Virgin America Plans IPO at $1 Billion Valuation

Virgin America has just reported its fiscal Q3 financial results before the opening bell, and profits are up by about 24% due to increase in passenger traffic and higher fare rates. Operating revenue was also up by about 4.7%, totaling $405.5 million. The company has done very well in the fourth quarter of 2013, and the first quarter of 2014, which has led it to its decision to go public.

Virgin America is one of the only major U.S. airlines that is yet to become a publicly traded company, and it will certainly be a highly anticipated debut on the Nasdaq Global Select Market, when it commences trading under the ticker symbol, “VA”.

On Monday, Virgin America laid out the terms for its planned initial public offering regarding 13.3 million shares at a price tag of about $21/share-$24/share. The offering is expected to value the company at about $1 billion, based on $24/share, and Virgin America had already filed for its IPO back in July 2014.

Cyrus Capital Partners LP and Virgin Group Holdings Ltd, will be the largest shareholders, and a company employee stock ownership vehicle will also be offering approximately 231,000 shares. Virgin America will not be cashing in on the proceeds from the sales of shareholders’ shares. PAR Investment Partners LP has also agreed to purchase about $52.1 million of the shares for about 96% of their IPO price in a private deal.

Virgin Group Ltd., headed by British billionaire investor, Richard Branson owns part of Virgin America, and it has successfully managed to provide higher net incomes due to truncating flight times and providing shorter routes. On the other hand, Virgin Galactic, also owned by Branson, has been suffering to regain its composure and reputation after a tragic crash incident in which the pilot of a Virgin Galactic LLC rocket ship was killed, and another was severely injured.

Allegedly, the rocket ship disintegrated miles above the earth, exposing perhaps a structural failure in the rocket ship. This will definitely delay Branson’s ambitious plans and vision of space tourism for the rich.

CEO, David Crush, has stated that Virgin America is keen on going public, thanks to surges in overall net incomes, revenues, gross margins, average fares, improved passenger traffic, percentages of seats filled (load factor), and perhaps most importantly, passenger revenue per available seat mile.

Virgin America intends on using its share of the IPO proceeds to build on its general corporate structure, including but not limited to, working capital, sales and marketing departments, general and administrative factors, and capital spending. Virgin America is a relatively small airline company, and while it may slightly impact American Airlines (AAL) sales, or United Airlines (UAL) sales, it will not put these two airline goliaths out of business anytime soon.

Fears of Ebola are starting to subside, as risk of the disease spreading are lower, and as better infrastructure and protocols are being set up in the infected areas of West Africa. Southwest Airlines (LUV), Jet Blue (JBLU), and perhaps Spirit Airlines (SAVE) are all significant players in the domestic flights market, and they may very well be impacted by Virgin America, when and if it continues to come out on top of profit, revenue, and load factor estimates. They will all need to become more competitive, otherwise their shares of the market might be stolen by Virgin America, which is hungry for growth and success.

We do not know how Virgin America’s stock will fare after the IPO, and investors may be better off investing in LUV or SAVE, as they both carry a Zacks Rank #1 (Strong Buy), and will most likely offer reasonable gains and dividends in the near future, and could be solid choices until VA makes its inaugural flight on the stock market.

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