are fewer potential investors available because of the continuing credit crunch, but the financial prospects for airlines are growing worse because of weakening demand for travel.

The deteriorating situation for U.S. carriers was a key element in the two hedge funds' decision to sell their stakes. "Everybody prefers cash right now and this is an opportunity to get it," said the person.

Virgin America, known for stylish interiors, leather seats, and high-tech in-flight entertainment system, flies to four cities along the West Coast and to Las Vegas, New York, Washington D.C., and Boston. The airline, which began flying in late 2007 and has thus far received more than $400 million in financing, posted a net loss of $175 million on revenue of $259 million in the first nine months of 2008, according to its most recent financial data as filed with the DOT.

To ensure the airline remains controlled by U.S. investors in the short term, representatives of the departing shareholders will remain on Virgin America's board until new shareholders are found, according to people familiar with the situation. But because those directors will no longer have a financial stake in the airline's performance, competitors fear Virgin America, based in Burlingame, Calif., would be under de-facto control of Virgin Group.

Already, Alaska Airlines, owned by Seattle-based Alaska Air Group Inc., in February asked the Department of Transportation to review whether Virgin America was running afoul of U.S. ownership rules. Alaska, which competes with Virgin America on West Coast routes, filed its petition after word emerged earlier this year that Virgin Group had hired investment bank Lazard Ltd. to look for new investors.

A DOT spokesman said the Alaska petition remains under review.

Alaska said Monday that the sale of the U.S. investors' stakes raises serious questions about "Virgin's true ownership." "This reaffirms the immediate necessity of a rigorous, public review of Virgin's compliance with foreign ownership restrictions," said Caroline Boren, a company spokeswoman.

Virgin America, in a statement, declined to comment on any changes in its ownership structure and said that it continues to comply with U.S. law. "If there is a transaction between the U.S. investors and the Virgin Group," the airline said, "it will remain a private one, within the construct that was approved by the Department of Transportation… We are and will remain in compliance with the DOT foreign ownership rules."
—Susan Carey contributed to this report.
 

nosoupforyou!

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Naaaah! It's all good bro'. Sir Richard is in this game purely for sport. It's his idea of Vegas and he's got money to cover his ego. Truth is, they have a GREAT product. Puts many carriers to shame. Unfortunately, great product means nothing to investors unless the money is rolling into the portfolio.

Good luck to my friends over there.
 

Colonel Savage

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Branson isn't going to make up for on-going shortfalls in VA's finances. If it can't make it as an self-sustaining business, he'll either spin it off, or cut his losses and shut it down. VA is in a bad market during a bad time, if no one steps up to fill the void left by the departing investors, Branson will bail.
 

Saluki Dawg

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OK, I'm confused. It should be readily apparent to the DOT if VA is in compliance with U.S. ownership laws. It sounds like they aren't, therefore they should be shutdown immediately until they are back in compliance. At that point, if they are able to find new U.S. financing, they are free to start flying again.
 

skiandsurf

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New Callsign "Deadwood"

This figures.

A few years ago we bought tickets on Aloha. Then the next year we bought tickets on ATA. Yesterday, I just bought tickets on VA for this summer vacation.

I have that curse. You better hope that I dont buy a ticket on your airline next.
 

Mongolikecandy

assume managemnt position
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some
This figures.

A few years ago we bought tickets on Aloha. Then the next year we bought tickets on ATA. Yesterday, I just bought tickets on VA for this summer vacation.

I have that curse. You better hope that I dont buy a ticket on your airline next.

For my sake and my children's, please don't fly AirTran anytime soon. God speed everyone.
 

Fubijaakr

Seniority is Forever
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Enough
Goodnight, game over, drive home safely.
 

samballs

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Naaaah! It's all good bro'. Sir Richard is in this game purely for sport. It's his idea of Vegas and he's got money to cover his ego. Truth is, they have a GREAT product. Puts many carriers to shame. Unfortunately, great product means nothing to investors unless the money is rolling into the portfolio.

Good luck to my friends over there.
So what your saying is, investors should invest but not expect to make any money. But its ok since VA has a good product.
 

Scope out RJ's

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Now where is spinproof to "spin" it all on how great VA is?
 

fam62c

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OK, I'm confused. It should be readily apparent to the DOT if VA is in compliance with U.S. ownership laws. It sounds like they aren't, therefore they should be shutdown immediately until they are back in compliance. At that point, if they are able to find new U.S. financing, they are free to start flying again.


It certainly would appear that they have 100% foreign ownership at this point. If they can get away with this why couldn't a foreign company just buy any US airline, keep some Americans on the Board of Directors, and comply with US "control" provisions? Does this mean that it's OK for, say, the Chinese to come in and buy 100% of UAL or American if they leave the current BOD in place? This may be the test case for foreign ownership of US carriers.
 

flyboyike

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This figures.

A few years ago we bought tickets on Aloha. Then the next year we bought tickets on ATA. Yesterday, I just bought tickets on VA for this summer vacation.

I have that curse. You better hope that I dont buy a ticket on your airline next.

That's nothing, I know a guy who retired from our airline and went to MaxJet. Then to Eos. Then to VA. Get the picture?
 

Metrojet

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The way this economy is - why would anyone hope that somebody loses their job? I am surprised at some of these comments.

Remember - the fight is against management, not the employess! I am sure we all know at least someone who is at VA who was laid off from our current airline - why would you want them to get laid off!

Metrojet
 

shroomwell

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Sad to see that people might lose their jobs. Just remember that nobody is immune to this crisis (except government employees). I fully expect to see furloughs in large numbers at the majors this year as well.
 
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