After months of speculation, low-cost U.S. airline Virgin America Inc. has finally filed a registration with the U.S. Securities and Exchange Commission (SEC.TO) to launch its Initial Public offering (IPO). The California-based carrier has timed its IPO well given a recovering U.S. aviation market.
Virgin America plans to raise $115 million from the IPO. However, as of now, it remains tight-lipped about the number of shares to be offered and the price range. Further, the stock exchange and ticker symbol have also not been mentioned by the carrier. Although the timing of the IPO is unknown at present, it generally takes two to three months to get the SEC clearance.
Notably, the filing follows the carrier recording its first full-year profit in 2013 in March this year. The company, partly owned by British entrepreneur Richard Branson, has had a torrid time since its launch in 2007.
Virgin America provides service to 22 different destinations in the U.S. and Mexico using a young fleet of 53 narrow bodied Airbus A320 aircraft. The carrier is currently expanding to serve an increased number of markets from the base cities of Los Angeles and San Francisco. With a population base of 27 million people, expansion from these markets will boost its long-term prospects.
The twin slot wins at LaGuardia Airport in New York and Reagan National Airport near Washington, D.C. in addition to two gates at Dallas Love Field airport from American Airlines Group Inc. (AAL) will also strengthen its operations from these markets.
We believe the IPO, when launched, will get a good response from investors as the U.S. aviation sector is now showing signs of improvement, having recovered from the impact of a lackluster first quarter dampened by a severe winter. Most of the legacy airline companies managed to beat the Zacks Consensus Estimate in the second quarter of 2014, with only JetBlue Airways Corp. (JBLU) reporting in-line results.
Further, two of the traditional carriers – United Continental Holdings Inc. (UAL) and American Airlines – have initiated their respective share repurchase programs with the latter even declaring a dividend for the first time since 1980.
However, Virgin America, which had so far been facing price competition from listed peers like Delta Airlines Inc. (DAL), will now have to cope with stock price volatility once it gets listed. Meanwhile, the IPO will ensure that another floating airline stock adds to the investors’ wide choice range within the sector. If Virgin America can improve further on its previous year’s performance, it can eventually go on to become an attractive bet in the stock market.