Virgin America in move to find new investors
By Justin Baer in New York
Published: January 19 2009 02:00 | Last updated: January 19 2009 02:00
Sir Richard Branson's Virgin Group has hired Lazard to help recruit new investors in Virgin America following concern that the fledgling US carrier's current shareholders may move their stake back to its sister company.
Virgin Group founded Virgin America in 2005 with a pair of domestic funds, Black Canyon and Cyrus Capital Partners, to skirt US laws preventing foreign entities from owning a controlling stake in an American airline. The UK company now fears that the deepening financial crisis could prompt the two firms to exercise an option to recall their combined $150m investment in Virgin America in the next month - eventually leaving Virgin Group the sole shareholder, people familiar with the matter said.
Lazard is looking to line up potential replacements for Black Canyon and Cyrus, which have the right to withdraw their funds from Virgin America, those people said. Virgin Group would in turn transfer the firms' -ownership stake to new US investors once they had committed, remaining in compliance with foreign ownership rules.
A person close to Cyrus denied the fund was facing a liquidity squeeze and said it had not reached its decision on Virgin America, which has enough capital to fund its growth plans through until 2011.
The San Francisco-based carrier, which operates more than 80 flights a day to eight destinations, showed enough promise to win almost $100m in additional capital last autumn. By comparison, the largest US carrier, Southwest Airlines, offers more than 3,300 flights a day. Virgin America has raised more than $400m in debt and equity since its founding.
Officials from Virgin Group, Virgin America and Cyrus declined to comment. Black Canyon could not be reached for comment.
Virgin Group owns 49 per cent of Virgin America, including a 24 per cent voting stake in the airline - the maximum allowed under US laws.
Black Canyon and Cyrus hold the remaining equity, and appeared committed to the business.
The firms have been free to exercise their option since September.
The turmoil that gripped the markets last year has only worsened, leaving Virgin Group to assume that Black Canyon and Cyrus will put their Virgin America stake back to raise cash.
Virgin America began service in 2007 after a protracted battle in Washington over its rights to operate domestic flights and the company's ties to Virgin Group.
The privately held airline petitioned US transport officials to withhold important operational data from the public, keeping information from rivals and fuelling rumours that it has found it difficult to lure enough passengers to stay in business.
Robert Nisi, Cyrus's chief operating officer, told the Financial Times last year that the carrier was filling 80 per cent of its available seats and expected to turn a profit by the second half of this year.
Copyright The Financial Times Limited 2009
