Virgin America Files for IPO of Richard Branson-Backed Carrier

Jul 28, 2014 10:18 am ET

July 28 (Bloomberg) -- Virgin America Inc., the airline partly owned by U.K. billionaire Richard Branson, filed for an initial public offering in the U.S.

The number of shares to be offered and the price have yet to be determined. The filing included an offering size of $115 million, which is a placeholder used to calculate fees. A vehicle owned by Virgin America’s employees will sell 1.75 million of the shares in the offering. Remaining proceeds will be used to fund growth and repay debt owed to Cyrus Capital Partners LP and Virgin Group Ltd.

U.S. carriers have turned themselves around, reporting profits within a few years of exiting bankruptcy protection. Last week, the six biggest domestic airlines posted combined profit excluding some items of $3.97 billion, beating analysts’ average estimate of $3.76 billion, according to data compiled by Bloomberg. Virgin America reported 2013 net income of $10.1 million, its first annual profit.

American Airlines Group Inc. and United Continental Holdings Inc., the biggest and second-largest U.S. airlines, each disclosed plans to return cash to shareholders through dividends or share buybacks. They joined rival Delta Air Lines Inc., which started paying a dividend and repurchasing shares last year for the first time in a decade. A Bloomberg index of U.S. airline stocks is up 36 percent on the year.

Sustained Profit

Virgin America Chief Executive Officer David Cush said almost a year ago that a stock sale would be possible as long as the carrier posts several consecutive quarters of earnings growth. A transaction is unlikely before late 2014 as the airline focuses on showing sustained profit, he said in November. The Burlingame, California-based company’s first- quarter loss narrowed to $22 million from $46 million, today’s filing shows.

Virgin America, which started service in August 2007, has a fleet of Airbus SAS A320 single-aisle jets and flies to destinations including San Francisco, Los Angeles, Las Vegas, New York’s John F. Kennedy airport and Boston. Some of the proceeds from the share sale will support fleet growth, the filing shows.

Branson’s Virgin Group owns a 22 percent stake in Virgin America through VX Holdings LP, while Cyrus Capital Partners LP, a New York-based investment adviser, holds 72 percent. The rest of the U.S.-held stake is owned by a group of investors including Virgin America Chairman Donald Carty, a former chief executive at American Airlines. David Cush, a former American Airlines global sales manager, took over as Virgin America’s chief executive officer in December 2007, four months after the carrier began flights. He holds a 7.7 percent stake.

Foreign Ownership

The airline’s effort to operate in the U.S. was tested from the start, with federal regulators denying its initial application because of concerns over foreign ownership, which is limited by federal law to 25 percent. Virgin America won approval on its second try, with the U.S. Transportation Department requiring Fred Reid to resign as chief executive officer because of his ties to Branson.

Alaska Air Group Inc. filed a complaint with regulators in 2009, questioning Virgin America’s ownership status when some of the original investors changed. The U.S. rejected that challenge in early 2010.

The airline over the past year has won auctions of highly sought takeoff and landing rights at Washington’s Reagan and New York’s LaGuardia airports. The slots were sold by American Airlines Group Inc. under a legal settlement with the U.S. Justice Department that allowed it to merge with US Airways Group Inc.

Barclays Plc and Deutsche Bank AG are managing the offering. Virgin America didn’t indicate if it would list on the New York Stock Exchange or Nasdaq Stock Market.

--With assistance from Michael Sasso in Atlanta.