London Financial Times
Virgin America plans shake-up
By Justin Baer in New York

Published: July 9 2009 21:39

Virgin America, the carrier founded by Sir Richard Branson, is seeking US approval for a new slate of domestic investors it expects will end a rival’s bid to challenge the company’s ownership structure.

Under the plan submitted to the Department of Transportation, the airline would receive new capital from a group of investors that includes Cyrus Capital Partners, people familiar with the matter said. Cyrus, a New York hedge fund, was one of Virgin America’s original shareholders.

Virgin America began service in 2007 after a battle in Washington over rights to operate domestic flights and its ties to Sir Richard’s Virgin Group, which owns 24 per cent of the US airline.

Alaska Airlines, which competes with Virgin America on routes to Seattle and other west coast cities, has questioned the carrier’s “US citizenship” and petitioned transport regulators in February to investigate its ownership structure. Federal laws cap foreign ownership of domestic airlines at 25 per cent.

“This is a meritless petition,” Virgin America said at the time. “Nothing has changed in our ownership structure, which was approved by the DOT.

“Should our ownership structure change in the future, we will of course notify the DoT in advance, so they can confirm our continuing compliance.”

Alaska’s petition came as Black Canyon and Cyrus, Virgin America’s two US shareholders, exercised an option to recall their $150m investment in the company.

Virgin America had hired Lazard, the investment bank, earlier in the year to recruit new domestic investors.

The new round of capital may be less than $150m, reflecting the steep falls many US airline stocks have endured as demand slumped. Shares of Delta Air Lines, the world’s largest carrier, have lost half their value since the start of the year.

People familiar with Virgin America’s structure note that its agreement with the DoT enabled it to keep Black Canyon and Cyrus as stakeholders and remain in compliance with foreign-ownership rules even if the two firms recalled their capital.

Virgin Group plans to transfer the two firms’ stakes to its new US investor group once the structure plan is approved.

By May, Virgin America was in talks with at least five US funds. Virgin America and Cyrus did not return calls.

Copyright The Financial Times Limited 2009