Flight International Online news 09:00GMT: Planned US startup Virgin America will serve several of the country’s top metropolitan cities using an initial fleet of 17 Airbus A320 family aircraft within one year of launching services from San Francisco, California.
The carrier, which has revealed $177.3 million in startup capital, says in its application for US DOT certification that its initial focus will be on measured growth “on longer-haul, domestic US routes that serve major cosmopolitan markets where guests are particularly likely to value Virgin America’s quality service offering”.
The carrier in a statement says VAI Partners, an investment group funded by Black Canyon Capital and Cyrus Capital Partners, committed most of the funding and now controls Virgin America as its majority owner.
The Virgin Group of companies headed by Richard Branson is providing the remaining funding, and has assumed a minority stake in the operation, in accordance with US ownership laws.
The airline said it intends to expand its network to “other large metropolitan markets”.
Virgin America’s headquarters and base of operations will be stationed in the San Francisco Bay Area, which in addition to San Francisco (SFO) boasts Oakland and San Jose for major international airports. Its principle operations will be at SFO.
“Virgin America service at SFO clearly would bring the benefits that the San Francisco Bay Area seeks, including jobs, competition, and the quality of air service that residents expect and deserve at consumer-friendly fares,” says the carrier.
It adds that the New York City market - where Virgin America previously intended to establish its corporate offices - is also “an excellent example” of the type of metropolitan area that will be served by the carrier.
Legacy airlines continue to charge high fares from New York, giving Virgin America “plenty of room” to offer “quality, value-oriented service to the people of New York”, it says.
Virgin America has agreements to take firm deliveries of 33 A320 family aircraft, including 18 purchased directly from Airbus and 15 leased aircraft from General Electric Capital Aviation Services (GECAS). It also has options with the manufacturer for up to 72 more narrowbodies.
Deliveries will begin in 2006, and Virgin America intends to finance some of the acquisitions through sale-leaseback transactions and other financing mechanisms.
The carrier has already secured what it believes to be among the largest funding commitments of any startup airline in US history - $177.3 million worth of private equity and subordinated debt.
“This capitalization, unprecedented for a US new entrant airline, exceeds the [DOT’s] financial test for new entrants, a test based on pre-operating expenses and one-quarter of first-year expected operating expenses,” says the carrier in its filing.
VAI Partners - a US investment company co-managed by Mark Lanigan of Los Angeles-based Black Canyon Capital and Nicholas Singer of New York’s Cyrus Capital Partners - is the largest contributor. It holds and controls 75% of the capital stock and voting interest, and has designated two-thirds of the voting members of the Virgin America board of directors.
Lanigan’s and Singer’s firms will each control private investment in Virgin America totaling slightly more than $44 million for a total contribution from VAI Partners of $88.9 million.
“We have invested in Virgin America because we are impressed with the founding team and because we believe the Virgin brand is a great fit for the US market,” says Lanigan in a statement.
“We see an opportunity for Virgin America to take advantage of its strong capitalization and its differentiated business model to carve a successful niche in this rapidly evolving marketplace. The airline industry plays a vital role in our economy and the successful implementation of Virgin America’s business plan will bring jobs and economic development to the markets it serves.”
Meanwhile, various firms from the Virgin group of companies headed by Richard Branson are providing the remaining funding for Virgin America, and one is licensing the Virgin brand to the new domestic airline. The remaining 25% of the voting and total equity interest and Virgin America is held by a Virgin group company, and two British citizens. These non-US citizens will have contributed a total of $29.8 million in equity and $58.6 million in subordinated debt to the new airline.
A newly formed board of directors has appointed Lanigan as chairman of Virgin America and former Delta Air Lines president Fred Reid as CEO.
“Our investors share a commitment to build an innovative airline based on safe and efficient operations, low costs, outstanding guest service, and a unique level of engagement with our employees,” says Reid.
With funding secured, Virgin America will begin a dedicated recruitment effort. “In addition to employees hired for San Francisco Bay Area operations, the airline also will employ as many as several hundred additional persons at various airports across the United States,” says the carrier.
In all, Virgin America plans to directly employ up to 2,000 people by its second year of operation.
MARY KIRBY / PHILADELPHIA
Source: Flight International
