Virgin America Weighs Sale After Receiving Interest

Virgin America Said to Weigh Sale
  • Carrier is working with a financial adviser on options
  • Branson-backed airline raised $353 million in a 2014 IPO

Virgin America Inc., the airline backed by U.K. billionaire Richard Branson, is reaching out to potential buyers about a sale of part or all of the company, people with knowledge of the matter said.

The carrier, which flies to destinations throughout the U.S. and Mexico, is working with a financial adviser after receiving takeover interest, the people said, asking not to be identified as the matter is private. No decision has been made, and Virgin America may choose not to pursue a sale, they said.

Shares in Virgin America rose 13 percent at the close in New York to $34.72, valuing the company at about $1.5 billion. Rival airline stocks also rose: JetBlue Airways Corp. and Hawaiian Holdings Inc. both reversed losses to close up, while Spirit Airlines Inc. and Alaska Air Group Inc. pared declines.

Virgin America, based in Burlingame, California, sold stock in a $353 million initial public offering less than 18 months ago, pricing its shares at $23 apiece, data compiled by Bloomberg show.

Rival Carriers

Carriers including JetBlue and Delta Air Lines Inc. may be interested in owning Virgin America, according to comments by analysts and consultants on Wednesday. Outside of the airline industry, buyout firms and travel companies could also make bids.

“A potential buyer, in our view, could be JetBlue, with similar fleet types, overlapping transcontinental services, similar high-quality product offerings and complimentary networks,” Michael Derchin, an analyst at Sterne Agee CRT, said in a report Wednesday.

For Delta, an acquisition would strengthen its presence on the U.S. west coast and eliminate a competitor in the valuable transcontinental market, according to Bob Mann, president of aviation consultant R.W. Mann & Co., who spoke in a telephone interview. A takeover would also ensure a continued presence at Dallas’s Love Field airport for Delta, Mann said.

Jamie Baker, a JPMorgan Chase & Co. analyst, said it might not even be another airline that bids for Virgin America, because of an unfavorable regulatory environment and Virgin’s lack of owned aircraft or dominant take-off and landing slots at regulated airports.

“We would characterize the current regulatory environment as hostile towards further U.S. industry consolidation,” Baker said in a note Wednesday, adding that private equity firms or travel-related companies may be more likely to be interested.

A representative for Virgin America said the company doesn’t comment on speculation concerning mergers or acquisitions. Representatives for Delta and JetBlue also declined to comment.

Growing Capacity

Virgin America last month reported 2015 adjusted net income of $201.5 million, the most in the company’s history. The airline received five new Airbus A320 aircraft last year, with plans for five more this year, after slowing growth in 2012 to focus on long-term survival. It expects to grow capacity by 10 percent a year in 2017 and 2018.

Branson is the founder of the Virgin Group, which also owns stakes in gyms, hotels and telecommunications companies around the world. Virgin America started flying from San Francisco in 2007.

“The American airline system, 10 years ago, didn’t have a decent airline, so I thought let’s launch Virgin America,” Branson said in an interview with Cory Johnson on Bloomberg TV last week.

“We attract both leisure people and tech people who want to be flown in a slightly more hip airline than our competitors,” he said, speaking from one of the company’s airplanes as he helped launch a new route from San Francisco to Denver.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE