WSJ: U.S. Investors Sell Virgin America Stakes

[Pitot]

Does anyone have the rest of this article. I guess you have to have a subscription to WSJ.

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. ...

 

[Cheeta]

Does anyone have the rest of this article. I guess you have to have a subscription to WSJ.
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.

 

[Bavarian Chef]

I think that guy behind Family Airlines is calling ...

I bet some MORON will come out of the woodwork and fund this pig.

 

[9rj9]

this is branson's graceful exit, he wants out of this money pit while saving face, well heres his chance.

 

[Cobra17]

I think that guy behind Family Airlines is calling ...

I bet some MORON will come out of the woodwork and fund this pig.

Not in this economy.

 

[Fubijaakr]

Move over, Skybus.

 

[fam62c]

The strange thing about airlines is that there always seems to be somebody willing to put up money. It will be very tough to lure new investors in this market but it's possible. I think all that Virgin Group may need to do is offer the same "out clause" with the 8% guaranteed return to new investors. If the payback has an ironclad guarantee from Virgin Group that can't be scuttled in a bankruptcy there may be takers; a guaranteed 8% return is pretty hard to come by lately.

The hard part for Virgin Group will be the decision to even continue or not. That 8% they had to pay out on the capital that exited coupled with the lossses has to make them think twice about this whole deal. I can't imagine that their original business plan ever considered an economy this bad. I don't think that their competitors are going to allow them to raise their fares to a level that will be profitable. LUV and UAL know that they have VA on the ropes and I think they will try to push them over the edge. Virgin Group has to decide how much money they are willing to risk on a venture with no assurance of ever turning a profit. The airline business is tough under ideal circumstances but now it's just plain terrible.

 

[Fubijaakr]

fam,

You did notice there's a banking crisis going on didn't you. VA won't get that kind of AMERICAN money and will be history before the daffodils bloom.

 

[vixin]

Daffodils are blooming in Texas already.

 

[zman]

It will happen like Skybus half of the employees will find out 6-8 hours later after they officially shut down. I remember one guy that actually tried arguing with me saying no we are still operating.