Report: Investors Looking to Abandon Virgin America

(MoneyWatch)  If you're Richard Branson, you have to be getting nervous right about now. According to the Financial Times, Virgin Group has hired Lazard to find new investors for Virgin America with the belief that the existing US-based investors may cash out. This is an extremely serious problem for the airline, to say the least.

The original investors, Black Canyon and Cyrus Capital Partners, were given the opportunity to sell their stake back to Virgin Group as part of the original deal. Virgin Group currently owns 24 percent of voting shares in the airline and 49 percent of all shares; that's the maximum foreign ownership permitted under US law. Black Canyon and Cyrus set up funds owned only by US residents to make sure that the ownership structure complied with those laws.

These funds have the right to get all their money back by returning their shares to Virgin Group in exchange for their original investment, and it is now rumored that this may happen. If that's the case, Virgin is required to find US-based investors who are willing to take on those stakes, because Virgin cannot take a higher stake without breaking the law. If new investors can't be found, something that wouldn't be shocking considering the state of the economy, then I don't know exactly what would happen.

The government would certainly balk at the illegal ownership structure, and it wouldn't surprise me if the airline could ultimately be shut down, but I don't think we've ever faced this problem before so the end result is far from clear. Of course, this is speculation right now, but it could become reality very quickly if the funds so choose. This is something that we'll need to watch very closely.