"Virgin America low-cost airline may not fly until 2006"

Friday, February 4, 2005

Virgin America faces delays
Financing, federal OK likely to push takeoff to 2006
By Eric Young
The San Francisco (CA) Business Times


Virgin America, the startup low-cost airline with operational headquarters
in the Bay Area, likely won't get off the ground until 2006. 

After agreeing last year to base most of its business on the Peninsula,
Virgin America said service was scheduled to begin this year. But before it
can take to the air, Virgin America must line up U.S. investors and get
approval from the U.S. Department of Transportation -- a task that involves
answering more than 22,000 questions. 

"Our research shows that in the best-case scenario, we could launch between
nine and 12 months after we file with DOT," said Virgin America spokeswoman
Stacy Geagan. "We still have a few months when we could launch in 2005, but
as we get later in the year it's possible it will be in 2006" before Virgin
America carries its first passengers. 

Conceived by British billionaire Richard Branson, Virgin America has said it
will hire more than 1,500 flight attendants, pilots, maintenance
technicians, engineers, dispatchers and other workers at its operational
headquarters along the Peninsula. Another 300 people are expected to work in
executive offices in New York. Anxious to attract those promised jobs, Bay
Area and California officials last year offered Virgin America more than $15
million in grants and financial incentives to locate here. 

The airline has 12 employees working in temporary space in Burlingame. They
are helping the airline compile data to prepare for Virgin America's DOT
application, said Bob Weatherly, the airline's senior vice president of
flight operations. 

The airline has not yet finalized a lease for its operational headquarters
in the Forbes Building in Burlingame, an Equity Office Property near Highway
101, according to sources familiar with the deal. 

Before the airline can submit flight applications to the federal government,
it must secure financing. Weatherly, in a speech last week before San Mateo
convention and visitors officials, said the airline is "well into the equity
process" but declined to elaborate. 
Two British newspapers, citing Branson, reported within the last month that
Virgin America's financing will be concluded over the next few months.
Geagan would not confirm the reports. 

The airline likely needs to raise at least $100 million, according to
airline industry consultants, some of whom draw parallels between Virgin
America and low-cost Jetblue Airways Corp. New York-based Jetblue launched
in 2000 with $130 million. Under U.S. law, Branson cannot own more than 49
percent of a U.S.-based airline because he is a foreign citizen. 

Some airline consultants said Virgin America might be having a difficult
time lining up investors because the industry is in a slump. Globally,
airlines were expected to lose $5 billion in 2004, largely due to sharp
rises in fuel prices, according to the International Air Transport
Association. 

"Are you going to invest in an airline when everything you read says this is
a bad industry?" asked Michael Boyd, president of the Boyd Group aviation
consultancy. 

While acknowledging the poor state of the industry, Virgin America
executives said they will offer an attractive service and believe their
business model will work. 

"We see opportunities in attracting customers looking for low fares as well
as a high-quality experience," Geagan said. "We believe that opportunity
exists." 

Virgin America said it will take possession of Airbus A319 and A320 aircraft
later this year. Those planes seat approximately 124 and 150 passengers,
respectively. The airline won't say how many they expect this year. But Fred
Reid, head of the startup airline, said last year Virgin America had
agreements to buy and lease up to 105 aircraft. 


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