Virgin America Posts Yearly Loss; Eyes Possible IPO

Discount airliner Virgin America said it’s close to turning around its financial losses and could be ready for an initial public offering as early as next year.

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Although a privately held company, Virgin America is announcing these financial results in advance of the DOT quarterly reports.

The airline reported its first-ever fourth quarter operating profit in the quarter ending in December 2012, with a 4.4 point improvement in operating margin over the fourth quarter of 2011. In addition, Virgin America improved financial results in the first quarter of 2013, significantly narrowing its operating loss from the same period the year prior.

For the first quarter of 2013, Virgin America reported a 69 percent year-over-year improvement in operating results compared with the first quarter of 2012, driven by an 18 percent growth in RASM.

Though the airline reported another annual loss on Monday, it’s aiming for a profit in the second half of the year after reworking debt it owes to Sir Richard Branson’s Virgin Group and others. CEO David Cush said in an interview Friday that the improved finances should be one step toward a public offering in late 2014 or in 2015.

The discount airliner, part-owned by billionaire Richard Branson’s Virgin Group Ltd., has turned a quarterly profit just once since it started flying in August 2007. It has accumulated more than $645 million in losses, including a loss of $25 million in last year’s fourth quarter and $46 million in red ink for the quarter ended in March.

Virgin America’s CEO indicated that the company’s investors recently agreed to convert $290 million of the carrier’s $800 million of debt into equity that they would own once the company went public and the stock hit certain targets.  According to him, the company also closed an additional $75 million debt financing that was fully funded at the closing.  This additional liquidity would further strengthen Virgin America’s improving financial position.

As a result of these balance sheet and liquidity initiatives, the company expects its interest expense for the second half of 2013 to be approximately $20 million, or roughly one third of the interest expense recorded in the second half of 2012.

In addition to slowing growth by deferring new aircraft deliveries, Virgin America made targeted changes to its network schedule in the first quarter to optimize seasonal flying and better match supply with winter demand. These changes resulted in a 17 percent reduction in the average daily utilization of the fleet to 10.3 hours per aircraft per day.