Andy:
I cannot quite recall, but weren't you the one illustrating the Airtran "death spiral" financing back in 2009? Do you draw any parallels to the Airtran situation and V-America? I'm not sure how it's all going to work out for Virgin America but it seems they have a lot of believers so they must have something over there.
Yes, that was (I think) around 2008 when Airtran was spending their cash faster than Charlie Sheen on a Vegas bender. They were aggressively taking delivery of 737s and their cash on hand dropped to dangerously low levels.
Airtran fixed their issues by taking two actions:
1) Cancelling 737 orders (Virgin America has done the same, which will help) and
2) they did a secondary stock offering where they raised more than $500 million in cash. Following the secondary offering, Airtran management became very disciplined with their cash on hand.
Since VX isn't a public company, I don't know how they're financing their debt but it would likely be structured very differently than Airtran's 'death spiral' bonds. IIRC, Airtran's bonds had a painful trigger that started when their stock price fell to ~$3/share. When Airtran used those bonds to finance debt, their stock was trading in double digits so it wasn't an expected outcome. As their cash on hand became depleted, the stock fell quite a bit, getting close to triggering some covenants in the bond financing. I didn't short the stock but read some investor chatter where they viewed Airtran as dead because of their low cash on hand.
If Virgin America can turn things around where they're not bleeding cash, they can do an IPO which would allow them to pay off a lot of their current debt; based on last quarter, they're now up to paying more than $100M/yr in interest on their debt - that needs to be reduced and if they were able to raise close to $1B in an IPO, they'd be able to pay down almost all of their debt.
On the bright side for VX, Virgin Group sold most of Virgin Media to Liberty Global last night. I don't know how much cash that raises but it will allow Virgin Group to invest additional money into Virgin Atlantic and VX.
It's possible for VX to turn things around, but they need to start showing some discipline in managing their cash on hand. The only action I've seen taken to date is cancelling Airbus orders; they need to do more than just cancel orders to stop the red ink. I'm not saying it can't be done but with their current cash burn rate, they're running out of money. I don't know what they need to do to fix their business model; hopefully they can tweak it to the point where they're profitable.
If I see signs of VX turning things around, I'll be happy to acknowledge a change in conditions; to paraphrase John Maynard Keynes, I change my opinion when the facts change. In 2007-2010, I was a huge bear on real estate. In 2012, I started investing in real estate and plan on buying an additional 3 houses in 2013, as I think that real estate is turning into a screaming buy.
Don't change your words now. I already got you quoted saying VX will need $100 million infusion to last another year, 2013. We'll see if VX lasts through 2013, and how it does it.
Flyer1015, I threw out the $100M number based on the cash burn rate and the rediculous comments I read on this board in response to Cush saying that the Monday announcement was going to be a 'HUGE announcement; 9.5/10'. I don't consider adding SJC as a destination to qualify as a HUGE announcement. Nor did I consider a pay raise or a possible Flygirls sequel as a HUGE announcement. I was expecting to see something about Q4 numbers, as there's been more than enough time since the end of the quarter to have completed the number crunching. Or even that an additional US investor was going to take a stake in VX. Call me weird; I consider corporate survival to be a top priority.
