Virgin America (VA) is a premium-branded, low-cost airline based in California that provides scheduled air travel in the continental United States and Mexico. It is based in Burlingame, CA,

Nine other companies are scheduled for the week of Nov. 10, 2014. The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint-managers: Barclays and Deutsche Bank Securities.

Co-managers: BofA Merrill Lynch, Cowen and Company, Goldman Sachs, Imperial Capital, LOYAL3 Securities, and Raymond James.

End of lockup (180 days): Wednesday, May 13, 2015

End of 40-day quiet period: Wednesday, December 24, 2014

VA scheduled a $300 million IPO with a market capitalization of $1 billion at a price range midpoint of $22.50 for Friday, Nov. 14, 2014 on Nasdaq.

Virgin America IPO Report

Summary

VA is a premium-branded, low-cost airline based in California that provides scheduled air travel in the continental United States and Mexico.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Sept 9 mos

         

Virgin America (VA)

$972

0.7

13.0

2.1

2.4

31%

             

Compare/Contrast

         

JetBlue Airways (JBLU)*

$3,690

0.6

8.9

1.5

1.5

 

*strong June qtr

         

Alaska Air (ALK)

$7,360

1.3

12.1

3.3

3.3

 

United Continental (UAL)

$20,270

0.5

13.8

5.2

-4.1

 
             

Conclusion

Neutral plus

Rev +5%

P/E of 13

Price-to-book 2.1

Operating income +51%

Aircraft fuel -1%, lower oil prices expected to be a plus

Business

VA is a premium-branded, low-cost airline based in California that provides scheduled air travel in the continental United States and Mexico.

VA was incorporated in the state of Delaware in 2004 as Best Air Holdings, Inc., and VA changed its name to Virgin America Inc.

in November 2005. VA operates primarily from its focus cities of Los Angeles and San Francisco to other major business and leisure destinations in North America.

VA provides a distinctive offering for its passengers, whom VA calls guests, that is centered around its brand and its premium travel experience, while at the same time maintaining a low-cost structure through its point-to-point network and high utilization of its efficient, single fleet type.

VA’s distinctive business model allows it to offer a product that is attractive to guests who historically favored legacy airlines but at a lower cost than that of legacy airlines.

This business model enables VA to compete effectively with other low-cost carriers, or LCCs, by generating a higher stage-length adjusted revenue per available seat mile.

Conversely, while VA’s lower density seating configuration and the cost of its premium services contribute to a higher stage-length adjusted cost per available seat mile than that of other LCCs, its underlying cost structure principally stemming from its single fleet type and point-to-point network is competitive within the industry.

As of September 30, 2014, VA provided service to 21 airports in the United States and Mexico with a fleet of 53 narrow-body aircraft.

Leveraging the reputation of the Virgin brand, a global brand founded by Sir Richard Branson, VA targets guests who value the experience associated with the Virgin brand and the high-quality product and service that VA offers.

VA’s employees, whom VA calls teammates, provide a personalized level of service to its guests that is a key component of its product.

Other elements of VA’s premium product available fleetwide include power outlets adjacent to every seat, inflight wireless internet access, distinctive on-board mood lighting, leather seats, high-quality food and beverage offerings and its Red® inflight entertainment system, which VA believes is industry leading, featuring a nine-inch personal touch-screen interface with a variety of features available on-demand, including live television, movies, seat-to-seat text chat, games, interactive maps and music.

VA has won numerous awards for its product, including Best Domestic Airline in Travel + Leisure Magazine’s World’s Best Awards and Best Domestic Airline in Condé Nast Traveler Magazine’s Readers’ Choice Awards for the past seven consecutive years as well as Best U.S. Business/First Class Airline in Condé Nast Traveler Magazine’s Business Travel Poll for the past six consecutive years.

Competition

VA’s principal competitors on domestic routes are Alaska Airlines, American Airlines, Delta Air Lines, JetBlue Airways, Southwest Airlines and United Airlines.

VA’s principal competitive advantages are its premium product and brand, distinctive culture and low cost structure.

5% shareholders pre-IPO

Cyrus Aviation Holdings, LLC     39.9%

VX Holdings, L.P.         22.1%

VX Employee Holdings, LLC  11.9%

C. David Cush    7.7%

Donald J. Carty   6.5%

Stephen C. Freidheim  39.9%

Robert A. Nickell    6.5%           

Dividends

No dividends are planned.

Use of proceeds

VA expects to receive $271 million from its IPO and use it for the following:

retain $219.6 million of net proceeds from the sale of 13,106,377 shares of common stock by VA for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures, including future flight equipment acquisitions, as well as for certain aircraft operating lease obligations. Pending these uses, VA intends to invest these net proceeds in high-quality, short-term obligations. Currently, VA does not yet know the amounts that it intends to use for each of these general corporate activities.