US owners of VA selling out...WSJ article
03-09-2009, 05:07 PM
#1
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US owners of VA selling out...WSJ article
U.S. Investors Sell Virgin America Stakes - WSJ.com
I don't subscribe to the WSJ....does anybody else have the remainder of this article???
I don't subscribe to the WSJ....does anybody else have the remainder of this article???
03-09-2009, 05:17 PM
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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.
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.
03-09-2009, 08:26 PM
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I think the Chines should start up a low cost airline but have WalMart as a control share. I think they can turn a pilot out for around $1,500 USD, and that guy will work for them till he's dead. Possibly the only thing in the world that could compete with Southwest. Or maybe we can get Azul Airlines to code share with JetBlue and do all of there flying for them dirt cheap under NAFTA. Even cheaper than their ERJ payrates. This is truly the greatest country for sale. Oh, my uncle drives a city bus in CA and he makes more than any regional captain and most FO's with less than 3 years seniority at a major. He also doesnt have a degree and has only been driving a bus for a year. Oh, and has health care in the first year (not like CAL) and a pension. Can you tell I'm bitter?? and drinking??
Last edited by IndyAir Guy; 03-09-2009 at 08:46 PM.
03-09-2009, 11:48 PM
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Originally Posted by IndyAir Guy
Oh, my uncle drives a city bus in CA and he makes more than any regional captain and most FO's with less than 3 years seniority at a major.
Salary.com’s Salary Wizard™- Do you know what you're worth?
03-10-2009, 08:43 AM
#8
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I am not as violently opposed to VA as some folks...I assume that they will eventually improve their payscale. However...there is nothing ambiguous about the foreign-ownership legal requirements. VA is simply not in compliance right now, and the fed needs to give them an ultimatum rather than stalling and reviewing.
VA may not be so bad, but there are many other potential foreign owners who we REALLY don't want in this country. I hope this gets nipped in the bud...
VA may not be so bad, but there are many other potential foreign owners who we REALLY don't want in this country. I hope this gets nipped in the bud...
03-10-2009, 08:52 AM
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This may sound like an overbeaten drum, but I like to write my representatives on issues important to me and I always get a response. They not do anything about it but at least I did my part. Perhaps if this is an important enough issue for everyone, they should stand up and write their reps. Perhaps with pressure from the Hill, the DOT may do something.
03-10-2009, 10:00 AM
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Originally Posted by DAL4EVER
This may sound like an overbeaten drum, but I like to write my representatives on issues important to me and I always get a response. They not do anything about it but at least I did my part. Perhaps if this is an important enough issue for everyone, they should stand up and write their reps. Perhaps with pressure from the Hill, the DOT may do something.
How many reps are going to stand up today and push for the elimination of another few thousand jobs? Like VA or not, I don't see many politicians trying to get this operation shut down in lieu of the current economic mess out there. I see them dragging it out..."Stop or I will say stop again!"
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