Virgin America ready to take off out of SFO

0 Comments | Oakland Tribune, Dec 9, 2005 | by Tim Simmers, BUSINESS WRITER

Low-cost airline startup Virgin America said Thursday that it has lined up $177.3 million in financing and aims to launch service next year from San Francisco International Airport.

The U.S.-based airline, which plans to fly under British billionaire Richard Branson's Virgin brand, said it will base its headquarters and operations in Burlingame and bring up to 2,000 jobs to the Bay Area within two years of its launch.

About half of the funding comes from VAI Partners LLC, an investment group

funded by U.S. investment firms Black Canyon Capital of Los Angeles and Cyrus Capital of New York. "Various companies" from Branson's Vir-

gin Group will provide the remainder of the financing, according to the filing with the U.S. Department of Transportation.

"We're very happy and excited," said Fred Reid, Virgin America's chief executive officer and a native of San Francisco. "We would have liked it to go faster but all's well that ends well."

Reid, 55, is a former president of Delta Air Lines and a graduate of the University of California, Berkeley.

U.S. law says that because Branson is not a U.S. citizen he cannot own more than 49 percent of the equity of the carrier or control more than 25 percent of its voting stock. In fact, Branson will own 25 percent of the equity in the venture and control 25 percent of the stock, Reid said.

Branson controls U.K.-based Virgin Atlantic Airways, and has sought funding for nearly two years for Virgin America.

Virgin had announced last year that it had picked the Peninsula for its operations headquarters and New York for itscorporate headquarters. But Reid said as time went on it became clear that it would "be more efficient and streamlined to have everybody together."

"California's a great location, and the Bay Area is a perfect place to launch the Virgin brand," Reid said. "What could be cooler than to have the only hometown airline in California?"

Virgin currently employs 41 people in a temporary office in Burlingame. It just launched a new Web site, http:// www.virginamerica.com, where job seekers can go and fill out a profile for the company to consider. Virgin will eventually need pilots, flight attendants, marketing, finance and technology people, and many more, officials said.

Officials at San Francisco International Airport were also excited about the announcement.

"It's a terrific day," SFO spokesman Mike McCarron said. "It's good news for (SFO) customers because of the low fares, and will be good for the economy."

McCarron said no details have been announced on how many gates Virgin will take, how many flights a day it will operate or where the destinations will be. Virgin has said it will definitely fly from San Francisco to New York and other major markets, but has not named its markets for competitive reasons, Reid said.

The announcement comes a year late. Virgin officials said in 2004 that they expected to launch service sometime this year. Reid said he would have liked to have gotten the funding sooner.

Virgin now faces what could be a lengthy process to get approval to fly from the Department of Transportation, McCarron said.

"It's good timing for (Virgin)," said Gerald Bernstein, partner in the Velocity Group in San Francisco, an airline consultant. "They did their homework and raised capital during the industry's down cycle, and it looks like they'll start service in an industry up cycle."

Bernstein said traffic is coming back strong for airlines, and they've reduced their costs and "look like they'll make some money next year." The airline industry has been unprofitable for about five years, and that's why it took so long to get funding, he said. Bernstein believes it was a coup for SFO to land the low-cost carrier because its rival airports in Oakland and San Jose have flights of low-cost giants JetBlue Airways and Southwest Airlines.

VAI will control 75 percent of the airline's voting and stock interest, and has named two-thirds of Virgin America's board of directors, according to the filing.

The company's newly formed board appointed Mark Lanigan, managing director of Black Canyon Capital, as chairman of Virgin America, and Reid as chief executive officer.

Bloomberg News Service and the Associated Press contributed to this report.

Virgin America has ordered a combination of 34 Airbus A319s and A320s for its fleet, Reid said.

"I'm thrilled they have their funding," said Deberah Bringelson, president and chief executive of the San Mateo County Economic Development Association, which led efforts to land Virgin here. "It makes sense for them to have all their headquarters together here."