Virgin America Cuts Airbus Order, Delays 30 Jets

[NEDude]

Despite my history of being a Virgin cheerleader, I will admit this is bad news. My honest opinion is that the board/investors are preparing for a sale or merger. We have all known the intent of the investors was to start and IPO as quickly as possible. This was not a long term plan for them. The market is bad for IPOs and the looming threat of a fiscal cliff has ensured it will not be good for IPOs for a while longer. So the only way for the investors to get a quick return is to sell to another company. How do you make yourself attractive to sell? Reduce your financial obligations as much as possible. With the deferrals VX can offer a decent presence in SFO and LAX and lower long term financial obligations. I doubt we will see VX around in its present form by this time next year. We will either a be a subsidiary of Delta and being slowly absorbed, or you will see us in a two or three way hookup with JetBlue and/or Frontier.

 

[Flyer1015]

Despite my history of being a Virgin cheerleader, I will admit this is bad news. My honest opinion is that the board/investors are preparing for a sale or merger. We have all known the intent of the investors was to start and IPO as quickly as possible. This was not a long term plan for them. The market is bad for IPOs and the looming threat of a fiscal cliff has ensured it will not be good for IPOs for a while longer. So the only way for the investors to get a quick return is to sell to another company. How do you make yourself attractive to sell? Reduce your financial obligations as much as possible. With the deferrals VX can offer a decent presence in SFO and LAX and lower long term financial obligations. I doubt we will see VX around in its present form by this time next year. We will either a be a subsidiary of Delta and being slowly absorbed, or you will see us in a two or three way hookup with JetBlue and/or Frontier.

I don't think SRB wants the Virgin name to disappear. Maybe a merger with JetBlue. Same fleet type, same emphasis on good IFE and service onboard, no unions at either airline, east coast / west coast presence, SRBs history with JetBlues beginnings, and the name can be Virgin Blue.

 

[Blue Dude]

That assumes VA has more to offer JetBlue as a merger partner than as a pile of bankrupt assets. I'm not sure there's a case to be made for merging.

 

[bri5150]

That assumes VA has more to offer JetBlue as a merger partner than as a pile of bankrupt assets. I'm not sure there's a case to be made for merging.

Before I was even hired at VA I thought the history with jetBlue, the east/west route structures, and the similar philosphies made us likely merge partners. I have no inside information whatever, just using my brain for theories. Hawaiian makes sense as well. Bring people in from Asia/Hawaii and our current route structure spreads them througout the country. Again, no inside info, just using my head. There seems to be a lot of Delta rumors for some reason. I have a bad feeling if that happens. They probably just want the planes to replace their old Airbus fleet.

 

[Blue Dude]

So what exactly would VA bring to the table as a *merger partner* instead of the site of a fire sale of marginally incompatible equipment? I'm not sure it would be worth nine or ten figures of debt just to get some planes with mood lighting and the wrong engines.

 

[Flyer1015]

So what exactly would VA bring to the table as a *merger partner* instead of the site of a fire sale of marginally incompatible equipment? I'm not sure it would be worth nine or ten figures of debt just to get some planes with mood lighting and the wrong engines.

Strong west coast bases/presence and landing slots. And for not having a union, at least you can't pull a SWAPA on the VA pilots.

 

[redflyer65]

With Republic trying to unload Frontier for almost two years now, I'd say a sale/merger would be remote. As BlueDude has stated, why would anyone pay a premium instead of just waiting. Airbuses aren't that hard to acquire, and I'm not sure slots in SFO and JFK are as well.

The main problem I see going forward for VA is the high cost of debt combined with a poor route structure. The route structure won't improve if you don't bring on more planes (you can only shuffle the planes you have), so it is what it is at this point. Plus you have Peter Hunt as your CFO. Ask him why he thought derivatives were a good thing in early '08. Poor choice for a CFO in the face of where things are headed.

 

[Blue Dude]

Strong west coast bases/presence and landing slots. And for not having a union, at least you can't pull a SWAPA on the VA pilots.

We can get all those things for a lot less money if we wait for VA to expire. And there's definitely no labor problem if there's no VA to merge with. I'm still waiting for a business case for taking on hundreds of millions of corporate debt to get a "presence" and some landing slots. Sorry, I'm not seeing it.

 

[Flyer1015]

We can get all those things for a lot less money if we wait for VA to expire. And there's definitely no labor problem if there's no VA to merge with. I'm still waiting for a business case for taking on hundreds of millions of corporate debt to get a "presence" and some landing slots. Sorry, I'm not seeing it.

Fortunately (or unfortunately), these kinds of decisions and things are above our paygrade and are management decisions. All we can do is hang along for the ride and then start bickering about a contract and SLI if a merger is announced.

 

[cameltoad]

going, going,,,,,,

 

[LoveGun]

Please don't destroy me for being a Virgin pilot with a somewhat positive view on our predicament/situation. It sucks that our delivery schedule has been modified, but I remain cautiously optimistic about our future (or maybe my head is deep in the sand). Here are my reasons:

1) VA is privately owned. The primary investor, Cyrus Capital, owns a majority of our debt. The rest of the money comes from Branson and the management team. VA's losses are from interest payments to its owners. If operating cash dwindles the owners can simply defer interest payments. I would be more worried if we couldn't pay our leases, rent, and fuel bills, but we are covering those costs. If you take interest payments out of the equation, we are profitable.

2) No one would buy us in our current high debt situation. I see that as a positive for the employees. Our owners are stuck with us. They have already sunk $700 million into this company. The only way to make a decent return on investment is to keep VA running until either the economy greatly improves or our balance sheet moves into the black. If necessary, they could defer their interest payments. It would be the only sane option. If we liquidate they lose everything they've put in so far.

3) I know this sounds crazy, but try to follow... So far, we have been a good investment. Our owners are collecting 17% interest. In this economy, where else can you place your money and make a 17% return? It's a high risk investment, but if we make it, these guys will reap a huge return (I hope this is what they're thinking too).

4) VA has revenue of over $1 billion per year. That is a huge cash flow for a young business. I'm not foolish enough to mistake cash flow for profitability, but I am sure our hedge-fund overlords have creative uses for this river of cash.

5) Love them or hate them, we have some of the biggest fish in the airline industry on our BOD: Carty, Skinner, and Branson. And, we recently added Wonder McCloud to head up revenue. There are still many moves to be played. I'm pretty sure these guys aren't wetting the bed like the pilots I'm reading in these forums. Don't forget, they've got millions of their own cash riding on this, and there is no golden parachute because it's their own money that would have to fund the proverbial chute.

6) Think Branson is losing control? His plan for world domination is falling apart? Well, guess who is about to place an order for Airbus 320's.... coincidence? The same week his other Virgin Airline is turning back an Airbus order... hmm.... Don't forget, he's about to launch JayZ and Beyonce into space on a Virgin branded rocket. All just in time for the coming economic recovery.

7) We've been through worse. In 2008 we deferred deliveries. At the time no one else was hiring, oil was $140/barrel, and the financial system was imploding. Things looked bleak back then. Upgrade was indefinite. We had no aircraft coming, but amazingly a year and a half later we started to grow again -- more than doubling our size.

I now raise my paper cup to Jim Jones and propose a toast to our future!

On my next trip I'm bringing my logbook... Time for some updating.

 

[Mad Dog 80]

Well said LoveGun. Virgin is here to stay, you can put the logbook down.

 

[SBD]

I heart LoveGun.

 

[Mud]

I'm no cool aid drinker but I have to agree. We're in the operating room but will survive. Sounds like we got another large cash infusion to buy us time to re-tool. Lease payments are being renegotiated for huge savings, our route structure is being revamped for the better, and code shares will help. We may still die - never say never - but there is a new game plan afoot that navigates us to profitability and the IPO brass ring. The investors won't go TU with so much money at stake.

 

[ualdriver]

I think the best thing LoveGun wrote was the last sentence.

Most of the other points made no sense whatsoever. VA will just stop making interest payments? Rivers of cash flow? You have a great board? (so did Long Term Capital Management!)

Look, you guys had a great ride. You took it out over the ocean. The second bottle just got blown into the engine and the little red lights aren't going out. If you're not at least feeling around for the handles, you're beyond help.

 

[LoveGun]

UAL,

If I started a company with my own money, could I not defer interest payments to myself if the my company was running low on cash? Where is the difference with VA? They are playing with their own money.

And yes, $1 billion per year is a "river of cash flow." It might be flowing in one door and right out the other, but there are benefits to being the person who gets to aim that fire hose.

And I didn't say great BOD, I said "big fish". These guys have their own money riding on this mess and the only way out for them is the success of VA. I'm not saying they'll pull it off, but it's their goal as much as it is mine. The game is rigged that way because of all the foreign ownership hoops VA had to jump through. Maybe every corporation should require its leadership to put its own skin in the game.

 

[jonjuan]

And I didn't say great BOD, I said "big fish". These guys have their own money riding on this mess and the only way out for them is the success of VA.

So, you're saying that "the only way out" for the investors is success or riding it all the way down? No middle such as "cutting your losses?".
Professional investors always have an exit strategy, to include the limiting of losses. I have seen a number of posters say the investors are committed and may just have to ride all the way down so they'll keep pumping money ad naseum into it. Crazy not to have an exit strategy.

 

[Flyer1015]

VA is still here, despite what jonjuan and ualdriver may wish otherwise. The majority of VA pilots are not the koolaid types. Many of them had 15-20+ years at previous ALPA carriers like Aloha, Midwest, and ATA, and many others from Champion, National, Primaris, Skybus, Independence, etc. These people certainly aren't naive and they've seen more and been through worse than other posters in this thread from SWA, Alaska, and United. People here will do what they think is best, despite what you may feel about the financials of VA. Bottom line is that VA is not a public company, and as a private company, what the investors are receiving in payouts is still behind the scenes. Most of it is a shell game. ALL VAs financial results announced are not officially audited as they would be for a public company. VA only reports because DOT forces them to. Anyway, VA is still here, and for now it's still business as usual.

 

[johnsonrod]

Chill out dudes....

Truth: it is extremely difficult and expensive to create an airline infrastructure these days (gates, airport slots, hub, reservation system, frequent flier program, training systems, etc.). So, there is definite value in what VA has already created to date.

For that reason, I believe VA could be an acquisition candidate in the future if it cannot survive on its own. Another carrier could build upon the infrastructure already created (basically buying market share and reducing start-up challenges). Airlines lacking significant West Coast presence would represent likely suitors (better for anti-trust avoidance) - Spirit, JB and Delta are potential examples that could leverage the infrastructure (and even better IFE assets) VA has created to date. It is a classic "buy vs. build" situation for competitors and as VA continues to grow, it becomes more valuable - most airlines would like to take out an aggressive low-cost competitor as well that negatively impact their own margins with lower fares. So, worst case, I think VA pilots would be merged into another entity. The business VA has built so far is pretty valuable - both LAX and SFO operations are growing and getting better with time from what I hear.

So, I don't think VA pilots would be in too much jeopardy over the long term. It will either grow slowly (and then accelerate after a few years when the fleet starts to grow again) or merge with another airline looking to leverage its West Coast assets. At least that is what my crystal ball tells me.... :laugh:

 

[Blue Dude]

Truth: it is extremely difficult and expensive to create an airline infrastructure these days (gates, airport slots, hub, reservation system, frequent flier program, training systems, etc.). So, there is definite value in what VA has already created to date.

Actually, I think this works against your main point. Any potential suitor already has a res system, freq flyer plan, training programs, etc. These brought from a failed airline are a net negative, not a positive, since they would cost money to integrate or dispose of. Only slots, gates and equipment are valuable in an acquisition, and these can be obtained for far less money in a liquidation than for what it would cost to assume all that debt in an acquisition or a merger. Still not seeing it.