Virgin America Gets New Funding

Last Updated Jul 10, 2009 10:27 AM EDT

It looks like Virgin America has finally found some new investors to take over the stakes previously held by Cyrus and Black Canyon, according to the Financial Times. They say this should settle the foreign ownership issue, but I'm not so sure.

Cyrus and Black Canyon had the option to cash out their shares with a guaranteed 8 percent return, and needless to say, they jumped at the chance. After that happened, Virgin Group paid out the money but the shares remained with Cyrus and Black Canyon in order to satisfy US ownership rules requiring more than 75 percent of voting shares to be owned by Americans. Alaska jumped at the chance to say that this arrangement wasn't really satisfying US ownership requirements, and they tried to spur an investigation.

Virgin had to find someone else to move in and take those shares, and of course that required an investment. According to Financial Times, a group of investors including Cyrus is getting together to buy the stake. Wait, didn't Cyrus just sell their stake? Yep, for a nice chunk of change, but now they want back in. Why?

My guess is that Virgin America had to offer an even sweeter deal to entice these investors. It's an airline that's bleeding money in an awful airfare environment. Who wants to invest in that? Someone who is guaranteed a return, I suppose. At the very least, I would assume that Virgin Group had to offer the same terms it put forth before and possibly better.

So that should solve the ownership problem, right? Not so fast. I assume that we'll hear objections as to whether or not this should actually count as "ownership" of the airline. This structure was approved originally, but after the DOT saw how effortlessly those owners could just walk away with profit, they might have to think twice about whether it should really just be considered debt instead.

It will be interesting to see where this goes, and if the DOT decides to keep pushing or not.