Alaska Air Group Inc. (NYSE:ALK) last month
raised some eyebrows by calling on government officials to launch a probe into whether rival Virgin America Inc. continues to meet the standards for being a U.S. carrier. A news story out Wednesday suggests Alaska has good reason to be concerned.
The Wall Street Journal
reported on its Web site Wednesday that Cyrus Capital Partners LP and Black Canyon Capital LLC, owners of 77% of Virgin America's capital, are going to exercise their option to cash out on the money-losing startup airline. If they do Virgin America would need to find new U.S. investors -- and quickly -- to comply with requirements that prohibit Richard Branson's Virgin Group Ltd. from owning more than 25%.
Few in the industry believe a sale would cause an immediate grounding
of Virgin America, as the Department of Transportation seems likely to
give the airline a window to line up new investors. The Journal report
says that representatives of the departing shareholders will remain on
the airline's board until new shareholders are found to ensure the
airline remains controlled by U.S. investors, and Virgin America in a
statement said it remains in compliance.
But given the current
market conditions and the airline's startup struggles, the company
could be hard-pressed to replace departing owners. And as Alaska's
initial shot shows, it will not be long before a chorus of Virgin
America rivals are lobbying the government to clamp down on the
startup. Sir Richard might have little choice but to accept onerous
terms from new investors if he wants to keep his U.S. unit in the air.
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Lou Whiteman
