Virgin America Has High Hopes for Its IPO, But Its Weak Balance Sheet May Leave It Grounded
You don't have to be a startup technology company with mounting losses to file for a public offering. You can be a consumer airline, too.
Just ask Virgin America, the upstart airline which filed its papers to go public with the U.S. Securities and Exchange Commission on Monday. Virgin shows a history of losses, though it had a minimially profitable year in 2013. Virgin indicated that it was uncertain if it would be profitable going forward. Its filing documents also detail the importance of mega-kilowatt entrepreneur-cum-personality Sir Richard Branson, Virgin Group's founder, to the enterprise.
Virgin America reported a $22 million loss for the three months ended March 31 in 2014. That's less than half the loss it reported for the same three months in 2013, when Virgin America ended the year with a net profit of $10 million. In 2012, however, Virgin America reported a loss of $145 million, a 45 percent increase compared to full-year 2011.
in Virgin America's "Risk Factor" section, the company had this to say about ongoing losses:
We have a history of losses and only a limited operating history upon which you can evaluate our business and prospects. While we first recorded an annual profit in 2013, we cannot assure you that we will be able to sustain or increase profitability on a quarterly or an annual basis. In turn, this may cause the trading price of our common stock to decline and may materially adversely affect our business.
Branson owns up to 22 percent of the company through a partnerhip called VX Holdings. Virgin America Chief Executive C. David Cush owns an additional 8 percent. Cush is also a managing member of VAI Partners, which owns 77 percent of Virgin America.
The closely-held structure is among the risks laid out in the company's S-1 filing:
Concentrated ownership by our principal stockholders could materially adversely affect our other stockholders...This concentrated ownership may limit the ability of other stockholders to influence corporate matters, and, as a result, these stockholders may cause us to take actions that our other stockholders do not view as beneficial.
Among those stockholder actions might be a change in executive leadership or a potential acquisition by another company, which in turn could affect stock price, the S-1 elaborates.
Virgin America plans to raise $115 million from the sale. It listed neither the ticker nor the exchange on which it planned to trade in its initial filing. The value of its common shares was $436.6 million, or $68.85 per share, as of March 31, 2014 Virgin reported. The lead underwriters in the deal are Barclays Capital and Deutsche Bank Securities.
Virgin America flies 53 aircraft to 22 airports in the U.S. and Mexico.
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