Financial News

  • 29 January 2014, 9:54

Branson Targets Take-Off For US Airline Float

Sir Richard Branson has opened talks with banks about a flotation of Virgin America, his domestic US airline that moved into the black for the first time last year.

Sky News has learnt that Virgin America is preparing to appoint banks to oversee an initial public offering (IPO) that would involve the company listing on a US stock exchange within months. A float could value it around 1bn, bankers said on Tuesday.

The listing will follow a six-year struggle to turn the airline into a profitable business, which last November culminated in it posting a consecutive quarterly profit for the first time in its six-year history.

Sir Richard's Virgin Group has a 49% economic stake in Virgin America, but only a 25% voting stake, consistent with regulations governing the ownership of US carriers. Laws state that domestic airlines operating in the country must be majority-owned and run by US-domiciled institutions and individuals.

The remainder of Virgin America, which launched its maiden flight in 2007, is owned by Cyrus Capital, an investment fund, and senior executives.

Earlier this month, the company reported a robust performance in December, with traffic measured in revenue passenger miles rising 7.1% on capacity that was 0.8% lower than in the same month in 2012.

Load factor, another measure of airlines' performance, was 81.9% last month, up six points from the same month a year prior. The number of onboard passengers rose 10.7% from December 2012, it said.

David Cush, a former American Airlines executive who now runs Virgin America, said its improved financial results were the culmination of a more realistic approach to capacity growth and its balance sheet.

"Our strong financial results demonstrate the success of a series of strategic initiatives that started in late 2012. Reduced capacity growth, a focus on increasing unit revenue, and changes to our capital structure are all contributing to improving results.

"With the leading product in the domestic skies, we are well-positioned to continue building on these results in 2014 and beyond."

Virgin America now operates with a fleet of 53 aircraft and does not expect to increase this number until the second half of next year.

It recently undertook a debt restructuring covering roughly $300m of borrowing obligations, which has generated about $10m of annual cost savings.

A Virgin Group spokesman could not be reached for comment on the flotation, which is expected to raise some funds to repay debt and invest in the business.

A successful flotation of Virgin America would echo the model used several times by Sir Richard to take some of his business ventures, such as Virgin Mobile, to the public markets.

In the UK, Virgin Money is expected to follow in the next couple of years.

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