Virgin America: An Airline Sprouts in California

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SAN FRANCISCO ( TheStreet) -- The story of how Ben Baldanza, David Cush, Tom Horton and Doug Parker all worked together at American in the 1980s is well-known. Today, Horton is credited with guiding a successful bankruptcy, US Airways' Parker is about to run the world's biggest airline and Baldanza heads a successful start-up that has captured Wall Street's affections.

Then there is Cush. His success has come a bit more slowly. He left American in 2007 to become CEO of Virgin America . For 18 months, other airlines had resisted the start-up effort, citing lack of clarity about Richard Branson's ownership and the potential violation of the limitation on foreign ownership of U.S. carriers. Once it began flying, Virgin America encountered rising fuel prices, a bad economy and the usual intense competition on the trans-continental routes it initially targeted.

"We knew it was going to be a long path," Cush said in a recent interview. "Growing an airline is difficult in the best of times, and we haven't been in the best of times. We've had a huge recession and high commodity prices. We fought our way through those."

Now, finally, Virgin America's financial results are picking up and the airline industry has become a profitable place to be. The possibility of an IPO looms, with Baldanza's Spirit providing an attractive model, even if the two carriers could not be more different. Virgin America lures customers with cost-free comfort, including leather seats and high-level connectivity, while Spirit does the opposite, luring customers with the promise of no comfort at all.

"Spirit and Virgin are completely opposite in the spectrum," Cush said. "(But) Spirit had a great IPO. They took it public with a small initial float and a secondary offering after that. It turned out to be a great strategy. We're taking a very close look at that."

Although "going public brings a lot more headaches," Cush said, it also "opens up large pools of capital, not only in the equity markets but also access to debt markets, (so that) financing aircraft costs less." Last week, Virgin said it negotiated $300 million in debt reduction from its investors, reducing second-half interest charges by about $20 million. The changes "are a first step toward preparing the company for access to the public markets at a future date," Virgin said.

Now, Cush said, the issue for Virgin "is that we have to have our performance up to snuff. If we hit our triggers, we will have a very nice operating profit in the second quarter, a net profit in the third and fourth quarters and a string of profitable quarters in 2014." Currently, Virgin America's principal owner is New York hedge fund Cyrus Capital, with about 50%; Branson's Virgin Group has about 46%.