Prepared by R.R. Donnelley Financial -- Amendment No. 7 to Form S-1

S-1/A 1 d761206ds1a.htm AMENDMENT NO. 7 TO FORM S-1 Prepared by R.R. Donnelley Financial -- Amendment No. 7 to Form S-1

Index to Financial Statements

As filed with the Securities and Exchange Commission on November 3, 2014

Registration No. 333-197660

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 7 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

VIRGIN AMERICA INC.

(Exact name of registrant as specified in its charter)


Delaware	4512	20-1585173
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

555 Airport Boulevard

Burlingame, California 94010

(650) 762-7000

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

C. David Cush

President and Chief Executive Officer

Virgin America Inc.

555 Airport Boulevard, Burlingame, California 94010

(650) 762-7000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies To:

Tad J. Freese

Nathan C. Salha

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

(650) 328-4600

John J. Varley

Senior Vice President and General Counsel

Virgin America Inc.

555 Airport Boulevard

Burlingame, California 94010

(650) 762-7000

Alan F. Denenberg

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, California 94025

(650) 752-2000

Approximate date of commencement of the proposed sale to the public:

As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x	(Do not check if a smaller reporting company)	Smaller reporting company ¨

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Share	Proposed Maximum Aggregate Offering Price (1)(2)	Amount of Registration Fee (3)
Common Stock, par value $0.01 per share	15,338,225	$24.00	$368,117,400	$44,224.24

(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(2)	Includes the aggregate offering price of additional shares that the underwriters have the option to purchase to cover overallotments.

(3)	Registration fees totaling $14,812 were previously paid in connection with the initial filing of the registration statement. The amount paid in connection with this filing for the aggregate registration fee of $44,224.24 is offset by the $14,812 previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Index to Financial Statements

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated November 3, 2014.

PROSPECTUS

13,337,587 Shares

LOGO

Common Stock

This is our initial public offering of shares of our common stock. We are offering 13,106,377 shares. In addition, VX Employee Holdings, LLC, a Virgin America employee stock ownership vehicle that we consolidate for financial reporting purposes, is offering 231,210 issued and outstanding shares as a selling stockholder. We will pay the underwriting discounts and expenses for this selling stockholder, but we will not receive any proceeds from the shares sold by this selling stockholder.

No public market currently exists for our shares of common stock.

Our common stock will be listed on the NASDAQ Global Select Market under the symbol “VA.” We anticipate that the initial public offering price per share will be between $21.00 and $24.00.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 22 of this prospectus.


	Per Share	Total
Price to the Public	$	$
Underwriting discounts and commissions (1)	$	$
Proceeds to us (before expenses)	$	$
Proceeds to selling stockholder (before expenses)	$	$

(1)	We refer you to “Underwriting” beginning on page 160 of this prospectus for additional information regarding underwriting compensation.

Our principal stockholders, Cyrus Aviation Holdings, LLC (“Cyrus Holdings”), CM Finance Inc (which we refer to together with Cyrus Holdings as “Cyrus Capital”) and affiliates of Virgin Group Holdings Limited (which we refer to in this prospectus collectively as the “Virgin Group”), as option selling stockholders, have granted the underwriters an option to purchase up to 2,000,638 additional shares of common stock at the initial public offering price less the underwriting discount solely to cover overallotments. We will receive no proceeds from the sale of any shares sold by these option selling stockholders if the overallotment option is exercised.

PAR Investment Partners, L.P. (“PAR Capital”) has agreed to purchase approximately $52.1 million of common stock from the Virgin Group and Cyrus Holdings at a price per share equal to 96% of the initial public offering price, in a private placement to close concurrently with this offering. This private placement is subject to certain closing conditions, including requirements that there be no amendment that increases the top end of the price range set forth above and that total gross proceeds from the sale of shares by us in this offering will be at least $250 million. PAR Capital has entered into an agreement with the underwriters pursuant to which it has agreed not to dispose of its shares for a period of 180 days after the date of this prospectus. See “Summary—PAR Capital Private Placement” elsewhere in this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about , 2014.


Barclays		Deutsche Bank Securities


BofA Merrill Lynch	Cowen and Company	Goldman, Sachs & Co.

Imperial Capital	LOYAL3 Securities	Raymond James

, 2014.

Index to Financial Statements

LOGO

Index to Financial Statements

TABLE OF CONTENTS


	Page
SUMMARY		1
GLOSSARY OF AIRLINE TERMS		19
RISK FACTORS		22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		37
2014 RECAPITALIZATION		38
USE OF PROCEEDS		42
DIVIDEND POLICY		43
CAPITALIZATION		44
DILUTION		47
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS		50
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS		55
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA		59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		62
INDUSTRY BACKGROUND		93
BUSINESS		95
MANAGEMENT		111
EXECUTIVE COMPENSATION		119
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		141
PRINCIPAL AND SELLING STOCKHOLDERS		145
DESCRIPTION OF CAPITAL STOCK		149
SHARES ELIGIBLE FOR FUTURE SALE		154
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS		156
UNDERWRITING		160
LEGAL MATTERS		167
EXPERTS		167
WHERE YOU CAN FIND MORE INFORMATION		167
INDEX TO FINANCIAL STATEMENTS		F-1

We are responsible for the information contained in this prospectus or contained in any free writing prospectus prepared by or on behalf of us to which we have referred you. Neither we, the selling stockholders nor the underwriters, have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission, and we take no responsibility for any other information that others may give you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, results of operations or financial condition may have changed since such date.

Until , 2014 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we, the selling stockholders nor any of the underwriters have taken any action that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

Index to Financial Statements

SUMMARY

This summary highlights selected information about us and the common stock being offered by us and the selling stockholders. It may not contain all of the information that is important to you. Before investing in our common stock, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our financial statements and the accompanying notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

Virgin America is a premium-branded, low-cost airline based in California that provides scheduled air travel in the continental United States and Mexico. We operate primarily from our focus cities of Los Angeles and San Francisco to other major business and leisure destinations in North America. We provide a distinctive offering for our passengers, whom we call guests, that is centered around our brand and our premium travel experience, while at the same time maintaining a low-cost structure through our point-to-point network and high utilization of our efficient, single fleet type. Our distinctive business model allows us to offer a product that is attractive to guests who historically favored legacy airlines but at a lower cost than that of legacy airlines. This business model enables us to compete effectively with other low-cost carriers, or LCCs, by generating a higher stage-length adjusted revenue per available seat mile. Conversely, while our lower density seating configuration and the cost of our premium services contribute to a higher stage-length adjusted cost per available seat mile than that of other LCCs, our underlying cost structure stemming principally from our single fleet type and point-to-point network is competitive within the industry. As of September 30, 2014, we provided service to 21 airports in the United States and Mexico with a fleet of 53 narrow-body aircraft.

Leveraging the reputation of the Virgin brand, a global brand founded by Sir Richard Branson, we target guests who value the experience associated with the Virgin brand and the high-quality product and service that we offer. Our employees, whom we call teammates, provide a personalized level of service to our guests that is a key component of our product. Other elements of our premium product available fleetwide include power outlets adjacent to every seat, inflight wireless internet access, distinctive on-board mood lighting, leather seats, high-quality food and beverage offerings and our Red^® inflight entertainment system, which we believe is industry leading, featuring a nine-inch personal touch-screen interface with a variety of features available on-demand, including live television, movies, seat-to-seat text chat, games, interactive maps and music. We have won numerous awards for our product, including Best Domestic Airline in Travel + Leisure Magazine’s World’s Best Awards and Best Domestic Airline in Condé Nast Traveler Magazine’s Readers’ Choice Awards for the past seven consecutive years as well as Best U.S. Business/First Class Airline in Condé Nast Traveler Magazine’s Business Travel Poll for the past six consecutive years.

LCCs in the United States generally operate point-to-point networks with a single fleet type, a single class of service with a relatively high density seating configuration, high degree of outsourced operational services and high aircraft utilization. While we have many of these characteristics, we differentiate ourselves from other LCCs in the United States with additional attributes that business and high-end leisure travelers value. In contrast to most LCCs, we have three classes of service onboard our aircraft. In addition to our Main Cabin economy product, we offer our guests a First Class product and a premium economy class product called Main Cabin Select. We also provide a number of other amenities that are important to frequent travelers, including our Elevate^® loyalty program with tiered benefits for our most loyal guests, lounge access in certain airports, including our own Virgin America Loft at Los Angeles International Airport (LAX), interline and codeshare partnerships with other airlines and a wide range of distribution channels and contractual travel discounts for over 250 major corporate customers and travel agents. While these amenities result in a higher cost per available seat mile, or CASM, than we could otherwise achieve with a more traditional LCC model, we believe that these amenities, along with our premium on-board features, enabled us to realize the highest average passenger revenue per available seat mile, or PRASM, in 2013 among U.S. LCCs within most of our markets.

Index to Financial Statements

Our disciplined cost control is also core to our strategy, and we maintain the cost simplicity of other LCCs. We operate one of the youngest fleets among U.S. airlines, comprised entirely of fuel-efficient Airbus A320-family aircraft. Our single fleet type allows us to avoid the operational complexities and cost disadvantages of carriers with multiple and older fleet types. In addition, our long-haul, point-to-point network results in high aircraft utilization and efficient scheduling of our aircraft and crews. We believe that our teammates are productive and attentive to our guests, contributing to our cost advantage while maintaining our high-quality travel experience. We also outsource many non-core functions, such as certain ground handling activities, major airframe and engine maintenance and call center functions, leading to efficient, cost-competitive services and flexibility in these areas.

Executing our strategy of providing a premium travel experience within a disciplined, competitive cost structure has led to improved financial results. For 2013, we recorded operating revenues of $1.4 billion, operating income of $80.9 million and net income of $10.1 million. We increased our revenue per available seat mile, or RASM, in 2013 by 9.3% compared to 2012, the largest increase of any major U.S. airline. Furthermore, our CASM of 10.98 cents increased by only 0.7% from 2012. On a stage-length adjusted basis, our 2013 CASM was competitive within the industry and below that of legacy airlines. We completed a recapitalization of a majority of our operating lease and debt obligations in May 2013, contributing to a $34.7 million decline in aircraft rent expense and a $44.8 million decline in interest expense for 2013 compared to 2012. As a result of our RASM increase and the reduction in rent and interest expense, our financial performance improved from a net loss of $145.4 million in 2012 to net income of $10.1 million in 2013. In the first nine months of 2014, we had net income of $56.2 million, compared to a net loss of $4.0 million in the first nine months of 2013. Our RASM in the first nine months of 2014 increased by 4.8% from the prior year period, while our CASM in the first nine months of 2014 increased by only 2.4% from the prior year period.

Our business model relies on attracting guests who value the premium product that we provide. Because we provide a high level of amenities to our guests, it generally requires a longer period of time for us to reach profitability in each new market that we enter than it might require for a traditional LCC that does not provide this higher level of service. However, we believe that in the long term, our business model enables us to have financially successful routes as evidenced by our PRASM premium over other LCCs in our markets and in part by our recent history of operating profitability in 2013 after two years of rapid growth into new markets in 2011 and 2012.

Our Competitive Strengths

We believe the following strengths allow us to compete successfully in the U.S. airline industry:

Premium Travel Experience. We believe our premium guest experience, attractive amenities, customer-focused teammates and wide array of inflight entertainment options differentiate us from other airlines in the United States. A key component of our product strength is the consistency across our entire fleet. In contrast to airlines with multiple aircraft types, our product offering is identical on every Airbus 320-family aircraft, allowing for the same enhanced travel experience on every flight. We also differentiate ourselves from other LCCs by providing both First Class and Main Cabin Select products in addition to our Main Cabin economy product. With just eight seats on every aircraft—fewer than most first class cabins offered on competing airlines, our First Class cabin has an exclusive feel with a dedicated attendant providing a personal level of service. Unlike many other airlines, we do not provide complimentary upgrades to First Class, enhancing the exclusivity of this product. In addition to more leg room, which is a standard feature of most premium economy products, we offer additional features within Main Cabin Select, such as complimentary on-demand current-run movies, premium television programs, premium beverages and Main Cabin meals and snacks. We have differentiated our product in all three classes of service as compared to other domestic airlines, leading to a travel experience that can only be found on Virgin America.

World-Class Virgin Brand. We believe that the Virgin brand is widely recognized in the United States and is known for being innovative, stylish, entrepreneurial and hip. We believe that the brand is recognized

Index to Financial Statements

worldwide from the Virgin Group’s offerings in music, air travel, wireless service and a wide variety of other products. We capitalize on the strength of the Virgin brand to target guests who value an enhanced travel experience and association with the Virgin brand. We believe that the Virgin brand has helped us to establish ourselves as a premium airline in the domestic market in a short period of time. When we enter a new market, awareness of the Virgin brand generates interest from new guests. The power of the Virgin brand provides an opportunity for low-cost public relations events that generate extensive media coverage in new markets and has led to other cooperative marketing relationships for us with major companies. In addition to capitalizing on the Virgin brand strength, we are rapidly establishing Virgin America as a distinct and premium brand for air travel in the United States in its own right. We believe our guests associate the Virgin and Virgin America brands with a distinctive high-quality and high-value travel experience.

Low-Cost, Disciplined Operating Structure. A core component of our business model is our disciplined cost structure. Key components of this low cost structure include our modern, fuel-efficient single-aircraft fleet, our high aircraft utilization, our point-to-point operations, our productive and engaged workforce, our outsourcing of non-core activities and our lean, scalable overhead structure. We are committed to maintaining this disciplined cost structure and believe we will continue to improve our competitive cost position as we grow and further leverage our existing infrastructure. In 2013, the average stage-length adjusted domestic CASM of legacy airlines was 31% higher, and the average stage-length adjusted domestic CASM of LCCs was only 17% lower, than our stage-length adjusted CASM. Our lower seating density and three-class cabin configuration, which is a similar configuration to that of many legacy airlines, is the primary reason that our stage-length adjusted CASM was higher than that of other LCCs in 2013. However, our seating configuration with three classes of service was also a primary contributor to our higher stage-length adjusted PRASM in 2013 when compared to other LCCs. For example, Spirit Airlines configures an Airbus A320 aircraft with 178 seats in a single class of service compared to our seating density of 146 seats for the same aircraft. We believe that Spirit Airlines’s 22% higher seating density per aircraft contributed to its lower stage-length adjusted PRASM and lower stage-length adjusted CASM in 2013, when compared to ours.

Established Presence in Los Angeles and San Francisco. We have built our network around the Los Angeles and San Francisco metropolitan areas, the second- and third-largest domestic air travel markets in the United States in 2013. We believe that these two markets, with a combined population of approximately 27 million people and strong economic bases in the technology, media and entertainment industries, serve as an excellent platform for long-term growth. Los Angeles and San Francisco both have large populations of technologically savvy, entrepreneurial and innovative individuals who we believe value our brand and premium guest experience. We have made significant investments in these key markets since 2010, and as of September 30, 2014 we provide service to 18 destinations from Los Angeles and 20 destinations from San Francisco. These destinations include eight of the top ten domestic destinations served from LAX and nine of the top ten domestic destinations served from San Francisco International Airport (SFO), based on passenger volume. This investment provides greater network coverage across North America for travelers from these two focus markets, and we expect that this investment will allow us to continue to grow by leveraging the loyal guest base that we have established in each market.

Our Team and Entrepreneurial Culture. Our teammates and culture are essential elements of our success because they contribute significantly to our premium travel experience. We start by hiring the right teammates through a rigorous process that includes numerous interviews, as well as pre-employment testing for our frontline teammates and our pilots. Key characteristics of Virgin America teammates include a friendly, personable nature, a willingness to think differently, a passionate approach to his or her work and intense pride in Virgin America and our product. We empower our teammates with a high level of authority to resolve guest issues throughout the travel experience, from making flight reservations to interactions at the airport and in flight. We strive to create an environment for our teammates where open communication is both encouraged and expected and where we celebrate our successes together. We believe our positive work environment has contributed to our having one of the highest customer satisfaction rankings in the airline industry.

Index to Financial Statements

Our Growth Strategy

Our goal is to generate above-average RASM in each market we serve by providing the leading domestic air travel product through our brand and our premium guest experience, while at the same time maintaining our competitive cost structure through the efficient operations we have established. Key elements of our growth strategy include:

Leverage Our Recent Expansion. We have significantly expanded our fleet size and route network since 2010. We increased our operating fleet from 28 aircraft as of June 30, 2010 to 53 aircraft as of April 30, 2013, and we introduced service to 11 new airports during that period, doubling the number of destinations served. Airline routes tend to become more profitable as they mature because of increased demand as travelers become aware of the service and through repeat business. Our RASM in markets that we entered in 2011 and 2012 increased from 2012 to 2013 by 20.5% as compared to our overall RASM increase of 9.3%. In addition, as we continue to expand our network by increasing the number of markets served from Los Angeles and San Francisco, we expect our network to become more attractive to frequent travelers who prefer to concentrate their travel with one airline, increasing demand for service on our existing routes. We intend to leverage our recent expansion to drive higher RASM.

Expand Our Route Network. We currently serve only 15 of the 50 largest metropolitan areas in the United States and three leisure destinations in Mexico. We believe there are significant opportunities to expand our service from our focus cities of Los Angeles and San Francisco to other large markets throughout the United States, Canada and Mexico. We have firm commitments to take delivery of ten Airbus A320-family aircraft from July 2015 through June 2016, and we expect to continue to grow at a measured, disciplined pace beyond 2016. While we expect most of our expansion in the next several years will focus on the opportunities we have at Los Angeles and San Francisco, we are also growing our presence in Dallas, Texas. Through the use of recently acquired slots at New York LaGuardia Airport (LGA) and Ronald Reagan Washington National Airport (DCA), we added service at Dallas Love Field (DAL) to these markets in October 2014. We also moved our service between Dallas and LAX and Dallas and SFO from Dallas/Fort Worth International Airport (DFW) to DAL. DAL is located in a growing, affluent section of the Dallas/Fort Worth metropolitan area and is the closest airport to downtown Dallas. In addition, the airline facilities at DAL are limited by federal law to only 20 gates, providing a structural barrier to entry. We believe our new service at DAL will further diversify our route network and allow us to provide service to LGA and DCA. In addition, we intend to expand our codeshare and interline relationships with other airlines that are complementary to our network, expanding travel destination options for our guests while adding new sources of revenue and more guests.

Maintain Competitive Unit Operating Costs. We are highly focused on maintaining competitive unit operating costs. We expect to realize economies of scale as we continue to grow by leveraging our distribution, marketing and technology costs across our platform and by better utilizing our facilities and ground assets across a larger network. Our fleet is 100% financed by operating leases, of which 26 leases will expire between 2015 and 2022. As our leases expire, we expect to have the opportunity to lower our costs by renewing at lower lease rates or by opportunistically replacing these aircraft with new Airbus A320-family aircraft with lower operating costs sourced in the open market. In addition, we expect our cost structure will continue to benefit from our highly productive and flexible workforce as we grow our fleet and network.

Continue to Grow Our Base of Frequent Travelers. We intend to continue to grow our share of business travelers, a focus that is uncommon among U.S. LCCs, because we believe this population of airline travelers allows us to achieve increased RASM. We target the business community by providing a premium travel service between our focus cities and many of the most important business destinations in North America, as well as key leisure destinations that we believe are important to business travelers when flying for leisure travel. We have already attracted a significant base of frequent business and premium leisure travelers who regularly fly with us and who we believe prefer our premium product attributes. We believe that these types of guests also value a

Index to Financial Statements

larger route network and frequent flights within markets. As we grow our network from California and expand our interline and codeshare partnerships, we believe we will be well positioned to attract additional business and high-end leisure travelers. We consider guests who book within 14 days of departure as business travelers. Using this as a measure, we believe that approximately 30% of our guests in 2013 were business travelers, representing approximately 40% of our revenue in 2013.

Continue to Enhance Our Product and Guest Experience. We believe our guest experience is unique in the industry and revolves around our teammates’ focus on guest service, extensive entertainment options, compelling passenger comfort features and an association with our brand that would be difficult to replicate. We nevertheless are continually developing new enhancements to our product. For example, in early 2014, we further expanded our First Class food service on select flights to include enhanced gourmet food offerings and linen service. In the second quarter of 2014, we launched a redesigned version of the Virgin America website, enhancing the ease of use and functionality as well as providing a more customized experience for our guests. In 2015, we plan to upgrade the monitors within our inflight entertainment system to include a “swipe” touch capability, similar to that found on many modern personal electronic devices. This upgrade will include a redesign of the software behind our Red inflight entertainment system, allowing for future software features to what we believe is already an industry-leading system. Additionally, we continually analyze new technologies for longer-term enhancements to our fleet, inflight product and airport experience.

Route Network

We served 21 airports throughout North America as of September 30, 2014. The majority of our routes operate to and from our focus cities of Los Angeles and San Francisco. Our current network is a mix of long-haul, transcontinental service combined with short-haul West coast service and select Mexico leisure destinations. Below is a route map of our network.

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Index to Financial Statements

We use publicly available data related to existing traffic, fares and capacity in domestic markets to identify growth opportunities. To monitor the profitability of each route, we analyze monthly profitability reports as well as near-term forecasting. We routinely make adjustments to capacity and frequency of flights within our network based on the financial performance of our markets, and we discontinue service in markets where we determine that long-term profitability is not likely to meet our expectations.

Our future network plans include growing from our focus cities of Los Angeles and San Francisco to other major markets in North America. By continuing to add destinations in select markets from Los Angeles and San Francisco, we can leverage our existing base of loyal guests and grow our share of revenue within these focus cities while also expanding our customer base as we gain new guests in new markets. We have also recently added service from DAL to LGA and DCA. We believe this DAL opportunity will further diversify our route network and provide growth into strategic airports that are limited by regulation.

Fleet

We fly only Airbus A320-family aircraft and operate only CFM engines, which provide us significant operational and cost advantages compared to airlines that operate multiple fleet and engine types. Flight crews are entirely interchangeable across all of our aircraft, and maintenance, spare parts inventories and other operational support are highly simplified relative to more complex fleets. Due to this commonality among Airbus single-aisle aircraft, we retain the benefits of a fleet consisting of a single family of aircraft while still having flexibility to match the capacity and range of the aircraft to the demands of many routes.

We have a fleet of 53 Airbus single-aisle aircraft, consisting of ten Airbus A319s and 43 Airbus A320s. The average age of the fleet was 5.6 years at September 30, 2014. Our Airbus A319 aircraft accommodate 119 guests, and our Airbus A320 aircraft accommodate 146-149 guests. All of the existing aircraft are financed under operating leases.

We plan to grow our fleet with additional Airbus A320-family aircraft, and we currently have an order with Airbus for ten Airbus A320 aircraft to be delivered between July 2015 and June 2016 and 30 Airbus A320 new engine option, or A320neo, aircraft to be delivered between 2020 and 2022. We have an option to cancel our Airbus A320neo positions up to two years in advance of delivery in groups of five aircraft, but we could incur a loss of deposits and credits as a cancellation fee. We may elect to supplement these deliveries by additional acquisitions from Airbus or in the open market if demand conditions merit. Twenty-six of our existing operating leases will expire between 2015 and 2022, and we believe there will be an opportunity to extend these leases at a reduced lease rate or to replace them with new or used Airbus A320-family aircraft. Although we expect to grow our fleet as we increase our flights on our existing route network and expand our route network to new markets, we are only committed to grow to 63 aircraft. As a result, our fleet plan provides significant flexibility.

Our Airbus A320 aircraft deliveries in 2015 and 2016 will be equipped with sharklets, a new wingtip device that we believe will create up to 3.0% additional fuel efficiency in our network. In addition to lowering our average fuel cost per flight, the sharklets provide increased range. This will reduce technical stops on our transcontinental flights that occasionally occur during specific weather patterns as well as allow for the possibility of operations to the state of Hawaii. Operating to Hawaii will require additional Federal Aviation Authority, or FAA, certification for extended twin-engine over-water operations, and we are currently evaluating these markets and the additional operational requirements.

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Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary, that represent potential challenges we face in connection with the successful implementation of our strategy and the growth of our business. We expect a number of factors to cause our results of operations to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance. Such factors include:

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the price and availability of aircraft fuel;

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our ability to compete in an extremely competitive industry;

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the successful execution and implementation of our strategy;

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security concerns resulting from any threatened or actual terrorist attacks or other hostilities;

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our reliance upon technology and automated systems to operate our business;

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our reputation and business being adversely affected in the event of an emergency, accident or similar incident;

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changes in economic conditions;

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our limited profitable operating history;

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changes in governmental regulation; and

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our ability to obtain financing or access capital markets.

Corporate Information

We were incorporated in the state of Delaware in 2004 as Best Air Holdings, Inc. We changed our name to Virgin America Inc. in November 2005. Our principal executive offices are located at 555 Airport Boulevard, Burlingame, California 94010. Our general telephone number is (650) 762-7000, and our website address is www.virginamerica.com. We have not incorporated by reference into this prospectus any of the information on, or accessible through, our website, and you should not consider our website to be a part of this document. Our website address is included in this document for reference only.

Virgin America^®, the Virgin America logo and the Virgin signature are trademarks of Virgin America Inc. in the United States and other countries by license from certain entities affiliated with the Virgin Group. This prospectus also contains trademarks and trade names of other companies.

2014 Recapitalization

As of September 30, 2014, we had a total of $678.8 million of contractual obligations for principal and accrued interest outstanding under certain secured related-party notes, which we refer to in this prospectus as the “Related-Party Notes.” As of September 30, 2014, the Virgin Group held approximately $417.1 million aggregate principal amount and accrued interest of the Related-Party Notes, and Cyrus Capital held approximately $261.7 million aggregate principal amount and accrued interest of the Related-Party Notes. The Virgin Group and Cyrus Capital also hold the majority of our outstanding warrants to purchase shares of our common stock, which we refer to in this prospectus as the “Related-Party Warrants.”

We intend to enter into a recapitalization agreement with the Virgin Group, Cyrus Capital and certain of our other security holders, which we refer to in this prospectus as the “2014 Recapitalization Agreement.” The 2014 Recapitalization Agreement would provide that we would retain net proceeds in connection with this offering of $219.6 million (after we pay underwriting discounts on the shares sold in this offering) and that remaining net

Index to Financial Statements

proceeds, which we estimate to be $51.5 million (based on an assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover of this prospectus), would be used to repay a portion of the Related-Party Notes. Remaining principal and accrued interest under the Related-Party Notes would either be (1) exchanged for a new $50.0 million note bearing interest at a rate of 5.0% per annum, compounded annually, which we refer to as the “Post-IPO Note”; (2) repaid in connection with the release to us of cash collateral held by our credit card processors in exchange for a letter of credit facility arranged by the Virgin Group, which we refer to as the “Letter of Credit Facility”; or (3) exchanged for shares of our common stock, as described more fully in “2014 Recapitalization” elsewhere in this prospectus. In addition, Related-Party Warrants either would be exchanged without receipt of cash consideration for shares of our common stock in amounts agreed to in the 2014 Recapitalization Agreement or be cancelled in their entirety, as described more fully in “2014 Recapitalization” elsewhere in this prospectus.

We anticipate that, after consummation of the transactions contemplated by the 2014 Recapitalization Agreement, which we refer to in this prospectus as the “2014 Recapitalization,” and upon the closing of this offering, only the Post-IPO Note, and none of the Related-Party Notes or the Related-Party Warrants, would remain outstanding. We also anticipate that each issued and outstanding share of our Class A, Class A-1, Class B, Class C and Class G common stock and each issued and outstanding share of our convertible preferred stock would be converted into one share of common stock in accordance with our certificate of incorporation. Based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus), we do not anticipate that any warrants to purchase common stock will be outstanding upon the closing of this offering.

For more information, see “2014 Recapitalization” elsewhere in this prospectus. The transactions contemplated by the 2014 Recapitalization Agreement, which we refer to in this prospectus as the “2014 Recapitalization,” would be contingent upon the consummation of this offering.

Following this offering, the Virgin Group will have the right to designate a member of our board of directors pursuant to amended and restated license agreements related to our use of the Virgin name and brand that we intend to enter into with the Virgin Group. Mr. Evan Lovell, a member of our board of directors since April 2013 and a partner of the Virgin Group, plans to remain on our board of directors following this offering as the Virgin Group’s designee.

PAR Capital Private Placement

PAR Capital has agreed to purchase approximately $52.1 million of common stock from the Virgin Group and Cyrus Holdings in a private placement at a price per share equal to 96% of the initial public offering price. We estimate the number of shares to be sold by the Virgin Group and Cyrus Holdings to be 2,314,814 shares, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus). This private placement will close concurrently with this offering. If there is an increase in the top end of the price range for this offering from that stated on the cover of this prospectus, PAR Capital has the option not to proceed with the private placement. The sale of these shares will not be registered under the Securities Act. This private placement, which we refer to as the “PAR Capital Private Placement,” is subject to

Index to Financial Statements

customary closing conditions, including a requirement that total gross proceeds from the sale of shares by us in this offering will be at least $250 million. In connection with the PAR Capital Private Placement, we have agreed to pay to the Virgin Group and Cyrus Holdings an aggregate amount equal to the aggregate discount to the initial public offering price of the shares purchased by PAR Capital from the Virgin Group and Cyrus Holdings. We estimate the aggregate amount of this payment to be approximately $2.1 million, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus). We have also agreed to pay a private placement commission to Barclays Capital Inc. and Deutsche Bank Securities Inc. in connection with the PAR Capital Private Placement, which we expect to be between $0.65 million and $1.17 million, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus). This offering is not conditioned upon the closing of the PAR Capital Private Placement. If the PAR Capital Private Placement does not close, the Virgin Group and Cyrus Holdings will continue to hold the shares they would have otherwise sold to PAR Capital.

Index to Financial Statements

THE OFFERING

Common stock offered by us

13,106,377 shares

Common stock offered by the selling stockholder

231,210 shares

Common stock to be sold by the Virgin Group and Cyrus Holdings to PAR Capital in the PAR Capital Private Placement

2,314,814 shares⁽¹⁾

Shares outstanding after the offering

43,213,844 shares⁽²⁾

Underwriters’ overallotment option to purchase additional shares

Our principal stockholders, Cyrus Holdings, CM Finance Inc and the Virgin Group, as option selling stockholders, have granted the underwriters an option to purchase up to 2,000,638 additional shares of common stock solely to cover overallotments.

Use of proceeds

We estimate that we will receive net proceeds from this offering of approximately $271.1 million, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and after deducting underwriting discounts and expenses of this offering payable by us.

VX Employee Holdings, LLC, a Virgin America employee ownership vehicle that we consolidate for financial reporting purposes will sell 231,210 issued and outstanding shares as a selling stockholder, and we will distribute the gross proceeds, which we estimate to be $5.2 million, based on an assumed initial public offering price of $22.50 (the midpoint of the price range set forth on the cover of this prospectus), to eligible teammates, which do not include our officers. We will pay the underwriting discounts and expenses of VX Employee Holdings, LLC in this offering. We will not receive any proceeds from the sale of shares by the selling stockholder in this offering.

From the 13,106,377 shares of common stock we are selling in this offering, we will retain net proceeds of $219.6 million for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures, including future flight equipment acquisitions, as well as for certain aircraft operating lease obligations.

In connection with the 2014 Recapitalization, we intend to use the remaining net proceeds received by us from this offering, which we estimate will be $51.5 million, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus), to repay principal and accrued interest on certain Related-Party Notes held by Cyrus Capital and the Virgin Group. For more information, see “2014 Recapitalization” and “Use of Proceeds” elsewhere in this prospectus.

Index to Financial Statements

If the overallotment option is exercised, Cyrus Holdings, CM Finance Inc and the Virgin Group, as option selling stockholders, will sell the shares of our common stock deliverable upon such exercise, and we will not receive any proceeds from the sale of such shares. See “Principal and Selling Stockholders” elsewhere in this prospectus.

Risk factors

See “Risk Factors” and the other information included elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed NASDAQ Global Select Market symbol

“VA”

(1)	The number of shares of common stock to be sold by the Virgin Group and Cyrus Holdings to PAR Capital in the PAR Capital Private Placement is based on an assumed initial public offering price of $22.50 (the midpoint of the price range set forth on the cover of this prospectus).

(2)	The number of shares outstanding after the offering is based on 1,950,671 shares of our common stock (including non-voting common stock) outstanding (on an as converted to common stock basis) as of September 30, 2014, and excludes:

•

an aggregate of 411,710 shares of common stock reserved for issuance under our 2005 Stock Incentive Plan;

•

1,052,491 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2014 at a weighted-average exercise price of $15.97 per share, of which 115,411 are vested and exercisable;

•

297,269 shares of common stock issuable upon the vesting of restricted stock units, or RSUs, as of September 30, 2014 under our 2005 Stock Incentive Plan that vest once the price of our stock equals or exceeds $30.20 per share on a daily moving-average basis over a 90-day period after the expiration of the lockup agreements described in this prospectus;

•

655,904 shares of common stock issuable upon the vesting of additional RSUs outstanding as of September 30, 2014, of which 604,384 shares vest once the price of our stock meets certain price thresholds, which range from $18.87 to $37.74 per share, on a daily moving-average basis over a six-month period after completion of this offering, (provided that 298,054 of such shares are also subject to additional service conditions which range from 12 to 36 months) and 51,520 of which have no stock price thresholds and vest over service terms ending between January 2015 and January 2017;

•

343,722 shares of common stock issuable upon the vesting of RSUs approved by our board of directors to be granted to certain executive officers, members of our board of directors and other management contingent upon completion of this offering and which vest over a three-year service term;

•

rights to purchase 109,703 shares of common stock at an exercise price of $27.25 per share outstanding as of September 30, 2014;

•

an aggregate of 600,000 shares of common stock reserved for issuance under our 2014 Equity Incentive Award Plan; and

•

an aggregate of 160,000 shares of common stock reserved for issuance under our 2014 Employee Stock Purchase Plan.

Index to Financial Statements

Except as otherwise indicated, information in this prospectus (including the number of shares outstanding after this offering) reflects or assumes that the following will have taken place, which we refer to in this prospectus as the “Transactions”:

•

that we have effected a 1-for-7.5489352 reverse stock split of our common stock prior to the consummation of this offering;

•

that our amended and restated certificate of incorporation, which we will file in connection with the completion of this offering, is in effect;

•

that the Virgin Group and Cyrus Holdings have sold an aggregate of 2,314,814 shares of common stock, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus), to PAR Capital in the PAR Capital Private Placement;

•

that 218,550 shares of common stock approved by our board of directors have been issued to certain executive officers and management upon completion of this offering;

•

that 39,582 shares of common stock have been issued upon the exercise of rights to purchase such shares at an exercise price of $27.25 per share;

•

that the 2014 Recapitalization has been completed, including that we have issued 27,898,664 shares of common stock in connection therewith, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus);

•

that each issued and outstanding share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock has converted into one share of common stock in connection with the 2014 Recapitalization, which we refer to in this prospectus as “on an as converted to common stock basis”; and

•

that there has been no exercise of the underwriters’ overallotment option to purchase up to additional shares of our common stock from the option selling stockholders.

The number of shares outstanding after the offering will depend primarily on the price per share at which our common stock is sold in this offering and the total size of this offering. In connection with this offering and pursuant to the 2014 Recapitalization:

•

the principal and accrued interest outstanding pursuant to our Related-Party Notes either (i) would be repaid with a portion of the net proceeds from this offering and amounts equal to the release of credit card holdbacks in connection with the establishment of the Letter of Credit Facility, (ii) would be exchanged for the Post-IPO Note or (iii) would be exchanged for shares of our common stock based on the initial public offering price of this offering;

•

our currently outstanding warrants to purchase shares of our common stock, including our Related-Party Warrants, either (i) would be exchanged without receipt of cash consideration for shares of our common stock in amounts agreed to in the 2014 Recapitalization Agreement, which depend in part on the initial public offering price of this offering or (ii) would otherwise be cancelled; and

•

each issued and outstanding share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock would be converted into one share of common stock.

In this prospectus, in calculating the number of shares of common stock to be issued pursuant to the 2014 Recapitalization, we have assumed the application of the net proceeds to us as set forth in “Use of Proceeds” elsewhere in this prospectus an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and an assumed initial public offering date of September 30, 2014 for purposes of calculating accrued interest on the Related-Party Notes. For more information, see “Use of Proceeds” and “2014 Recapitalization” elsewhere in this prospectus.

Index to Financial Statements

A change in the offering price and, accordingly, the amount of net proceeds received by us, would result in changes to the application of the net proceeds as set forth in “Use of Proceeds” elsewhere in this prospectus and in the following variables: (1) the amount of principal and accrued interest outstanding pursuant to our Related-Party Notes that are not repaid with net proceeds from this offering; (2) the number of shares of common stock that would be issued upon exchange of such Related-Party Notes; and (3) the number of shares of common stock that would be issued upon exchange of our Related-Party Warrants. The following table shows (in thousands, except per share data) the effects of various initial public offering prices on these variables based on the assumptions described above. The initial public offering prices shown below are hypothetical and illustrative only.


Assumed Initial Offering Price	Repayment of Related- Party Notes		Shares of Common Stock Issued Upon Exchange for Related-Party Notes		Shares of Common Stock Issued Upon Exchange for Related- Party Warrants		Pro Forma Shares of Common Stock Outstanding		Pro Forma as Adjusted Shares of Common Stock Outstanding
$21.00	$	133,373,809		25,197,260		3,806,839		32,802,131		44,319,279
21.50		139,417,086		24,282,412		4,324,529		32,649,097		43,922,121
22.00		145,460,364		23,419,639		4,818,688		32,513,511		43,553,507
22.50		151,503,642		22,607,785		5,290,879		32,396,518		43,213,844
23.00		157,546,920		21,831,220		5,742,543		32,284,606		42,888,943
23.50		163,590,198		21,087,710		6,174,992		32,177,471		42,577,882
24.00		169,633,476		20,375,175		6,589,418		32,074,791		42,279,773

In each case, the total number of shares of common stock outstanding after this offering above is based on 1,950,671 shares of our common stock outstanding (on an as converted to common basis) as of September 30, 2014, subject to the same exclusions described above.

Because the share amounts set forth above are based on the accrued interest outstanding pursuant to our Related-Party Notes as of September 30, 2014, such amounts do not take into account shares of common stock to be issued in the 2014 Recapitalization in exchange for unpaid interest on the Related-Party Notes accrued from September 30, 2014 through the closing date of this offering. Such interest contractually accrues at a rate of approximately $3.9 million per month in the aggregate.

For more information, see “2014 Recapitalization” elsewhere in this prospectus.

Index to Financial Statements

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables summarize the consolidated financial and operating data for our business for the periods presented. You should read this summary consolidated financial and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, included elsewhere in this prospectus.

We derived the summary consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 from our audited consolidated financial statements included in this prospectus. We derived the summary consolidated statement of operations data for the nine months ended September 30, 2013 and 2014 and the consolidated balance sheet data as of September 30, 2014 from our unaudited consolidated financial statements included in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which consist of only normal recurring adjustments, necessary for the fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and results for the nine months ended September 30, 2014 are not indicative of the results expected for the full year.


	Year Ended December 31,									Nine Months Ended September 30,
	2011			2012			2013			2013			2014
	(in thousands, except per share data)
										(unaudited)
Consolidated Statements of Operations Data:
Operating revenues	$	1,037,108		$	1,332,837		$	1,424,678		$	1,064,750		$	1,117,769
Operating expenses		1,064,504			1,364,570			1,343,797			1,007,458			1,031,449

Operating income (loss)		(27,396	)		(31,733	)		80,881			57,292			86,320
Other expense		(72,993	)		(113,640	)		(70,420	)		(61,328	)		(29,055	)

Net income (loss) before income tax		(100,389	)		(145,373	)		10,461			(4,036	)		57,265
Income tax expense		14			15			317			—			1,028

Net income (loss)	$	(100,403	)	$	(145,388	)	$	10,144		$	(4,036	)	$	56,237

Net income (loss) per share:
Basic (1)	$	(143.09	)	$	(207.20	)	$	5.60		$	(5.75	)	$	31.04

Diluted (1)	$	(143.09	)	$	(207.20	)	$	3.68		$	(5.75	)	$	18.13

Shares used in per share calculation:
Basic (1)		701,671			701,671			701,671			701,671			701,671
Diluted (1)		701,671			701,671			1,646,821			701,671			1,992,446

Non-GAAP Financial Data (unaudited):
EBITDA (2)	$	(17,241	)	$	(20,473	)	$	94,844		$	67,059		$	96,737
EBITDAR (2)		170,635			216,327			296,915			223,117			234,177

(1)	See Note 15 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the basic and diluted earnings per share.

(2)

Index to Financial Statements

isolates the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by capital lease or by operating lease, each of which is presented differently for accounting purposes) and income taxes, which may vary significantly between periods and for different companies for reasons unrelated to overall operating performance. However, because derivations of EBITDA and EBITDAR are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, derivations of EBITDA and EBITDAR as presented may not be directly comparable to similarly titled measures presented by other companies.

These non-GAAP financial measures have limitations as an analytical tool. Some of these limitations are: they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; they do not reflect changes in, or cash requirements for, our working capital needs; they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these measures do not reflect any cash requirements for such replacements; and other companies in our industry may calculate EBITDA and EBITDAR differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and EBITDAR should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

The following table represents the reconciliation of net income (loss) to EBITDA and EBITDAR for the periods presented below:


	Year Ended December 31,									Nine Months Ended September 30,
	2011			2012			2013			2013			2014
	(in thousands)
										(unaudited)
Reconciliation:
Net income (loss)	$	(100,403	)	$	(145,388	)	$	10,144		$	(4,036	)	$	56,237
Interest expense		75,577			116,110			71,293			61,575			31,225
Capitalized interest		(2,320	)		(2,176	)		(534	)		—			(1,840	)
Interest income		(264	)		(294	)		(339	)		(247	)		(330	)
Income tax expense		14			15			317			—			1,028
Depreciation and amortization		10,155			11,260			13,963			9,767			10,417

EBITDA		(17,241	)		(20,473	)		94,844			67,059			96,737
Aircraft rent		187,876			236,800			202,071			156,058			137,440

EBITDAR	$	170,635		$	216,327		$	296,915		$	223,117		$	234,177

The following table presents our historical consolidated balance sheet data as of September 30, 2014, on a pro forma basis to give effect to the 2014 Recapitalization, including the application of proceeds from this offering to repay Related-Party Notes and the associated conversion of certain of the remaining Related-Party Notes into common stock, and on a pro forma as adjusted basis to give effect to the receipt by us of the estimated net proceeds from the sale by us of 13,106,377 shares at an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) after deducting underwriting discounts and estimated expenses payable by us and the application of such net proceeds as described in “Use of Proceeds” elsewhere in this prospectus.


	As of September 30, 2014
	Pro Forma (1)		Pro Forma as Adjusted (2)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	182,669	$	398,978
Total assets		776,444		989,351
Long-term debt, including current portion		117,926		117,926
Convertible preferred stock		—		—
Total stockholders’ equity (deficit)		240,767		455,227

Index to Financial Statements

(1)

The unaudited pro forma consolidated balance sheet has been adjusted to illustrate the effect of: (a) the repayment of $100.0 million of principal and accrued interest due under the Related-Party Notes in connection with the release of $100.0 million of cash collateral held by our credit card processors in exchange for the establishment of the Letter of Credit Facility arranged by the Virgin Group; (b) the issuance of the $50.0 million Post-IPO Note in exchange for cancellation of $50.0 million of certain Related-Party Notes held by the Virgin Group; (c) the repayment of $51.5 million of principal and accrued interest due under certain Related-Party Notes using $51.5 million of the assumed net proceeds from the sale of shares by us in this offering assuming an initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus) (d) the exchange of approximately $477.3 million of principal and accrued interest due under the Related-Party Notes for 22,607,785 shares of our common stock, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus); (e) the issuance of 5,290,879 shares of common stock in exchange for Related-Party Warrants to purchase 26,067,475 shares of our common stock, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus); (f) the conversion of each share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock into one share of our common stock; (g) the issuance of 218,550 shares of common stock approved by our board of directors to certain executive officers and management upon completion of this offering; (h) the payment to the Virgin Group and Cyrus Holdings of an aggregate amount equal to the aggregate discount to the initial public offering price for the shares purchased by PAR Capital from the Virgin Group and Cyrus Holdings in the PAR Capital Private Placement; and (i) the presentation of the excess of the recorded amount of debt and preferred stock above the cash and other consideration to be received of $45.9 million as additional paid in capital.

(2)

The unaudited pro forma as adjusted balance sheet has been further adjusted to give effect to the receipt of the estimated net proceeds by us from the sale of shares of common stock in this offering based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus) after deducting underwriting discounts and the estimated offering expenses payable by us and the application of such net proceeds as described in “Use of Proceeds” elsewhere in this prospectus.

•

principal and accrued interest outstanding pursuant to our Related-Party Notes would be either (i) repaid with a portion of the net proceeds from this offering and amounts equal to the release of credit card holdbacks in connection with the establishment of the Letter of Credit Facility, (ii) exchanged for the Post-IPO Note or (iii) exchanged for shares of our common stock based on the initial public offering price of this offering;

•

outstanding warrants to purchase shares of our common stock, including our Related-Party Warrants, either (i) would be exchanged without receipt of cash consideration for shares of our common stock in amounts agreed to in the 2014 Recapitalization Agreement, which depend in part on the initial public offering price of this offering or (ii) would expire or otherwise be cancelled; and

•

each issued and outstanding share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock would be converted into one share of common stock.

In this prospectus, in calculating the number of shares of common stock to be issued pursuant to the 2014 Recapitalization, we have assumed the application of the net proceeds to us as set forth in “Use of Proceeds” elsewhere in this prospectus, an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and an assumed initial public offering date of September 30, 2014 for purposes of calculating accrued interest on the Related-Party Notes. For more information, see “Use of Proceeds” and “2014 Recapitalization” elsewhere in this prospectus.

Index to Financial Statements

variables based on the assumptions described above. The initial public offering prices shown below are hypothetical and illustrative only.


Assumed Initial Offering Price	Repayment of Related- Party Notes		Shares of Common Stock Issued Upon Exchange for Related-Party Notes		Shares of Common Stock Issued Upon Exchange for Related- Party Warrants		Pro Forma Shares of Common Stock Outstanding		Pro Forma as Adjusted Shares of Common Stock Outstanding
$21.00	$	133,373,809		25,197,260		3,806,839		32,802,131		44,319,279
21.50		139,417,086		24,282,412		4,324,529		32,649,097		43,922,121
22.00		145,460,364		23,419,639		4,818,688		32,513,511		43,553,507
22.50		151,503,642		22,607,785		5,290,879		32,396,518		43,213,844
23.00		157,546,920		21,831,220		5,742,543		32,284,606		42,888,943
23.50		163,590,198		21,087,710		6,174,992		32,177,471		42,577,882
24.00		169,633,476		20,375,175		6,589,418		32,074,791		42,279,773

The above discussion is based on 1,950,671 shares of our common stock outstanding (on an as converted to common stock basis) as of September 30, 2014, and excludes:

•

an aggregate of 411,710 shares of common stock reserved for issuance under our 2005 Stock Incentive Plan;

•

297,269 shares of common stock issuable upon the vesting of RSUs outstanding as of September 30, 2014 under our 2005 Stock Incentive Plan;

•

655,904 shares of common stock issuable upon the vesting of additional RSUs outstanding as of September 30, 2014;

•

rights to purchase 109,703 shares of common stock at an exercise price of $27.25 per share outstanding as of September 30, 2014;

•

an aggregate of 600,000 shares of common stock reserved for issuance under our 2014 Equity Incentive Award Plan; and

•

an aggregate of 160,000 shares of common stock reserved for issuance under our 2014 Employee Stock Purchase Plan.

For more information, see “2014 Recapitalization” elsewhere in this prospectus.

Index to Financial Statements

OPERATING STATISTICS


	Year Ended December 31,									Nine Months Ended September 30,
	2011			2012			2013			2013			2014
Operating Statistics: (1)
Available seat miles—ASMs (millions)		9,853			12,514			12,243			9,191			9,196
Departures		44,696			56,362			58,215			43,289			43,778
Average stage length (statute miles)		1,571			1,567			1,474			1,491			1,471
Aircraft in service—end of period		44			52			53			53			53
Fleet utilization		12.1			11.6			10.8			10.9			10.8

Passengers (thousands)		5,030			6,219			6,329			4,752			4,888
Average fare	$	189.05		$	195.38		$	203.70		$	202.49		$	204.25
Yield per passenger mile (cents)		11.82			12.26			13.14			12.97			13.13
Revenue passenger miles—RPMs (millions)		8,034			9,912			9,814			7,417			7,603
Load factor		81.5	%		79.2	%		80.2	%		80.7	%		82.7	%
Passenger revenue per available seat mile—PRASM (cents)		9.64			9.71			10.53			10.47			10.86
Total revenue per available seat mile—RASM (cents)		10.53			10.65			11.64			11.59			12.15

Cost per available seat mile—CASM (cents)		10.80			10.90			10.98			10.96			11.22
CASM, excluding fuel (cents)		6.56			6.61			6.83			6.80			7.08
CASM, excluding fuel and profit sharing (cents)		6.56			6.61			6.82			6.80			6.97
Fuel cost per gallon	$	3.24		$	3.32		$	3.18		$	3.19		$	3.13
Fuel gallons consumed (thousands)		128,852			161,404			159,326			119,810			121,422
Teammates (FTE)		2,002			2,395			2,482			2,376			2,428

(1)	See “Glossary of Airline Terms” beginning on the next page of this prospectus for definitions of terms used in this table.

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GLOSSARY OF AIRLINE TERMS

Set forth below is a glossary of industry terms used in this prospectus:

Airbus A320-family includes A318, A319, A320 and A321 aircraft manufactured by the Airbus Group. The Airbus A320-family have common engine, airframe and cockpit design, leading to shared maintenance and flight operations procedures. We currently operate A319 and A320 aircraft.

Ancillary revenue means the amount of non-ticket revenue received from passengers, including baggage fees, change fees, seat selection fees and on-board sales and other revenue, including charter revenue.

Ancillary revenue per passenger means the total ancillary revenue divided by passengers.

ASMs, or “available seat miles,” refer to the number of seats available for passengers multiplied by the number of miles the seats are flown.

ATL, or “air traffic liability,” means the value of tickets sold in advance of travel.

Average fare means total passenger revenue divided by passengers.

Banks means the discrete periods during the day at a hub airport during which a large number of flights arrive and depart, allowing for connections.

Block hours means the hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.

CASM, or “cost per available seat mile,” means the airline’s total operating costs divided by available seat miles.

CASM, excluding fuel, or “CASM ex-fuel,” means operating costs less aircraft fuel expense divided by ASMs.

CASM, excluding fuel and profit sharing means operating costs less aircraft fuel expense and profit sharing expense divided by ASMs. Under our annual profit sharing program, we accrue 15% of cumulative year-to-date income before income taxes and profit sharing for the benefit of our eligible teammates each quarter to the extent that we have cumulative year-to-date pre-tax income.

Codeshare refers to a type of arrangement where two or more airlines share the same flight and where a seat can be purchased through one airline but actually operated by a cooperating airline under a different flight number or code.

DOT means the U.S. Department of Transportation, a federal Cabinet department of the U.S. government overseeing interstate and international transportation.

EPA means the U.S. Environmental Protection Agency, an agency of the federal government of the United States charged with protecting human health and the environment.

FAA means the U.S. Federal Aviation Administration, an agency of the U.S. Department of Transportation that has the authority to regulate and oversee civil aviation in the United States.

Fleet utilization, or “aircraft utilization,” means block hours in the period divided by average number of aircraft in our fleet divided by number of days in the period.

Flight equipment means all types of property and equipment used in the inflight operation of aircraft.

Flight hours means the total time an aircraft is in the air between an origin-destination airport pair, i.e. from wheels-up at the origin airport to wheels-down at the destination airport.

GDS means a Global Distribution System such as Amadeus, Sabre and Travelport, used by travel agencies and corporations to purchase tickets on participating airlines.

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Hub-and-spoke network refers to a method of organizing an airline network in which one major airport is used as a connecting point for passengers traveling to other destinations, including smaller local airports and international destinations.

Interline refers to a type of agreement among airline partners that allow guests to create itineraries connecting from one airline to another.

Length of haul adjusted PRASM means PRASM adjusted for passenger-weighted length of haul.

Load factor means the proportion of airline capacity (ASMs) that is actually consumed, calculated by dividing RPMs by ASMs.

Major airline, as defined by the U.S. Department of Transportation, means a U.S.-based air carrier with annual operating revenues in excess of one billion dollars during a fiscal year.

Passenger revenue means revenue received by the airline from the carriage of passengers in scheduled operations.

Passenger-weighted length of haul means the average distance flown, measured in statute miles, per passenger, calculated by dividing total RPMs by the number of total revenue passengers.

Passengers means the total number of passengers flown on all flight segments.

PDP means pre-delivery payments, which are payments required by aircraft manufacturers in advance of delivery of the aircraft; typically aircraft-specific payments begin 24 months prior to aircraft delivery.

Pitch, or “seat pitch,” means the measure of distance between seat rows on an aircraft, measured in inches from the middle of one seat to the middle of the seat directly in front of it.

Point-to-point network means a method of organizing an airline network in which flights travel directly to a destination rather than going through a central hub.

PRASM, or “passenger revenue per available seat mile,” refers to a measure of passenger unit revenue calculated by dividing passenger revenue by available seat miles, or ASMs.

RASM, “revenue per available seat mile” or “unit revenue” refers to a measure of unit revenue calculated by dividing the airline’s total revenue by available seat miles, or ASMs.

RPMs, or “revenue passenger miles,” means the number of miles flown by revenue passengers.

Seat-weighted stage length means the average distance flown, measured in statute miles, per seat, calculated by dividing total ASMs by the number of total seats flown.

Stage length means the average distance flown, measured in statute miles, per aircraft departure, calculated by dividing total aircraft miles flown by the number of total aircraft departures performed.

Stage length adjusted CASM means CASM adjusted for a seat-weighted stage length.

Stage-length adjustment refers to an adjustment to enable comparison of CASM and RASM across airlines. All other things being equal, the same airline will have lower CASM and RASM as stage length increases since fixed and departure related costs are spread over increasingly larger average flight lengths. Therefore, to properly compare these quantities across airlines (or even across the same airline for two different periods if the airline’s

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average stage length has changed significantly) requires settling on a common assumed stage length and then adjusting CASM and RASM appropriately. This requires some judgment and different observers may use different stage-length adjustment techniques. We adjust for stage-length using the MIT Global Airline Industry Program’s methodology for adjusting both PRASM and CASM, which we believe to be the most commonly accepted methodology in the industry. For comparisons in this prospectus in which CASM is stage-length adjusted, the stage-length being utilized is a seat-weighted distance, or the average of the distances flown by each seat divided by total seats flown. For comparisons where PRASM is stage-length adjusted, the stage being utilized is the passenger-weighted distance, or the average of the individual distances flown by the airlines’ passengers.

TSA means the U.S. Transportation Security Administration, an agency of the U.S. Department of Homeland Security that exercises authority over the security of the traveling public in the United States.

U.S. citizen means a “citizen of the United States” as that term is defined in 49 U.S.C. §40102(a)(15).

Yield refers to a measure of average fare paid per mile per passenger, calculated by dividing passenger revenue by revenue passenger miles.

Virgin America Destinations:

AUS—Austin-Bergstrom International Airport (Austin, Texas).

BOS—General Edward Lawrence Logan International Airport (Boston, Massachusetts).

CUN—Cancún International Airport (Cancún, Mexico).

DAL—Dallas Love Field (Dallas, Texas).

DCA—Ronald Reagan Washington National Airport (Washington, D.C.).

EWR—Newark Liberty International Airport (Newark, New Jersey).

FLL—Fort Lauderdale-Hollywood International Airport (Fort Lauderdale, Florida).

IAD—Washington Dulles International Airport (Dulles, Virginia).

JFK—John F. Kennedy International Airport (Jamaica, New York).

LAS—McCarran International Airport (Las Vegas, Nevada).

LAX—Los Angeles International Airport (Los Angeles, California).

LGA—LaGuardia Airport (New York, New York).

MCO—Orlando International Airport (Orlando, Florida).

ORD—Chicago O’Hare International Airport (Chicago, Illinois).

PDX—Portland International Airport (Portland, Oregon).

PHL—Philadelphia International Airport (Philadelphia, Pennsylvania).

PSP—Palm Springs International Airport (Palm Springs, California).

PVR—Licenciado Gustavo Díaz Ordaz International Airport (Puerto Vallarta, Mexico).

SAN—San Diego International Airport (San Diego, California).

SEA—Seattle–Tacoma International Airport (Seattle, Washington).

SFO—San Francisco International Airport (San Francisco, California).

SJD—Los Cabos International Airport (Los Cabos, Mexico).

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before making a decision to invest in our common stock. If any of these risks should occur, our business, results of operations, financial condition or growth prospects could be materially adversely affected. In those cases, the trading price of our common stock could decline, and you may lose all or part of your investment.

Our business has been and in the future may be materially adversely affected by the price and availability of aircraft fuel. High fuel costs and increases in fuel prices or a shortage or disruption in the supply of aircraft fuel would have a material adverse effect on our business.

The price of aircraft fuel may be high or volatile. The cost of aircraft fuel is highly volatile and is our largest individual operating expense, accounting for 39.2%, 39.4%, 37.7% and 36.9% of our operating expenses for 2011, 2012 and 2013 and the nine months ended September 30, 2014. High fuel costs or increases in fuel costs (or in the price of crude oil) could materially adversely affect our business. We have been operating in a relatively stable fuel price environment for the past 12 months with the average market fuel price of $2.90 per gallon slightly more than the four-year average of $2.95 per gallon. Fuel-price volatility has also decreased in the past 12 months. That volatility could increase and create more pricing instability which, when added to changes in the price of fuel, could materially adversely affect our business. We may be more susceptible to fuel-price volatility than most of our competitors since fuel represents a larger proportion of our total costs due to the longer average stage length of our flights.

Availability of aircraft fuel may be low. Our business is also dependent on the availability of aircraft fuel (or crude oil), which is not predictable. Weather-related events, natural disasters, terrorism, wars, political disruption or instability involving oil-producing countries, changes in governmental or cartel policy concerning crude oil or aircraft fuel production, transportation, taxes or marketing, environmental concerns, market manipulation, price speculation and other unpredictable events may drive actual or perceived fuel supply shortages. Shortages in the availability of, or increases in demand for, crude oil in general, other crude-oil-based fuel derivatives and aircraft fuel in particular could result in increased fuel prices and could materially adversely affect our business.

Fare increases may not cover increased fuel costs. We may not be able to increase ticket prices sufficiently to cover increased fuel costs, particularly when fuel prices rise quickly. We sell a significant number of tickets to passengers well in advance of travel, and, as a result, fares sold for future travel may not reflect increased fuel costs. In addition, our ability to increase ticket prices to offset an increase in fuel costs is limited by the competitive nature of the airline industry and the price sensitivity associated with air travel, particularly leisure travel, and any increases in fares may reduce the general demand for air travel.

Our fuel hedging program may not be effective. We cannot assure you our fuel hedging program, including our forward fixed price contracts, or FFPs, which we use as part of our hedging strategy, will be effective or that we will maintain a fuel hedging program. Even if we are able to hedge portions of our future fuel requirements, we cannot guarantee that our hedge contracts will provide an adequate level of protection against increased fuel costs or that the counterparties to our hedge contracts will be able to perform. Certain of our fuel hedge contracts may contain margin funding requirements that could require us to post collateral to counterparties in the event of a significant drop in fuel prices. A failure of our fuel hedging strategy, significant margin funding requirements, overpaying for fuel through the use of FFPs or our failure to maintain a fuel hedging program could prevent us from adequately mitigating the risk of fuel price increases and could materially adversely affect our business.

The airline industry is exceedingly competitive, and we compete against both legacy airlines and low-cost carriers; if we are not able to compete successfully in the domestic airline industry, our business will be materially adversely affected.

The domestic airline industry is characterized by significant competition from both large legacy airlines and low-cost carriers, or LCCs. Airlines compete for passengers with a variety of fares, discounts, route networks,

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flight schedules, flight frequencies, frequent flyer programs and other products and services, including seating, food, entertainment and other on-board amenities. Airlines also compete on the basis of customer-service performance statistics, such as on-time arrivals, customer complaints and mishandled baggage reports. We face significant competition from both large legacy airlines and LCCs on the routes we operate, and if we are unable to compete effectively, our business will be materially adversely affected.

Large legacy airlines have numerous competitive advantages in competing for airline passengers, particularly following the consolidation in the domestic airline industry that occurred between 2008 and 2014, which resulted in the creation of four dominant domestic airlines with significant breadth of network coverage and financial resources. We face competition from one or more of these legacy carriers with respect to nearly all of the routes we serve. The legacy carriers have a number of competitive advantages relative to us that may enable them to attain higher average fares, more passenger traffic and a greater percentage of business passengers than we attain. These advantages include a much larger route network with domestic and international connections, more flights and convenient flight schedules in routes that overlap with ours. These carriers also offer frequent flyer programs and lounge access benefits that reward and create loyalty with travelers, particularly business travelers. Moreover, several legacy carriers have corporate travel contracts that direct employees to fly with a preferred carrier. The enormous route networks operated by these airlines, combined with their marketing and partnership relationships with regional airlines and international alliance partner carriers, allow them to generate increased passenger traffic from domestic and international cities. Our smaller point-to-point route network and lack of connecting traffic and marketing alliances puts us at a competitive disadvantage to legacy carriers, particularly with respect to our appeal to higher-fare business travelers.

Each of the legacy carriers operates a much larger fleet of aircraft and has greater financial resources than we do, which permits it to add service in response to our entry into new markets. For example, United Airlines operates a hub at San Francisco International Airport (SFO) and has engaged in aggressive competitive practices, such as increasing seat capacity by introducing larger-gauge aircraft or adding incremental flights in response to our entry into new markets served from SFO. Due to our relatively small size, we are more susceptible to a fare war or other competitive activities in one or more of the markets we serve, which could prevent us from attaining the level of passenger traffic or maintaining the level of ticket sales required to sustain profitable operations in new or existing markets.

LCCs also have numerous competitive advantages in competing for airline passengers. LCCs generally offer a more basic service to travelers and therefore have lower cost structures than other airlines. The lower cost structure of LCCs permits them to offer flights to and from many of the same markets as most major airlines but at lower prices. LCCs also typically fly direct, point-to-point flights, which tends to improve aircraft and crew scheduling efficiency. Many LCCs also provide only a single class of service, thereby avoiding the incremental cost of offering premium-class services like those that we offer.

In addition, some LCCs have a relentless focus on lowering costs and provide only a very basic level of service to passengers. These carriers configure their aircraft with high-density seating configurations and offer minimal amenities during the flight, and as a result, they incur lower unit costs than we do. Some LCCs also charge ancillary fees for basic services that we provide free of charge, such as making a reservation, printing boarding passes at the airport and carrying bags onboard the cabin for stowage in the overhead bins. In general, LCCs have lower unit costs and therefore are able to offer lower base fares.

If we fail to implement our business strategy successfully, our business will be materially adversely affected.

Our business strategy is to target business and leisure travelers who are willing to pay a premium for our newer aircraft, more comfortable seating, better customer service and the latest on-board amenities while maintaining a cost structure that is lower than that of the legacy airlines that these business and premium travelers have historically favored. We may not be successful in attracting enough passengers willing to pay a premium over the fares offered by the LCCs, which we require to offset the additional costs embedded within our

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premium service model. In addition, American Airlines, Delta Air Lines, United Airlines and JetBlue Airways are increasing the quality of their seating and on-board amenities in some of the routes where they compete with us, making it more challenging to attract passengers who are loyal to those airlines. Continuing to grow our business profitably is also critical to our business strategy. Growth poses various operational and financial challenges, including securing additional financing for aircraft acquisition, obtaining airport gates and facilities at congested airports that serve business and premium travelers and hiring qualified personnel while maintaining our culture, which we believe is vital to the continued success of our airline. We cannot assure you that we will be able to successfully and profitably expand our fleet, enter new markets or grow existing markets in order to achieve additional economies of scale and maintain or increase our profitability. If we are unsuccessful in deploying our strategy, or if our strategy is unsustainable, our business will be materially adversely affected.

Threatened or actual terrorist attacks or security concerns involving airlines could materially adversely affect our business.

Past terrorist attacks against airlines have caused substantial revenue losses and increased security costs. As a result, any actual or threatened terrorist attack or security breach, even if not directly against an airline, could materially adversely affect our business by weakening the demand for air travel and resulting in increased safety and security costs for us and the airline industry generally. Terrorist attacks made directly on a domestic airline, or the fear of such attacks or other hostilities (including elevated national threat warnings or selective cancellation or redirection of flights due to terror threats), would have a negative impact on the airline industry and materially adversely affect our business.

We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could materially adversely affect our business.

We are highly dependent on technology and computer systems and networks to operate our business. These technologies and systems include our computerized airline reservation system, flight operations systems, telecommunications systems, airline website, maintenance systems and check-in kiosks.

In order for our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and deliver flight information. We depend on our reservation system, which is hosted and maintained under a long-term contract by a third-party service provider, to issue, track and accept electronic tickets, conduct check-in, board and manage our passengers through the airports we serve and provide us with access to global distribution systems, which enlarge our pool of potential passengers. In May 2011, we experienced significant reservations system outages, which resulted in lost ticket sales on our website which materially adversely affected our business and goodwill. If our reservation system fails or experiences interruptions again, and we are unable to book seats for any period of time, we could lose a significant amount of revenue as customers book seats on other airlines, and our reputation could be harmed.

We also rely on third-party service providers to maintain our flight operations systems, and if those systems are not functioning, we could experience service disruptions, which could result in the loss of important data, increase our expenses, decrease our operational performance and temporarily stall our operations. Replacement services may not be readily available on a timely basis, at competitive rates or at all, and any transition time to a new system may be significant. In the event that one or more of our primary technology or systems vendors fails to perform and a replacement system is not available, our business could be materially adversely affected.

Our business could be materially adversely affected from an accident or safety incident involving our aircraft.

An accident or safety incident involving one of our aircraft could expose us to significant liability and a public perception that our airline is unsafe or unreliable. In the event of a major accident, we could be subject to significant personal injury and property claims. While we maintain liability insurance in amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate to cover fully all claims, and we may be forced to bear substantial losses from an accident. In addition, any accident or incident

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involving one of our aircraft (or an accident involving another Virgin-branded airline), even if fully insured, could harm our reputation and result in a loss of future passenger demand if it creates a public perception that our operation is unsafe or unreliable as compared to other airlines or means of transportation. As a result, any accident or safety incident involving our aircraft could materially adversely affect our business.

The demand for airline services is sensitive to changes in economic conditions, and another recession would weaken demand for our services and materially adversely affect our business.

The demand for business and leisure travel is affected by U.S. and global economic conditions. Unfavorable economic conditions have historically reduced airline travel spending. For most leisure consumers, travel is a discretionary expense, and during unfavorable economic conditions, travelers have often replaced air travel with car travel or other forms of ground transportation or have opted not to travel at all. Likewise, during unfavorable economic conditions, businesses have foregone or deferred air travel. Travelers have also reduced spending by purchasing less expensive tickets, which can result in a decrease in average revenue per seat. Because we have relatively high fixed costs, much of which cannot be mitigated during periods of lower demand for air travel, our business is particularly sensitive to changes in U.S. economic conditions. A reduction in the demand for air travel due to unfavorable economic conditions also limits our ability to raise fares to counteract increased fuel, labor and other costs. If U.S. or global economic conditions are unfavorable or uncertain for an extended period of time, it would materially adversely affect our business.

We have a limited operating history and have only recorded one year of profit, and we may not sustain or increase profitability in the future.

We have a history of losses and only a limited operating history upon which you can evaluate our business and prospects. While we first recorded an annual profit in 2013, we cannot assure you that we will be able to sustain or increase profitability on a quarterly or an annual basis. In turn, this may cause the trading price of our common stock to decline and may materially adversely affect our business.

Airlines are subject to extensive regulation and taxation by governmental authorities, and compliance with new regulations and any new or higher taxes will increase our operating costs and may materially adversely affect our business.

We are subject to extensive regulatory and legal compliance requirements. Congress regularly passes laws that affect the airline industry, and the U.S. Department of Transportation, or DOT, the Federal Aviation Administration, or FAA, and the Transportation Security Administration, or TSA, continually issue regulations, orders, rulings and guidance relating to the operation, safety and security of airlines that require significant expenditures and investment by us. For example, the DOT has broad authority over airlines to prevent unfair and deceptive practices and has used this authority to impose numerous airline regulations, including rules and fines relating to airline advertising, pricing, baggage compensation, denied boarding compensation and tarmac delayed flights. The DOT frequently considers the adoption of new regulations, such as rules relating to congestion-based landing fees at airports and limits or disclosures concerning ancillary passenger fees. For example, in June 2014, the DOT issued a notice of proposed rulemaking to further enhance passenger protections that addresses several areas of regulation, including post-purchase ticket increases, ancillary fee disclosures and code-share data reporting and disclosure. Compliance with existing requirements drives administrative, legal and operational costs and subjects us to potential fines, and any new regulatory requirements issued by the DOT may increase our compliance costs, reduce our revenues and materially adversely affect our business.

The FAA has broad authority to address airline safety issues, including inspection authority over our flight, technical and safety operations, and has the ability to issue mandatory orders relating to, among other things, the grounding of aircraft, installation of mandatory equipment and removal and replacement of aircraft parts that have failed or may fail in the future. Any decision by the FAA to require aircraft inspections, complete aircraft maintenance or ground aircraft types operated by us could materially adversely affect our business. For example,

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on January 4, 2014, the FAA’s new and more stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations took effect, which has increased costs and could further increase our costs in the future.

The FAA also has extensive authority to address airspace/airport congestion issues and has imposed limitations on take-off and landing slots at four airports: Ronald Reagan Washington National Airport (DCA), LaGuardia Airport (LGA), John F. Kennedy International Airport (JFK) and Newark Liberty International Airport (EWR). The FAA could reduce the number of slots allocated at these airports or impose new slot restrictions at other airports.

We are also subject to restrictions imposed by federal law that require that no more than 24.9% of our stock be voted, directly or indirectly, by persons who are not U.S. citizens, that no more than 49.9% of our outstanding stock be owned by persons who are not U.S. citizens and that our president and at least two-thirds of the members of our board of directors and senior management be U.S. citizens. For more information on these requirements, see “—Our corporate charter and bylaws include provisions limiting voting and ownership by non-U.S. citizens and specifying an exclusive forum for stockholder disputes.” We are currently in compliance with these ownership restrictions. Our high level of foreign ownership may limit our opportunity to participate in U.S. government travel contracts and the Civilian Reserve Air Fleet program, however, if we are unable to satisfy policies and procedures of the U.S. Department of Defense for the mitigation of foreign ownership, control or influence required of cleared U.S. contractors.

Domestic airlines are also subject to significant taxation, including taxes on passenger tickets and security fees to compensate the federal government for its role in regulating airlines, providing air traffic controls and implementing security measures related to airlines and airports. In July 2014, the TSA implemented an increased passenger security fee at a flat rate of $5.60 per passenger. Any significant increase in ticket taxes or security fees could weaken the demand for air travel, increase our costs and materially adversely affect our business.

Many aspects of airlines’ operations are also subject to increasingly stringent environmental regulations, and growing concerns about climate change may result in the imposition of additional regulation. Since the domestic airline industry is highly price sensitive, we may not be able to recover from our passengers the cost of compliance with new or more stringent environmental laws and regulations, which could materially adversely affect our business. Although we do not expect the costs of complying with current environmental regulations will have a material adverse effect on our business, we cannot assure you that the costs of complying with environmental regulations would not materially adversely affect us in the future.

Almost all commercial service airports are owned and/or operated by units of local or state governments. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost. Many airports have increased their rates and charges to air carriers because of higher security costs, increased costs related to updated infrastructures and other costs. Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce the demand for air travel. Although lawmakers may impose these additional fees and consider them “pass-through” costs, we believe that a higher total ticket price will influence consumer purchase and travel decisions and may result in an overall decline in passenger traffic, which could materially adversely affect our business.

Our ability to obtain financing or access capital markets may be limited.

We have significant obligations to purchase aircraft and spare engines that we have on order from Airbus and CFM International, or CFM, and we have historically relied solely on lessors to provide financing for our aircraft acquisition needs. As of December 31, 2013, committed expenditures for these aircraft and spare engines, including estimated amounts for contractual price escalations and $48.4 million of pre-delivery payment commitments, were approximately $427.3 million. Because we may not have sufficient liquidity or creditworthiness to fund the purchase of aircraft and engines, including payment of pre-delivery payments, we

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expect to seek external financing for these expenses. There are a number of factors that may affect our ability to raise financing or access the capital markets, including our liquidity and credit status, our operating cash flows, market conditions in the airline industry, U.S. and global economic conditions, the general state of the capital markets and the financial position of the major providers of commercial aircraft financing. We cannot assure you that we will be able to source external financing for our planned aircraft acquisitions or for other significant capital needs, and if we are unable to source financing on acceptable terms, or unable to source financing at all, our business could be materially adversely affected. To the extent we finance our activities with additional debt, we may become subject to financial and other covenants that may restrict our ability to pursue our strategy or otherwise constrain our growth and operations.

In addition, we may be unable to fully finance future aircraft acquisitions if the aircraft are perceived to be less valuable for any reason. We presently have ten Airbus A320-family, current technology aircraft on order for delivery between July 2015 and June 2016. If Airbus’s newer A320neo-family aircraft provide expected improvements in the fuel consumption and an increase in nautical mile range, the Airbus A320-family current-technology aircraft may be perceived to be less valuable. If we are unable to fully finance our acquisition of these aircraft, our business may be materially adversely affected.

The “Virgin” brand is not under our control, and negative publicity related to the Virgin brand name could materially adversely affect our business.

We believe the “Virgin” brand, which is integral to our corporate identity, represents quality, innovation, creativity, fun, a sense of competitive challenge and employee-friendliness. We license rights to the Virgin brand from certain entities affiliated with the Virgin Group on a non-exclusive basis. The Virgin brand is also licensed to and used by a number of other companies, including two airlines, Virgin Atlantic Airways and Virgin Australia Airlines, operating in other geographies. We rely on the general goodwill of consumers and our employees, whom we call teammates, towards the Virgin brand as part of our internal corporate culture and external marketing strategy. Consequently, any adverse publicity in relation to the Virgin brand name or its principals, particularly Sir Richard Branson who is closely associated with the brand, or in relation to another Virgin-branded company over which we have no control or influence, could have a material adverse effect on our business.

We obtain our rights to use the Virgin brand under agreements with certain entities affiliated with the Virgin Group, and we would lose those rights if these agreements are terminated or not renewed.

We are party to license agreements with certain entities affiliated with the Virgin Group pursuant to which we obtain rights to use the Virgin brand. The licensor may terminate the agreements upon the occurrence of a number of specified events including if we commit a material breach of our obligations under the agreements that is uncured for more than 10 business days or if we materially damage the Virgin brand. If we lose our rights to use the Virgin brand, we would lose the goodwill associated with our brand name and be forced to develop a new brand name, which would likely require substantial expenditures, and our business would likely be materially adversely affected.

We are subject to labor-related disruptions that could materially adversely affect our business.

On August 13, 2014, our inflight teammates (whom other airlines refer to as flight attendants), representing approximately 32% of our workforce, voted for representation by the Transport Workers Union, or TWU. As a result, the TWU has been certified as the representative of our inflight teammates, and we will be engaged with the TWU in a collective bargaining process for a first contract for those teammates in accordance with the requirements of the Railway Labor Act. Although we currently have a direct relationship with our remaining teammates, airline workers are one of the most heavily unionized private-sector employee groups, and any of our other non-management teammates could also seek to unionize. If we are not able to reach agreement with the TWU on the terms of the collective bargaining agreement for our inflight teammates, or if one or more of our other teammate groups elects a union to represent them, it could create a risk of work stoppages which could materially adversely affect our business.

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We depend on the Los Angeles and San Francisco markets to be successful.

Most of our current flights operate from our two focus cities of Los Angeles and San Francisco. In 2013, passengers to and from Los Angeles International Airport (LAX) and to and from SFO accounted for 44.9% and 53.6% of our total passengers. We believe that concentrating our service offerings in this way allows us to maximize our investment in personnel, aircraft and ground facilities and to leverage sales and marketing efforts in those regions. As a result, we are highly dependent on the LAX and SFO markets.

At LAX, we operate out of Terminal Three under an airport lease agreement that runs through 2019, subject to our completion of certain leasehold improvement projects. Under the LAX lease, we have the preferential use of six airport gates, the ability to add a seventh preferential use gate and shared access with other airlines to additional common-use gates. At SFO, we primarily operate out of recently renovated Terminal Two, under an operating lease that runs through June 2021, with the occasional use of a gate in the international terminal for flights from Mexico. Under the SFO lease, we have preferential access to seven Terminal Two gates, shared access with other airlines to one common-use Terminal Two gate and shared access to international terminal gates. In the past, we have used SFO international gates for domestic flights. While gate space is limited at both LAX and SFO, we believe that our gate access at each airport is capable of handling our planned growth in operations for at least the next several years.

However, both LAX and SFO are high-traffic airports with limited excess facilities and capacity, which may restrict our growth at these two bases. If we are unable to increase flights in these and other key markets, or if any events cause a reduction in demand for air transportation in these key markets or if increases in competition cause us to reduce fares in these key markets, our business may be materially adversely affected.

Our quarterly results of operations fluctuate due to a number of factors, including seasonality.

We expect our quarterly results of operations to continue to fluctuate due to a number of factors, including actions by our competitors, price changes in aircraft fuel and the timing and amount of maintenance expenses. As a result of these and other factors, quarter-to-quarter comparisons of our results of operations may not be reliable indicators of our future performance. In addition, seasonality may cause our quarterly results of operations to fluctuate since passengers tend to fly more during the summer months and less in the winter months. We cannot assure you that we will find profitable markets in which to operate during the winter season. Lower demand for air travel during the winter months may materially adversely affect our business.

We have a significant amount of fixed obligations.

The airline business is capital intensive, and many airlines, including us, are highly leveraged. We currently lease all of our aircraft, and these leases contain provisions requiring the payment of monthly rent regardless of usage. As of December 31, 2013, we had future operating lease obligations of approximately $1.7 billion. In addition, we have ordered aircraft and spare engines from Airbus and CFM for delivery over the next eight years. Under those agreements, we are obligated to make pre-delivery payments to Airbus and CFM on regular intervals in advance of the delivery of our ordered aircraft and spare engines. Moreover, we expect to incur additional fixed expenses as we take delivery of new aircraft, with ten aircraft scheduled for delivery between July 2015 and June 2016 and 30 aircraft scheduled for delivery in 2020 through 2022.

The amount of our current and expected future fixed obligations could strain our cash flows from operations, reducing the availability of our cash flows to fund working capital, capital expenditures and other general corporate purposes and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete. Our substantial fixed obligations could reduce our credit, which would negatively impact our ability to obtain additional financing and could place us at a competitive disadvantage compared to less leveraged competitors and competitors that have better access to capital resources or more favorable terms. We cannot assure you that we will be able to generate sufficient cash flows from our operations or from capital market activities to pay our debt and other fixed obligations as they become due or that we will be

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able to finance these obligations on favorable terms, or at all. If we are unable to generate sufficient cash flows for any reason, we may be unable to meet our fixed obligations, and our business may be materially adversely affected. In particular, if we are unable to make our required aircraft lease rental payments, we could lose access to one or more aircraft and forfeit our rent deposits, and our lessors could exercise their remedies under the lease agreements. Also, an event of default under any of our leases and our debt financing agreements could trigger cross-default provisions under other agreements.

Our credit card processors have the right to impose larger holdbacks which could have a material adverse effect on our business.

Most of our tickets are sold to customers using credit cards as the form of payment. Our credit card processors have rights in their agreements to hold back receivable monies related to tickets sold for future travel services (i.e., a “holdback”). Any related holdback is remitted to us shortly after the customer travels. Holdbacks are commonly imposed on newer or less creditworthy airlines, and we currently have significant holdback requirements with our two primary credit card processors, Elavon Inc. for Visa/MasterCard and American Express. As of September 30, 2014, our credit card holdbacks were $136.9 million, which represented substantially all of our receivable monies related to tickets sold for future travel. If a credit card processor determines there is a material risk with respect to our business or liquidity, it has the right to increase the amount or duration of the holdback. Any increase in the amount or duration of our holdbacks may negatively impact our liquidity and materially adversely affect our business.

Significant flight delays, cancellations or aircraft unavailability may materially adversely affect our business.

Various factors, many of which are beyond our control, such as air traffic congestion at airports, other air traffic control problems, security requirements, unscheduled maintenance and adverse weather conditions, can cause flight delays or cancellations or cause certain of our aircraft to be unavailable for a period of time. SFO, one of our two primary focus airports, is particularly vulnerable to air traffic constraints and other delays due to fog and inclement weather. Factors that cause flight delays frustrate passengers, and reduced aircraft availability could lead to customer dissatisfaction that harms our reputation. Additionally, if we are forced to cancel a flight due to an event within our control, we will be liable to re-accommodate our guests, including by purchasing tickets for them on other airlines. If one or more of our aircraft is unavailable to fly revenue service for any amount of time, our capacity will be reduced. Significant flight delays, cancellations or aircraft unavailability for any reason could have a material adverse effect on our business.

Our maintenance costs will increase as our fleet ages.

As of September 30, 2014, the average age of aircraft in our fleet of Airbus A320-family aircraft was 5.6 years. Our aircraft will require more scheduled and unscheduled maintenance as they age. We are beginning to incur substantial costs for major maintenance visits for our aircraft, and because of the pattern of our historical fleet growth, we expect to have several aircraft undergoing major maintenance at roughly the same time. These more significant maintenance activities result in out-of-service periods during which certain of our aircraft are unavailable to fly passengers. Any significant increase in maintenance and repair expenses, as well as resulting out-of-service periods, could have a material adverse effect on our business.

We expect that costs associated with the final qualifying major engine maintenance events for our aircraft will be amortized over the remaining lease term rather than until the next estimated major maintenance event, because we account for major maintenance under the deferral method. This could result in significantly higher depreciation and amortization expense related to major maintenance in the last few years of the leases as compared to the expenses in earlier periods.

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recording significant aircraft maintenance deposits on our consolidated balance sheet. However, the payments made after the final qualifying major engine maintenance event during the lease term are fully expensed, as these amounts are not reimbursable from the lessor. As such, it will result in both additional rent expense and depreciation and amortization expense for previously capitalized maintenance being recorded in the period after the final qualifying major engine maintenance event and just prior to the termination of the lease.

We depend on sole-source suppliers for our aircraft and engines.

A critical cost-saving element of our business strategy is to operate a single-family aircraft fleet; however, our dependence on the Airbus A320-family aircraft and CFM engines for all of our flights makes us more vulnerable to any design defects or mechanical problems associated with this aircraft type or these engines. In the event of any actual or suspected design defects or mechanical problems with the Airbus A320-family aircraft or CFM engines, whether involving our aircraft or that of another airline, we may choose or be required to suspend or restrict the use of our aircraft. Our business could also be materially adversely affected if the public avoids flying on our aircraft due to an adverse perception of the Airbus A320-family aircraft or CFM engines, whether because of safety concerns or other problems, real or perceived, or in the event of an accident involving such aircraft or engines. Separately, if Airbus or CFM becomes unable to perform its contractual obligations and we must lease or purchase aircraft from another supplier, we would incur substantial transition costs, including expenses related to acquiring new aircraft, engines, spare parts, maintenance facilities and training activities, and we would lose the cost benefits from our current single-fleet composition, any of which could have a material adverse effect on our business.

We rely on third-party service providers to perform functions integral to our operations.

We depend on third-party service providers to provide the majority of the services required for our operations, including fueling, maintenance, catering, passenger handling, reservations and airport ground handling, as well as certain administrative and support services. We are likely to enter into similar service agreements for new markets we enter, and we cannot assure you that we will be able to obtain the necessary services at acceptable rates. Moreover, although we do enter into agreements with many of our third-party service providers that define expected service performance, we do not directly control these third-party service providers. Any of these third-party service providers may fail to meet their service performance commitments to us, suffer disruptions to their systems that could negatively impact their services or fail to perform their services reliably, professionally or at the high standard of quality that we expect. Any such failure of our third-party service providers may prevent us from operating one or more flights or providing other services to our customers and may materially adversely affect our business. In addition, our business could be materially adversely affected if our customers believe that our services are unreliable or unsatisfactory.

Our business could be affected by severe weather conditions, natural disasters or the outbreak of contagious disease, any of which could materially adversely affect our business.

Our operations may be materially adversely affected by factors beyond our control, including severe weather conditions, natural disasters and the outbreak of disease. Severe weather conditions, such as winter snowstorms, hurricanes or other weather events, can cause flight cancellations, turbulence or significant delays that may result in increased costs and reduced revenue. Also, our two focus cities, Los Angeles and San Francisco, and our headquarters in Burlingame, California, are located on or near active seismic faults, and an earthquake could occur at any time, which could disrupt our operations at those locations. Similarly, outbreaks of pandemic or contagious diseases, such as avian flu, severe acute respiratory syndrome (SARS), H1N1 (swine) flu and the Ebola virus could significantly reduce demand for passenger traffic and result in travel restrictions. Any interruption in our ability to operate flights or reduction in airline passenger demand because of such events could have a material adverse effect on our business.

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Increases in insurance costs or reductions in insurance coverage may materially adversely affect our business.

If any of our aircraft were to be involved in an accident or if our property or operations were to be affected by a significant natural catastrophe or other event, we could be exposed to significant liability or loss. If we are unable to obtain sufficient insurance (including aviation hull and liability insurance and property and business interruption coverage) to cover such liabilities or losses, whether due to insurance market conditions or otherwise, our business could be materially adversely affected.

We currently obtain third-party war risk (terrorism) insurance, which is a separate policy from our commercial aviation hull and liability policy, from private insurance companies. Our current war risk insurance from commercial underwriters excludes NBCR (nuclear, biological, chemical and radiological) events. If we are unable to obtain adequate third-party war risk (terrorism) insurance or if a NBCR attack were to take place, our business could be materially adversely affected.

Security breaches involving a compromise of customer information or personal data could expose us to liability, damage our reputation and materially adversely affect our business.

We are subject to laws relating to privacy of personal data. In the processing of our customer transactions and as part of our ordinary business operations, we and certain of our third-party service providers collect, process, transmit and store a large volume of personally identifiable information, including financial data such as credit card information. The security of the systems and network where we and our service providers store this data is a critical element of our business. Any security breach in which employee or customer data is improperly released or disclosed could result in the loss, disclosure or improper use of this data and subject us to regulatory penalties and litigation, disrupt our operation, damage our reputation and materially adversely affect our business. Additionally, any material failure by us or our service providers to maintain compliance with the Payment Card Industry security requirements or rectify a data security issue may result in fines and restrictions on our ability to accept credit cards as a form of payment.

Our business could be materially adversely affected if we lose the services of our key personnel.

Our success depends to a significant extent upon the efforts and abilities of our officers, senior management team and key operating personnel. Competition for highly qualified personnel is intense, and a substantial turnover in key employees without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on our business.

Concentrated ownership by our principal stockholders could materially adversely affect our other stockholders.

Immediately after this offering of 13,337,587 shares of our common stock at an assumed initial public offering price of $22.50 per share, the midpoint of the price range on the cover of this prospectus, after deducting underwriting discounts and estimated offering expenses payable by us and the application of such net proceeds as described under “Use of Proceeds” elsewhere in this prospectus, and after the PAR Capital Private Placement, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus), the Virgin Group and Cyrus Holdings will own approximately 19.0% and 32.8% of our outstanding voting common stock. If the PAR Capital Private Placement does not close, the Virgin Group and Cyrus Holdings will own approximately 19.0% (which does not include the Virgin Group’s non-voting common stock) and 37.6% of our outstanding common stock. This concentrated ownership may limit the ability of other stockholders to influence corporate matters, and, as a result, these stockholders may cause us to take actions that our other stockholders do not view as beneficial. For example, this concentration of ownership could delay or prevent a change in control or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could cause the trading price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their common stock.

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The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members or executive officers.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act, related rules implemented or to be implemented by the Securities and Exchange Commission, or the SEC, and the listing rules of the NASDAQ Global Select Market. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as a public company, our common stock could be delisted, and we could be subject to fines, sanctions and other regulatory action and potentially civil litigation.

We will be required to assess our internal control over financial reporting on an annual basis, and any future adverse findings from such assessment could result in a loss of investor confidence in our financial reports, result in significant expenses to remediate any internal control deficiencies and have a material adverse effect on our business.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and beginning with our Annual Report on Form 10-K for the year ending December 31, 2015, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. The rules governing management’s assessment of our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in implementing any requested improvements and receiving a favorable attestation. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the NASDAQ Global Select Market, regulatory investigations, civil or criminal sanctions and litigation, any of which would materially adversely affect our business.

The market price of our common stock may be volatile, which could cause the value of an investment in our stock to decline.

Prior to this offering, there has been no public market for shares of our common stock, and an active public market for these shares may not develop or be sustained after this offering. We and the representatives of the underwriters will determine the initial public offering price of our common stock through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, the market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

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announcements concerning our competitors, the airline industry or the economy in general;

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strategic actions by us or our competitors, such as acquisitions or restructurings;

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media reports and publications about the safety of our aircraft or the aircraft type we operate;

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new regulatory pronouncements and changes in regulatory guidelines;

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changes in the price of aircraft fuel;

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announcements concerning the availability of the type of aircraft we use;

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general and industry-specific economic conditions;

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changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations;

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sales of our common stock or other actions by investors with significant shareholdings, including sales by our principal stockholders;

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trading strategies related to changes in fuel or oil prices; and

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general market, political and other economic conditions.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. Broad market fluctuations may materially adversely affect the trading price of our common stock.

In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources and materially adversely affect our business.

If securities or industry analysts do not publish research or reports about our business or publish negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities and industry analysts may publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, the trading price of our common stock would likely decline. If one or more of these analysts ceases to cover our company or fails to publish reports on us regularly, demand for our stock could decrease, which may cause the trading price of our common stock and our trading volume to decline.

Our anti-takeover provisions may delay or prevent a change of control, which could materially adversely affect the price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws to be in effect upon completion of this offering will contain provisions that may make it difficult to remove our board of directors and management and may discourage or delay “change of control” transactions, which could materially adversely affect the price of our common stock. These provisions include, among others:

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our board of directors is divided into three staggered classes, with each class serving a three-year term, which prevents stockholders from electing an entirely new board of directors at a single annual meeting;

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actions to be taken by our stockholders may only be effected at an annual or special meeting of our stockholders and not by written consent;

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special meetings of our stockholders can be called only by our board of directors, the Chairman of the Board, our chief executive officer or our president;

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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to be brought before an annual meeting of our stockholders may

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discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and

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our board of directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control.

Purchasers of our common stock in this offering will experience immediate and substantial dilution in the tangible net book value of their investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $13.10 in net tangible book value per share from the price you paid, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus). In addition, as of September 30, 2014, we had outstanding options to purchase 1,052,491 shares of our capital stock and 953,173 unvested restricted stock units. Following the 2014 Recapitalization, we may have additional outstanding warrants to purchase shares of our common stock. The exercise of these outstanding options or warrants or the vesting of these restricted stock units will result in further dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution” elsewhere in this prospectus.

The value of our common stock may be materially adversely affected by additional issuances of common stock or preferred stock by us or sales by our principal stockholders.

Any future issuances or sales of our common stock by us will be dilutive to our existing common stockholders. We anticipate that, after consummation of the transactions contemplated by the 2014 Recapitalization, the PAR Capital Private Placement and the closing of this offering, Cyrus Capital and the Virgin Group collectively will hold approximately 18.9 million shares of our voting common stock, or 53.5% of our voting common stock outstanding, and 62.0% of the total outstanding equity interests in our company as of September 30, 2014 (based on an assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover of this prospectus), and Cyrus Capital and the Virgin Group are entitled to rights with respect to registration of such shares under the Securities Act. If the PAR Capital Private Placement does not close, Cyrus Holdings and the Virgin Group will hold approximately 2,314,814 additional shares of common stock. Cyrus Capital and the Virgin Group could also hold warrants to purchase shares of our common stock immediately following this offering depending upon the initial public offering price. See “2014 Recapitalization” elsewhere in this prospectus for a discussion of the circumstances under which warrants may be outstanding following this offering. Sales of substantial amounts of our common stock in the public or private market, a perception in the market that such sales could occur, or the issuance or exercise of securities exercisable or convertible into our common stock, including warrants to purchase our common stock, could materially adversely affect the prevailing price of our common stock.

Our corporate charter and bylaws include provisions limiting voting and ownership by non-U.S. citizens and specifying an exclusive forum for stockholder disputes.

To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our amended and restated certificate of incorporation and amended and restated bylaws restrict voting of shares of our common stock by non-U.S. citizens. The restrictions imposed by federal law currently require that no more than 24.9% of our stock be voted, directly or indirectly, by persons who are not U.S. citizens, that no more than 49.9% of our outstanding stock be owned (beneficially or of record) by persons who are not U.S. citizens and that our president and at least two-thirds of the members of our board of directors and senior management be U.S. citizens. Our amended and restated bylaws provide that the failure of non-U.S. citizens to register their shares on a separate stock record, which we refer to as the “foreign stock record,” would result in a suspension of their

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voting rights in the event that the aggregate foreign ownership of the outstanding common stock exceeds the foreign ownership restrictions imposed by federal law. Our amended and restated bylaws also provide that any transfer or issuance of our stock that would cause the amount of our stock owned by persons who are not U.S. citizens to exceed foreign ownership restrictions imposed by federal law will be void and of no effect.

Our amended and restated bylaws further provide that no shares of our common stock will be registered on the foreign stock record if the amount so registered would exceed the foreign ownership restrictions imposed by federal law. If it is determined that the amount registered in the foreign stock record exceeds the foreign ownership restrictions imposed by federal law, shares will be removed from the foreign stock record in reverse chronological order based on the date of registration therein, until the number of shares registered therein does not exceed the foreign ownership restrictions imposed by federal law. We are currently in compliance with these ownership restrictions.

As of September 30, 2014, based on the shares registered on the foreign stock record, non-U.S. citizens own, in the aggregate, 424,221 shares of voting common stock (representing approximately 23.4% of the total voting rights and approximately 21.7% of the total outstanding equity interests in our company). As of September 30, 2014, non-U.S. citizens also hold warrants to purchase 29,777,039 shares of our common stock. For information on the number of shares of our common stock and warrants to purchase our common stock outstanding after the 2014 Recapitalization, see “Capitalization” elsewhere in this prospectus.

Our amended and restated certificate of incorporation in effect at the time of the closing of the offering will also provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by, or otherwise wrongdoing by, any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or amended and restated bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or the bylaws; or (v) any action asserting a claim against us or any of our directors, officers or employees governed by the internal affairs doctrine. Accordingly, you may be limited in your ability to pursue legal actions.

We do not intend to pay cash dividends for the foreseeable future.

We have never declared or paid cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments, business prospects and such other factors as our board of directors deems relevant.

We may become involved in litigation that may materially adversely affect us.

From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including patent, commercial, product liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. In particular, in recent years, there has been significant litigation in the United States and abroad involving patents and other intellectual property rights. We have in the past faced, and may face in the future, claims by third parties that we infringe upon their intellectual property rights. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liability and/or require us to change our business practices. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business.

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Risks associated with our presence in international emerging markets, including political or economic instability, and failure to adequately comply with existing legal requirements, may materially adversely affect us.

Countries with less developed economies, legal systems, financial markets and business and political environments are vulnerable to economic and political problems, such as significant fluctuations in gross domestic product, interest and currency exchange rates, civil disturbances, government instability, nationalization and expropriation of private assets, trafficking and the imposition of taxes or other charges by governments. The occurrence of any of these events in markets served by us now or in the future and the resulting instability may materially adversely affect our business.

We emphasize legal compliance and have implemented and continue to implement and refresh policies, procedures and certain ongoing training of our teammates with regard to business ethics and many key legal requirements; however, we cannot assure you that our teammates will adhere to our code of business ethics, other policies or other legal requirements. If we fail to enforce our policies and procedures properly or maintain adequate record-keeping and internal accounting practices to record our transactions accurately, we may be subject to sanctions. In the event we believe or have reason to believe our teammates have or may have violated applicable laws or regulations, we may incur investigation costs, potential penalties and other related costs which in turn may materially adversely affect our reputation and business.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

We incurred net losses through 2012. Our unused losses generally carry forward to offset future taxable income, if any, until such unused losses expire. We may be unable to use these losses to offset income before such unused losses expire. In addition, if a corporation undergoes an “ownership change” (generally defined as a greater than 50-percentage-point cumulative change in the equity ownership of certain stockholders over a rolling three-year period) under Section 382 of the Internal Revenue Code of 1986, as amended, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset future taxable income or taxes may be limited. We have experienced ownership changes in the past and it is likely we will experience an ownership change in connection with this offering and the 2014 Recapitalization. In addition, we may experience ownership changes as a result of future changes in our stock ownership (some of which changes may not be within our control), including due to sales of our common stock by Cyrus Capital or the Virgin Group. This, in turn, could materially reduce or eliminate our ability to use our losses or tax attributes to offset future taxable income or tax and have an adverse effect on our future cash flows.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at which or by which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good-faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

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the price and availability of aircraft fuel;

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our ability to compete in an extremely competitive industry;

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the successful execution and implementation of our strategy;

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security concerns resulting from any threatened or actual terrorist attacks or other hostilities;

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our reliance upon technology and automated systems to operate our business;

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our reputation and business being adversely affected in the event of an emergency, accident or similar incident;

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changes in economic conditions;

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our limited profitable operating history;

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changes in governmental regulation; and

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our ability to obtain financing or access capital markets.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

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2014 RECAPITALIZATION

As of September 30, 2014, we had a total of $678.8 million of contractual obligation for principal and accrued interest outstanding under certain secured related-party notes described below, which we refer to in this prospectus as the “Related-Party Notes”:

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$395.2 million aggregate principal amount and accrued interest of secured notes, issued between May 2008 and November 2011, as of September 30, 2014, which we refer to in this prospectus as the “5% Notes”;

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$188.8 million aggregate principal amount and accrued interest of secured notes issued in December 2011 as of September 30, 2014, which we refer to in this prospectus as the “FNPA Notes”; and

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$94.8 million aggregate principal amount and accrued interest of secured notes issued in May 2013, as of September 30, 2014, which we refer to in this prospectus as the “FNPA II Notes.”

All of the Related-Party Notes are secured by substantially all of our assets. The 5% Notes bear interest at a rate of 5.0% per annum, compounded annually. The FNPA Notes bear interest at a rate of 17.0% per annum, of which 8.5% is payable quarterly in arrears, and 8.5% is compounded annually. The FNPA II Notes bear interest at a rate of 17.0% per annum, compounded annually. All of the Related-Party Notes become due on June 9, 2016 if not earlier redeemed. The Related-Party Notes are redeemable at any time by us and must be redeemed in the event that we incur certain senior indebtedness or upon certain change-of-control transactions. Because the 5% Notes and the FNPA II Notes were issued or restructured as part of the 2013 Recapitalization, they are presented in our consolidated financial statements (i) in the aggregate at the creditor level, (ii) at amounts that are in excess of the current stated contractual obligations on these notes and (iii) with lower effective interest rates. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—2013 Recapitalization,” as well as our consolidated financial statements included elsewhere in this prospectus.

As of September 30, 2014, the Virgin Group held approximately $417.1 million aggregate principal amount and accrued interest of the Related-Party Notes, and Cyrus Capital held approximately $261.7 million aggregate principal amount and accrued interest of the Related-Party Notes. The Virgin Group and Cyrus Capital also hold the majority of our outstanding warrants to purchase shares of our common stock, which we refer to in this prospectus as the “Related-Party Warrants.” The recorded value of the Related-Party Notes of $725.4 million on our financial statements differed from the contractual amount owed of $678.8 million, primarily due to the application of accounting guidance established for troubled debt restructurings, or “TDR,” in connection with the 2013 Recapitalization. The application of TDR accounting requires a comparison of the recorded value of each debt instrument prior to restructuring to the sum of the undiscounted future cash flows to be received by a creditor under the newly restructured debt instrument. Interest expense in future periods is determined by the effective interest rate required to discount the newly restructured future cash flows to equal the recorded value of the debt instrument without regard to how the parties allocated these cash flows to principal and interest in the restructured agreement. In cases in which the recorded value of the debt instrument exceeds the sum of undiscounted future cash flows to be received under the restructured debt instrument, the recorded value is reduced to the sum of undiscounted future cash flows, and a gain is recorded. In this instance, no future interest expense will be recorded, as the adjusted recorded value and the undiscounted future cash flows are equal and the effective interest rate is zero. With respect to both the Related-Party Notes held by the Virgin Group and by Cyrus Capital, the resulting recorded values and effective interest rates calculated under TDR accounting differ from the allocation of principal and interest agreed to by the parties under the restructured Related-Party Notes. Because we are repaying these Related-Party Notes prior to their stated maturity date, the amount we will repay is based on the allocation of principal and interest contained in the underlying agreements, which is less than our current recorded value.

Index to Financial Statements

Below is a summary of the contractual obligations and recorded values of our Related-Party Notes:


	September 30, 2014 (unaudited)
	Contractual Obligation		Recorded Value
	(in thousands)
The Virgin Group Restructured Debt (1)	$	417,081	$	463,117
Cyrus Capital Restructured Debt (2)		72,998		76,254
FNPA Notes (3)		188,756		186,026

	$	678,835	$	725,397

(1)	As of September 30, 2014, paid-in-kind interest constituted $103.2 million of the balance.

(2)	As of September 30, 2014, paid-in-kind interest constituted $15.5 million of the balance.

(3)	All of the FNPA Notes are held by Cyrus Capital. As of September 30, 2014, paid-in-kind interest constituted $38.8 million of the balance.

We intend to enter into a recapitalization agreement with the Virgin Group, Cyrus Capital and certain of our other security holders, which we refer to in this prospectus as the “2014 Recapitalization Agreement,” that would provide for the disposition of all of the principal and accrued interest outstanding pursuant to the Related-Party Notes and all outstanding Related-Party Warrants. The transactions contemplated by the 2014 Recapitalization Agreement, which we refer to in this prospectus as the “2014 Recapitalization,” would be contingent upon the consummation of this offering.

The 2014 Recapitalization Agreement would provide that we would retain net proceeds in connection with this offering of $219.6 million (after we pay underwriting discounts on the shares sold in this offering and the expenses in this offering payable by us). Remaining net proceeds, which we estimate to be $51.5 million, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus), would be applied as follows: approximately 50% would be used to repay a portion of the principal and accrued interest due under certain of the FNPA Notes held by Cyrus Capital, and as much as 50% would be used to repay the principal and accrued interest due under certain of the FNPA II Notes held by the Virgin Group. To the extent that repayment of the principal and accrued interest due under all of the FNPA II Notes held by the Virgin Group would require less than 50% of such remaining net proceeds, the balance would be used to repay a portion of the principal and accrued interest due under certain of the 5% Notes held by the Virgin Group.

In connection with the 2014 Recapitalization, we anticipate that the Virgin Group will arrange for a $100.0 million letter of credit facility, which we refer to in this prospectus as the “Letter of Credit Facility,” to be issued on our behalf to certain companies that process substantially all of our credit card transactions which will allow these companies to release approximately $100.0 million of cash collateral to us. In connection with the release of this cash collateral, we intend to use $100.0 million to repay principal and accrued interest due under certain of the 5% Notes held by the Virgin Group. We anticipate that the Letter of Credit Facility will contain an annual commitment fee of 5.0% payable by us to the Virgin Group and that the Virgin Group will cause this Letter of Credit Facility to be provided for a period of five years from the date of this offering. In addition, we would also be responsible for annual fees associated with the issuance and maintenance of the Letter of Credit Facility. The Letter of Credit Facility would only become an obligation of ours if one or both of our credit card processors were to draw on the Letter of Credit Facility. In addition, we will be restricted from incurring any future secured indebtedness related to our assets that would be unencumbered after the consummation of the transactions contemplated by the 2014 Recapitalization Agreement, unless our reimbursement obligations to the Virgin Group are secured on a pari passu basis with such secured debt. The Letter of Credit Facility will be reduced or terminated to the extent that collateral requirements are decreased or eliminated by our credit card transaction processors.

Index to Financial Statements

In addition to the repayments described above, the 2014 Recapitalization Agreement would also provide that we would issue a new note with a principal amount of $50.0 million, which we refer to in this prospectus as the “Post-IPO Note,” to the Virgin Group in exchange for the cancellation of $50.0 million of outstanding principal of 5% Notes held by the Virgin Group. The Post-IPO Note would be our senior unsecured obligation, would bear interest at a rate of 5.0% per annum, compounded annually, and would become due eight years after the date of this offering, or six years after the date of this offering if we are no longer required to provide collateral to our credit card transaction processors and can therefore terminate the Letter of Credit Facility. In addition, we will be restricted from incurring any future secured indebtedness related to our assets that would be unencumbered after the consummation of the transactions contemplated by the 2014 Recapitalization Agreement unless the Post-IPO Note is secured on a pari passu basis with such debt.

The 2014 Recapitalization Agreement would also provide that all remaining Related-Party Notes (after taking into consideration the anticipated repayments as described above) would be exchanged for that number of shares of our common stock calculated by dividing the aggregate value equal to the principal and accrued interest due under such notes by the initial public offering price at which shares are sold in this offering, or in the case of certain FNPA Notes or FNPA II Notes, by dividing 117.0% of the principal and accrued interest due under such notes by the initial public offering price at which shares are sold in this offering. Based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus), we estimate that we would issue an aggregate of 22,607,785 shares of our common stock in exchange for the remaining Related-Party Notes.

In addition, the 2014 Recapitalization Agreement would provide that certain Related-Party Warrants would be exchanged without receipt of cash consideration for a number of shares of our common stock in amounts agreed to in the 2014 Recapitalization Agreement, which depend in part on the initial public offering price of this offering. Based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus), we estimate that we would issue an aggregate of 5,290,879 shares of our common stock in exchange for Related-Party Warrants to purchase 26,067,475 shares of common stock. The 2014 Recapitalization Agreement would also provide that the remaining Related-Party Warrants to purchase an aggregate of 16,175,126 shares of our common stock would be cancelled in their entirety.

The 2014 Recapitalization Agreement would also provide that, under certain circumstances where non-U.S. citizens would hold greater than a designated percentage of our outstanding common stock and non-voting common stock, we may be required to issue new warrants to purchase shares of our common stock at an exercise price per share of $0.01 rather than issue shares of our common stock, in exchange for certain of the Related-Party Notes and Related-Party Warrants. We do not believe the issuance of such new warrants is probable.

We anticipate that, after consummation of the transactions contemplated by the 2014 Recapitalization and upon the closing of this offering, only the Post-IPO Note, and none of the Related-Party Notes or the Related-Party Warrants, would remain outstanding. We also anticipate that each issued and outstanding share of our Class A, Class A-1, Class B, Class C and Class G common stock and each issued and outstanding share of our convertible preferred stock would be converted into one share of common stock in accordance with our certificate of incorporation. Based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus), we do not anticipate that any warrants to purchase common stock will be outstanding upon the closing of this offering.

Restrictions imposed by federal law currently require that no more than 24.9% of our stock be voted, directly or indirectly, by persons who are not U.S. citizens. In light of these restrictions, the 2014 Recapitalization Agreement would place limitations on the number of shares of voting common stock that may be held by parties to the agreement who are not U.S. citizens as a result of the 2014 Recapitalization. After giving effect to the 2014 Recapitalization, our ownership structure and capital structure will remain in full compliance with all related federal regulations.

Index to Financial Statements

In connection with the 2014 Recapitalization and the closing of this offering, we and certain entities affiliated with the Virgin Group intend to enter into amended and restated license agreements related to our use of the Virgin name and brand, which would provide for, among other things:

•

an extension of our right to use the Virgin name and brand until 25 years after the date of this offering;

•

commencing in the first quarter of 2016, an increase in the annual license fee that we pay to the Virgin Group from 0.5% to 0.7% of our total revenue, until our total annual revenue exceeds $4.5 billion, at which point our annual license fee would be 0.5%; and

•

the right to appoint a director to our board of directors, but only to the extent the Virgin Group does not otherwise have a representative sitting on our board of directors.

For more information, see “Certain Relationships and Related Transactions—Virgin License Agreements” elsewhere in this prospectus.

Index to Financial Statements

USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of 13,106,377 shares of common stock by us of approximately $271.1 million based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and after deducting underwriting discounts and the expenses of this offering payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $22.50 per share would, among other things, increase (decrease) the amount that we have agreed to pay the Virgin Group, Cyrus Holdings, Barclays Capital Inc. and Deutsche Bank Securities Inc. in connection with the PAR Capital Private Placement, and would increase (decrease) the aggregate net proceeds of this offering by $12.2 million.

VX Employee Holdings, LLC, a Virgin America employee ownership vehicle that we consolidate for financial reporting purposes, will sell 231,210 issued and outstanding shares of common stock in the offering, and we will distribute the gross proceeds received by it, which we estimate to be $5.2 million, based on an assumed initial public offering price of $22.50 (the midpoint of the price range set forth on the cover of this prospectus), to eligible teammates, which do not include our officers.

In accordance with the 2014 Recapitalization Agreement, we will retain $219.6 million of net proceeds from the sale of 13,106,377 shares of common stock by us for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures, including future flight equipment acquisitions, as well as for certain aircraft operating lease obligations. Pending these uses, we intend to invest these net proceeds in high-quality, short-term obligations. Currently, we do not yet know the amounts that we intend to use for each of these general corporate activities. Accordingly, our management will have broad discretion over the uses of these net proceeds in this offering. We cannot predict whether the proceeds invested will yield a favorable return.

In connection with the PAR Capital Private Placement, out of our retained net proceeds, we have agreed to pay to the Virgin Group and Cyrus Holdings an aggregate amount equal to the aggregate discount to the initial public offering price of the shares purchased by PAR Capital from the Virgin Group and Cyrus Holdings and a private placement commission to Barclays Capital Inc. and Deutsche Bank Securities Inc. We also intend to use a portion of our net proceeds to pay withholding taxes on the 218,550 shares of common stock to be issued to certain executive officers and management upon completion of this offering.

We will use the remaining net proceeds from the sale of shares by us to repay the principal and accrued interest due under certain of the Related-Party Notes held by Cyrus Capital and the Virgin Group in conjunction with the 2014 Recapitalization, estimated as follows:


	Due		Interest Rate			Contractual Obligations for Principal and Accrued Interest at September 30, 2014 (1)(2)		Amount Estimated to be Repaid with Net Proceeds (2)
						(in thousands)		(in thousands)
FNPA Notes held by Cyrus Capital		June 9, 2016		17.0	%	$	188,756	$	25,752
FNPA II Notes held by the Virgin Group		June 9, 2016		17.0	%		47,414		21,372
5% Notes held by the Virgin Group		June 9, 2016		5.0	%		369,667		4,379

(1)

Because the 5% Notes and the FNPA II Notes were issued or restructured as part of the 2013 Recapitalization, they are presented in our consolidated financial statements (i) in the aggregate at the creditor level, (ii) at amounts that are in excess of the current stated obligations on these notes and (iii) with lower effective interest rates.

(2)

The amount of the Related-Party Notes to be repaid with a portion of the net proceeds from this offering, as well as the number of shares outstanding after the offering, will depend primarily on the price per share at which our common stock is sold in this offering and the total size of this offering. See “Capitalization” elsewhere in this prospectus for a sensitivity analysis of the Related-Party Notes to be repaid based on various assumed initial public offering prices.

For more information, see “2014 Recapitalization” elsewhere in this prospectus.

Index to Financial Statements

DIVIDEND POLICY

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock in the foreseeable future. In addition, certain of our current debt instruments currently, and debt instruments we may enter into in the future may, contain covenants that restrict our ability to declare or pay dividends. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

Index to Financial Statements

CAPITALIZATION

The following table sets forth our cash and cash equivalents, credit card holdbacks and capitalization as of September 30, 2014:

•

on an actual basis;

•

on a pro forma basis to give effect to the filing and effectiveness of our amended and restated certificate of incorporation to be in effect immediately prior to the offering and the following transactions as a result of the 2014 Recapitalization as if it occurred as of September 30, 2014: (a) the repayment of $100.0 million of principal and accrued interest due under the Related-Party Notes in connection with the release of $100.0 million of cash collateral held by our credit card processors in exchange for the establishment of the Letter of Credit Facility arranged by the Virgin Group; (b) the issuance of the $50.0 million Post-IPO Note in exchange for cancellation of $50.0 million of certain Related-Party Notes held by the Virgin Group; (c) the repayment of $51.5 million of principal and accrued interest due under certain Related-Party Notes using $51.5 million of the assumed net proceeds from the sale of shares by us in this offering assuming an initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus); (d) the exchange of approximately $477.3 million of principal and accrued interest due under the Related-Party Notes for 22,607,785 shares of our common stock, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus); (e) the issuance of 5,290,879 shares of common stock in exchange for Related-Party Warrants to purchase 26,067,475 shares of our common stock, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus); (f) the conversion of each share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock into one share of our common stock; (g) the issuance of 218,550 shares of common stock approved by our board of directors to certain executive officers and management upon completion of this offering; (h) the payment to the Virgin Group and Cyrus Holdings of an aggregate amount equal to the aggregate discount to the initial public offering price for the shares purchased by PAR Capital from the Virgin Group and Cyrus Holdings in the PAR Capital Private Placement; and (i) the presentation of the excess of the recorded amount of debt and preferred stock above the cash and other consideration to be received of $45.9 million as additional paid in capital; and

•

on a pro forma as adjusted basis to give further effect to receipt of the estimated net proceeds in this offering based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus) after deducting underwriting discounts and the estimated offering expenses payable by us and the application of such net proceeds as described in “Use of Proceeds” elsewhere in this prospectus and the filing and effectiveness of our amended and restated certificate of incorporation to be in effect upon completion of the offering.

You should read this table together with our financial statements and the related notes appearing at the end of this prospectus, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this prospectus, other financial information included in this prospectus and “2014 Recapitalization” elsewhere in this prospectus.

Index to Financial Statements


	As of September 30, 2014
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands, per share data)
Cash and cash equivalents	$	184,454		$	182,669		$	398,978

Credit card holdbacks	$	136,921		$	36,921		$	36,921

Long-term debt—current portion	$	13,530		$	13,530		$	13,530
Long-term debt—related parties		725,397			38,464			38,464
Long-term debt		65,932			65,932			65,932

Total long-term debt		804,859			117,926			117,926

Convertible preferred stock, $0.01 par value per share. 1,109,812 shares authorized, 1,109,811 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted		21,406			—			—

Stockholders’ equity (deficit):
Preferred stock, $0.01 par value per share. No shares authorized, no shares issued and outstanding, actual; 1,109,812 shares authorized, no shares issued and outstanding, pro forma; and 10,000,000 shares authorized, no shares issued and outstanding pro forma as adjusted		—			—			—
Common stock, $0.01 par value per share. 107,790,308 shares authorized, 840,860 shares issued and outstanding, actual; 210,009,552 shares authorized, 32,396,518 shares issued and outstanding, pro forma; and 750,000,000 shares authorized, 43,213,844 shares issued and outstanding, pro forma as adjusted		8			324			432
Additional paid-in capital		427,762			1,012,189			1,231,431
Accumulated deficit		(756,888	)		(766,440	)		(771,330	)
Accumulated other comprehensive income		(5,306	)		(5,306	)		(5,306	)

Total stockholders’ equity (deficit)		(334,424	)		240,767			455,227

Total capitalization	$	491,841		$	358,693		$	573,153

The above discussion is based on 1,950,671 shares of our common stock outstanding (on an as converted to common stock basis) as of September 30, 2014, and excludes:

•

an aggregate of 411,710 shares of common stock reserved for issuance under our 2005 Stock Incentive Plan;

•

297,269 shares of common stock issuable upon the vesting of RSUs outstanding as of September 30, 2014 under our 2005 Stock Incentive Plan;

•

655,904 shares of common stock issuable upon the vesting of additional RSUs outstanding as of September 30, 2014;

•

rights to purchase 109,703 shares of common stock at an exercise price of $27.25 per share outstanding as of September 30, 2014, which expire;

•

an aggregate of 600,000 shares of common stock reserved for issuance under our 2014 Equity Incentive Award Plan; and

•

an aggregate of 160,000 shares of common stock reserved for issuance under our 2014 Employee Stock Purchase Plan.

Index to Financial Statements

•

each issued and outstanding share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock would be converted into one share of common stock.

In this prospectus, in calculating the number of shares of common stock to be issued pursuant to the 2014 Recapitalization, we have assumed the application of the net proceeds to us as set forth in “Use of Proceeds” elsewhere in this prospectus, an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and an assumed initial public offering date of September 30, 2014 for purposes of calculating accrued interest on the Related-Party Notes. For more information, see “Use of Proceeds” and “2014 Recapitalization” elsewhere in this prospectus.


Assumed Initial Offering Price	Repayment of Related- Party Notes	Shares of Common Stock Issued Upon Exchange for Related-Party Notes	Shares of Common Stock Issued Upon Exchange for Related- Party Warrants	Pro Forma Shares of Common Stock Outstanding	Pro Forma as Adjusted Shares of Common Stock Outstanding
$21.00	$133,373,809	25,197,260	3,806,839	32,802,131	44,319,279
21.50	139,417,086	24,282,412	4,324,529	32,649,097	43,922,121
22.00	145,460,364	23,419,639	4,818,688	32,513,511	43,553,507
22.50	151,503,642	22,607,785	5,290,879	32,396,518	43,213,844
23.00	157,546,920	21,831,220	5,742,543	32,284,606	42,888,943
23.50	163,590,198	21,087,710	6,174,992	32,177,471	42,577,882
24.00	169,633,476	20,375,175	6,589,418	32,074,791	42,279,773

Index to Financial Statements

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after the offering.

The historical net tangible book value (deficit) of our common stock as of September 30, 2014 was $(362.0) million, or $(430.53) per share. Historical net tangible book value per share is determined by dividing the net tangible book value by the number of shares of outstanding common stock. If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock.

After giving effect to (i) the receipt of net proceeds from the issuance of 13,106,377 shares of common stock at an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and after deducting estimated underwriting discounts and estimated offering expenses payable by us, (ii) the exchange of any Related-Party Notes and Related-Party Warrants pursuant to the 2014 Recapitalization, (iii) the conversion of each share of our Class A, Class A-1, Class B, Class C and Class G common stock and our convertible preferred stock into one share of common stock, and (iv) the issuance of 218,550 shares of common stock approved by our board of directors to certain executive officers and management upon completion of this offering, our pro forma net tangible book value as adjusted as of September 30, 2014 would have been approximately $406.2 million, or approximately $9.40 per pro forma share of common stock. This represents an immediate increase in pro forma net tangible book value of $439.93 per share to our existing stockholders and an immediate dilution of $13.10 per share to new investors in this offering.

The following table illustrates this dilution on a per share basis to new investors:


Assumed initial public offering price				$	22.50
Net tangible book value (deficit) per share as of September 30, 2014	$	(430.53	)
Net increase per share attributable to 2014 Recapitalization		436.50

Pro forma net tangible book value per share		5.97
Increase per share attributable to this offering		3.43

Pro forma net tangible book value per share, as adjusted to give effect to this offering		9.40

Dilution in pro forma net tangible book value per share to new investors in this offering				$	13.10

A $1.00 increase in the assumed initial public offering price of $22.50 per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $0.14 per share and the dilution to new investors by $(0.14) per share, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and estimated offering expenses payable by us. A $1.00 decrease in the assumed initial public offering price of $22.50 per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering by $(0.15) per share and the dilution to new investors by $0.15 per share.

Index to Financial Statements

The table below summarizes as of September 30, 2014 (in thousands except share, per share and percentage data), on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by existing stockholders, (ii) issued to existing securityholders upon the exchange or conversion of our Related-Party Notes, Related-Party Warrants, and the conversion of the various outstanding classes of our common stock and our convertible preferred stock and (iii) to be paid by new investors purchasing our common stock in this offering at an assumed initial public offering price of $ 22.50 per share (the midpoint of the price range set forth on the cover of this prospectus).


	Shares Purchased					Total Consideration					Average Price Per Share
	Number		Percent			Amount		Percent			Average Price Per Share
			(in thousands)
Existing Stockholders		1,950,671		4.5	%	$	434,234		36.7	%	$	222.61
2014 Recapitalization-converted securityholders and employee compensation		28,156,796		65.2			478,222		40.4		$	16.98
New investors		13,106,377		30.3			271,137		22.9		$	20.69

Total		43,213,844		100	%	$	1,183,593		100	%

The above discussion and tables are based on 1,950,671 shares of our common stock outstanding (on an as converted to common stock basis) as of September 30, 2014, and exclude:

•

an aggregate of 411,710 shares of common stock reserved for issuance under our 2005 Stock Incentive Plan;

•

297,269 shares of common stock issuable upon the vesting of RSUs outstanding as of September 30, 2014 under our 2005 Stock Incentive Plan;

•

655,904 shares of common stock issuable upon the vesting of additional RSUs outstanding as of September 30, 2014;

•

rights to purchase 109,703 shares of common stock at an exercise price of $27.25 per share outstanding as of September 30, 2014;

•

an aggregate of 600,000 shares of common stock reserved for issuance under our 2014 Equity Incentive Award Plan; and

•

an aggregate of 160,000 shares of common stock reserved for issuance under our 2014 Employee Stock Purchase Plan.

Index to Financial Statements

•

the principal and accrued interest outstanding pursuant to our Related-Party Notes would be either (i) repaid with a portion of the net proceeds from this offering and amounts equal to the release of credit card holdbacks in connection with the establishment of the Letter of Credit Facility, (ii) exchanged for the Post-IPO Note or (iii) exchanged for shares of our common stock based on the initial public offering price of this offering;

•

each issued and outstanding share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock would be converted into one share of common stock.

In this prospectus, in calculating the number of shares of common stock to be issued pursuant to the 2014 Recapitalization, we have assumed the application of the net proceeds to us as set forth in “Use of Proceeds” elsewhere in this prospectus, an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus) and an assumed initial public offering date of September 30, 2014 for purposes of calculating accrued interest on the Related-Party Notes. For more information, see “Use of Proceeds” and “2014 Recapitalization” elsewhere in this prospectus.

The following table, based on the assumptions described above, shows the effect of various initial public offering prices on our pro forma as adjusted tangible book value per share after this offering and the dilution to new investors. The initial public offering prices shown below are hypothetical and illustrative only.


Assumed Initial Offering Price	Repayment of Related- Party Notes	Shares of Common Stock Issued Upon Exchange for Related-Party Notes	Shares of Common Stock Issued Upon Exchange for Related- Party Warrants	Pro Forma Shares of Common Stock Outstanding	Pro Forma as Adjusted Shares of Common Stock Outstanding
$21.00	$133,373,809	25,197,260	3,806,839	32,802,131	44,319,279
21.50	139,417,086	24,282,412	4,324,529	32,649,097	43,922,121
22.00	145,460,364	23,419,639	4,818,688	32,513,511	43,553,507
22.50	151,503,642	22,607,785	5,290,879	32,396,518	43,213,844
23.00	157,546,920	21,831,220	5,742,543	32,284,606	42,888,943
23.50	163,590,198	21,087,710	6,174,992	32,177,471	42,577,882
24.00	169,633,476	20,375,175	6,589,418	32,074,791	42,279,773

Index to Financial Statements

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS

The unaudited pro forma consolidated balance sheet and statements of operations are presented as if the 2014 Recapitalization described below, including the application of net proceeds from this offering to repay Related-Party Notes and the conversion of certain of the remaining Related-Party Notes into common stock, had occurred on the dates and for the periods indicated below, by applying adjustments to our historical consolidated balance sheet and statements of operations included elsewhere in this prospectus.

The unaudited pro forma consolidated balance sheet and statements of operations have been adjusted to illustrate the effect of (a) the repayment of $100.0 million of principal and accrued interest due under the Related-Party Notes in connection with the release of $100.0 million of cash collateral held by our credit card processors in exchange for the establishment of the Letter of Credit Facility arranged by the Virgin Group; (b) the issuance of the $50.0 million Post-IPO Note in exchange for cancellation of $50.0 million of certain Related-Party Notes held by the Virgin Group; (c) the repayment of $51.5 million of principal and accrued interest due under certain Related-Party Notes using $51.5 million of the assumed net proceeds from the sale of shares by us in this offering assuming an initial public offering of $22.50 per share (the midpoint of the price range on the cover of this prospectus); (d) the exchange of approximately $477.3 million of principal and accrued interest due under the Related-Party Notes for 22,607,785 shares of our common stock, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus); (e) the issuance of 5,290,879 shares of common stock in exchange for Related-Party Warrants to purchase 26,067,475 shares of our common stock, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus); (f) the conversion of each share of our convertible preferred stock and our Class A, Class A-1, Class B, Class C and Class G common stock into one share of our common stock; (g) the issuance of 218,550 shares of common stock approved by our board of directors to certain executive officers and management upon completion of this offering and 343,722 shares of common stock issuable upon the vesting of RSUs over a three-year service term; (h) the payment to the Virgin Group and Cyrus Holdings of an aggregate amount equal to the aggregate discount to the initial public offering price for the shares purchased by PAR Capital from the Virgin Group and Cyrus Holdings in the PAR Capital Private Placement; and (i) the presentation of the excess of the recorded amount of debt and preferred stock above the cash and other consideration to be received of $45.9 million as additional paid in capital.

The unaudited pro forma consolidated balance sheet and statements of operations do not include the receipt by us of $219.6 million of the net proceeds from this offering that we expect to retain for general corporate purposes.

The unaudited pro forma consolidated balance sheet and statements of operations should be read in conjunction with the sections entitled “2014 Recapitalization,” “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes included elsewhere in this prospectus.

Index to Financial Statements

Unaudited Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2014

(in thousands, except per share data)


	Actual			Adjustments				Pro Forma
Operating revenues:
Passenger	$	998,365						$	998,365
Other		119,404							119,404

Total operating revenues		1,117,769							1,117,769

Operating expenses:
Aircraft fuel		380,625							380,625
Aircraft rent		137,440							137,440
Salaries, wages and benefits		175,370		$	1,822		(a)		177,192
Landing fees and other rents		98,594							98,594
Sales and marketing		84,693							84,693
Aircraft maintenance		47,163							47,163
Depreciation and amortization		10,417							10,417
Other operating expenses		97,147							97,147

Total operating expenses		1,031,449			1,822				1,033,271

Operating income		86,320			(1,822	)			84,498


Other income (expense):
Interest expense—related-party		(28,654	)		26,001		(b)(c)		(2,653	)
Interest expense		(2,571	)						(2,571	)
Capitalized interest		1,840							1,840
Interest income and other		330			(4,110	)	(d)		(3,780	)

Total other expense		(29,055	)		21,891				(7,164	)


Net income before income tax		57,265			20,069				77,334

Income tax expense		1,028					(e)		1,028


Net income	$	56,237		$	20,069				76,306


Net income per share:
Basic	$	31.04						$	2.35
Diluted	$	18.13						$	2.27

Shares used for computation:
Basic		701,671					(f)		32,483,977
Diluted		1,992,446					(f)		33,564,729

See the accompanying notes to the unaudited pro forma consolidated financial information, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

Index to Financial Statements

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2013

(in thousands, except per share data)


	Actual			Adjustments				Pro Forma
Operating revenues:
Passenger	$	1,289,268						$	1,289,268
Other		135,410							135,410

Total operating revenues		1,424,678							1,424,678

Operating expenses:
Aircraft fuel		507,035							507,035
Aircraft rent		202,071							202,071
Salaries, wages and benefits		196,477		$	2,429		(a)		198,906
Landing fees and other rents		122,621							122,621
Sales and marketing		106,599							106,599
Aircraft maintenance		61,854							61,854
Depreciation and amortization		13,963							13,963
Other operating expenses		133,177							133,177

Total operating expenses		1,343,797			2,429				1,346,226

Operating income		80,881			(2,429	)			78,452


Other income (expense):
Interest expense—related-party		(68,439	)		65,170		(b)(c)		(3,269	)
Interest expense		(2,854	)						(2,854	)
Capitalized interest		534							534
Interest income and other		339			(5,480	)	(d)		(5,141	)

Total other expense		(70,420	)		59,690				(10,730	)

Net income before income tax		10,461			57,261				67,722

Income tax expense		317					(e)		317


Net income	$	10,144			57,261			$	67,405


Net income per share:
Basic	$	5.60						$	2.08
Diluted	$	3.68						$	2.04

Shares used for computation:
Basic		701,671					(f)		32,367,008
Diluted		1,646,821					(f)		33,117,464

See the accompanying notes to the unaudited pro forma consolidated financial information, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

Index to Financial Statements

Unaudited Pro Forma Consolidated Balance Sheet

As of September 30, 2014

(in thousands, except per share data)


	Actual			Adjustments				Pro Forma
Assets
Current assets:
Cash and cash equivalents	$	184,454		$	(1,785	)	(g)	$	182,669
Credit card holdbacks		136,921			(100,000	)	(h)		36,921
Other receivables, net		16,893							16,893
Prepaid expenses and other assets		15,840							15,840

Total current assets		354,108			(101,785	)			252,323

Property and equipment:
Flight equipment		71,746							71,746
Ground and other equipment		68,490							68,490

Less accumulated depreciation and amortization		(70,533	)						(70,533	)

		69,703							69,703
Pre-delivery payments for flight equipment		78,298							78,298

Total property and equipment, net		148,001							148,001
Aircraft maintenance deposits		196,466							196,466
Aircraft lease deposits		50,758							50,758
Restricted cash		18,774							18,774
Other non-current assets		107,920			2,202		(g)		110,122

		373,918			2,202				376,120

Total assets	$	876,027		$	(99,583	)		$	776,444

See the accompanying notes to the unaudited pro forma consolidated financial information, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

Index to Financial Statements

Unaudited Pro Forma Consolidated Balance Sheet

As of September 30, 2014

(in thousands, except per share data)


	Actual			Adjustments				Pro Forma
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	42,931						$	42,931
Air traffic liability		193,416							193,416
Other current liabilities		85,195							85,195
Long-term debt—current portion		13,530							13,530

Total current liabilities		335,072							335,072

Long-term debt—related parties		725,397		$	(686,933	)	(c)(h)(i)(j)(k)		38,464
Long-term debt		65,932							65,932
Other liabilities		62,644			33,565		(k)		96,209

Total liabilities		1,189,045			(653,368	)			535,677

Convertible preferred stock, $0.01 par value per share. 1,109,812 shares authorized, 1,109,811 issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma		21,406			(21,406	)	(m)		—

Stockholders’ equity (deficit)
Preferred stock, $0.01 par value per share. No shares authorized, no shares issued and outstanding, actual; 1,109,812 shares authorized, no shares issued and outstanding, pro forma		—							—

Common stock, $0.01 par value per share. 107,790,308 shares authorized, 840,860 shares issued and outstanding, actual; 210,009,552 shares authorized, 32,396,518 issued and outstanding, pro forma		8			316		(g)(i)(j)(l)(m)		324
Additional paid-in capital		427,762			584,427		(g)(i)(j)(l)(m)(n)(o)		1,012,189
Accumulated deficit		(756,888	)		(9,552	)	(g)(o)		(766,440	)
Accumulated other comprehensive income		(5,306	)						(5,306	)

Total stockholders’ equity (deficit)		(334,424	)		575,191				240,767

Total liabilities and stockholders’ equity (deficit)	$	876,027		$	(99,583	)		$	776,444

See the accompanying notes to the unaudited pro forma consolidated financial information, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

Index to Financial Statements

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED

BALANCE SHEET AND STATEMENTS OF OPERATIONS

(1)

Basis of Presentation

The unaudited pro forma consolidated statements of operations and per share data for the year ended December 31, 2013 and for the nine months ended September 30, 2014 have been adjusted to illustrate the effect of the 2014 Recapitalization, including the application of net proceeds from this offering to repay Related-Party Notes and the associated conversion of certain of the remaining Related-Party Notes into common stock, as if it occurred on January 1, 2013. For the unaudited pro forma consolidated balance sheet as of September 30, 2014, the 2014 Recapitalization is reflected as if it had occurred on September 30, 2014.

The unaudited pro forma consolidated balance sheet and statements of operations do not include the receipt by us of net proceeds of $219.6 million as a result of this offering, which we will retain for general corporate purposes.

The unaudited pro forma consolidated balance sheet and statements of operations have been presented for informational purposes only. The unaudited pro forma consolidated balance sheet and statements of operations do not purport to represent what our results of operations or financial condition would have been had the transactions to which the adjustments relate actually occurred as of the dates indicated. In addition, the unaudited pro forma consolidated balance sheet and statements of operations do not purport to project our future financial position or operating results for any future period or as of any future date.

The adjustments are based on certain estimates and assumptions we believe are necessary to present fairly our unaudited pro forma consolidated results of operations and our unaudited pro forma consolidated balance sheet as of and for the periods indicated. Any of the factors underlying these estimates and assumptions may change or prove to be materially different, and the estimates and assumptions may not be representative of facts existing as of the date of the pro forma transactions, the date of this prospectus or any future date. The adjustments reflected give effect to events that are (1) directly attributable to transactions, (2) factually supportable, (3) with respect to the statements of operations, expected to have a continuing impact on the consolidated results and (4) based on the estimated net proceeds from the offering, assuming an initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus), only to the extent necessary to determine the proceeds available to pay down the Related-Party Notes. The assumptions underlying the adjustments reflected are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma consolidated balance sheet and statements of operations.

The pro forma consolidated statements of operations do not reflect the indirect effects of the transaction on our teammate annual profit sharing program, under which we pay 15% of profit before income taxes and profit sharing to substantially all of our teammates (other than officers and certain management teammates who are not eligible).

A change in the offering price and, accordingly, the amount of net proceeds received by us, would result in changes in the application of net proceeds as set forth in “Use of Proceeds” elsewhere in this prospectus and in the following variables: (1) the amount of principal and accrued interest outstanding pursuant to our Related-Party Notes that are not repaid with net proceeds from this offering; (2) the number of shares of common stock that would be issued upon exchange of such Related-Party Notes; and (3) the number of shares of common stock that would be issued upon exchange of our Related-Party Warrants. The following table shows (in thousands, except per share data) the effects of various initial public offering prices on these variables based on the assumptions described above. The initial public offering prices shown below are hypothetical and illustrative only.

Index to Financial Statements


Assumed Initial Offering Price	Repayment of Related-Party Notes		Shares of Common Stock Issued Upon Exchange for Related-Party Notes		Shares of Common Stock Issued Upon Exchange for Related- Party Warrants		Pro Forma Shares of Common Stock Outstanding
$21.00	$	133,373,809		25,197,260		3,806,839		32,802,131
21.50		139,417,086		24,282,412		4,324,529		32,649,097
22.00		145,460,364		23,419,639		4,818,688		32,513,511
22.50		151,503,642		22,607,785		5,290,879		32,396,518
23.00		157,546,920		21,831,220		5,742,543		32,284,606
23.50		163,590,198		21,087,710		6,174,992		32,177,471
24.00		169,633,476		20,375,175		6,589,418		32,074,791

The unaudited pro forma consolidated balance sheet and statements of operations are adjusted to present the capital structure of the 2014 Recapitalization and the receipt and the application of the net proceeds of the offering as described above. The table below provides the summary of the effect of these transactions on our pro forma capitalization as of September 30, 2014 (in thousands):


	As of September 30, 2014
	Actual			Release of Holdback to Extinguish Debt			Application of Net Proceeds to Extinguish Debt			License Fee			Extinguishment of Related Party Notes in exchange for new Common Stock			Conversion of Warrants, Preferred and Other Non-Class A Stock to Common Stock			Lessor Loan Repayment with Cash and Conversion to Common Stock		Pro Forma
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)		(unaudited)
Long-term debt – current portion	$	13,530																			$	13,530
Long-term debt—related parties		725,397			(100,000	)	$	(51,503	)		(33,565	)		(501,865	)							38,464
Long-term debt		65,932																				65,932

Total long-term debt		804,859			(100,000	)		(51,503	)		(33,565	)		(501,865	)		—			—		117,926

Convertible preferred stock		21,406															(21,406	)				—

Total stockholders’ equity (deficit)		(334,424	)					51,503						501,865			21,406			417		240,767

Total capitalization	$	491,841		$	(100,000	)		—			(33,565	)		—			—			417	$	358,693

(2)

Pro Forma Adjustments

(a)

Reflects stock-based compensation expense recognized on a pro forma basis for the award of RSUs with respect to 343,722 shares of common stock approved by our board of directors to be granted upon completion of this offering for which the cost is estimated based on the initial price of this offering (assumed to be $22.50 per share, the midpoint of the price range set forth on the cover of this prospectus) multiplied by the number of shares and is recognized ratably over the service term of three years following the offering.

(b)

Reflects the elimination of all historical interest expense on related-party debt of $28.7 million and $68.4 million for the nine months ended September 30, 2014 and for the year ended December 31, 2013. All of this indebtedness is assumed to be repaid, converted to common stock or exchanged for the Post-IPO Note as part of the 2014 Recapitalization and completion of this offering.

(c)

Reflects the addition of interest expense of $2.7 million and $3.3 million for the nine months ended September 30, 2014 and for the year ended December 31, 2013 on the Post-IPO Note held by the Virgin Group on the unaudited pro forma consolidated statements of operations and the fair value of the Post-IPO Note on the unaudited pro forma consolidated balance sheet. The Post-IPO Note will bear an interest rate of 5% per year, compounded annually, and would become due eight years after the date of the closing of this offering or six years after the date of the closing of this offering, if we terminate

Index to Financial Statements

the Letter of Credit Facility. Interest expense also includes the amortization of the difference between the fair value and face amount of the note over the assumed eight year term of the Post-IPO Note, resulting in an effective interest rate of 8.5%.

(d)

Reflects the annual commitment fee of 5.0% and estimated other fees of 0.48% associated with the issuance and maintenance of the $100.0 million Letter of Credit Facility, the terms of which we believe approximate fair value.

(e)

As a result of our existing income tax loss carry-forwards in the United States, for which full valuation allowances have been provided, no deferred income taxes have been established and no income tax has been provided related to the pro forma adjustments for the 2014 Recapitalization.

(f)

The weighted-average number of shares used to compute pro forma basic and diluted earnings per share is based on the number of our common shares outstanding immediately following our 2014 Recapitalization and this offering.

(g)

Reflects the payment of $1.8 million of lease payments that have been accelerated under the terms of our lease agreements, as well as the issuance of 39,582 shares of our common stock based on the assumed initial public offering price of $22.50 (the midpoint of the price range on the cover of this prospectus) to a lessor who has a right to receive common stock in settlement of its lease loans.

(h)

Reflects the release to us of $100.0 million of cash collateral held by certain companies that process substantially all of our credit card transactions upon execution of an agreement with the Virgin Group to provide for a $100.0 million Letter of Credit Facility and the use of an equal amount to repay Related-Party Notes.

(i)

Reflects the repayment of principal and accrued interest due under Related-Party Notes using $51.5 million of the assumed net proceeds from the sale of shares by us in this offering assuming an initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus).

(j)

Reflects the exchange of the remaining contractual principal plus accrued interest of $477.3 million with remaining book value of $501.9 million, of Related-Party Notes for 22,607,785 shares of our common stock based on the assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus).

(k)

Reflects the present value of estimated license fee payments in excess of the fair value, which is $33.6 million, under the terms of a 25-year brand license agreement with the Virgin Group. In connection with the 2014 Recapitalization, we agreed to increase the license fee from 0.5% to 0.7% of total revenue commencing in the first quarter of 2016 until our annual revenue exceeds $4.5 billion. We recorded the fair value of the increase as a reduction in related-party debt and an increase in other long-term liabilities, as it is a part of the consideration to the Virgin Group for completing the 2014 Recapitalization.

(l)

Reflects the issuance of 5,290,879 shares of our common stock upon the exchange of certain warrants based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover page of this prospectus).

(m)

Reflects the conversion of each of our preferred stock and various classes of each of our common stock into our common stock in connection with the 2014 Recapitalization. Shares of preferred stock and common stock of various classes will convert into shares of our common stock as follows:


Share Class	Shares Converted		New Common Shares Issued
Class A		248,308		248,308
Class A-1		29,142		29,142
Class B		424,221		424,221
Class G		139,189		139,189
Preferred stock		1,109,811		1,109,811

(n)

Reflects the payment of $2.1 million to the Virgin Group and Cyrus Holdings, assuming an initial public offering price of $22.50 (the midpoint of the range on the cover of this prospectus) in connection

Index to Financial Statements

with the PAR Capital Private Placement. We have agreed to pay the Virgin Group and Cyrus Holdings an aggregate amount equal to the aggregate discount to the initial public offering price for the shares purchased by PAR Capital from the Virgin Group and Cyrus Holdings in the PAR Capital Private Placement.

(o)

Reflects the increase in the accumulated deficit and additional paid in capital associated with the stock compensation expense for performance-based awards that are contingent on the completion of this offering and where the underlying service conditions have been met for those grants that also have a service condition. We have also included the increase in accumulated deficit and additional paid in capital associated with the 218,550 shares of common stock approved by our board of directors that will be issued to certain executive officers and management upon completion of this offering and that have no service conditions. For grants that also have a service condition, we included only the service period already rendered. We calculated the adjustment based on the number of shares granted multiplied by the grant date fair value on a grant-by-grant basis.

Index to Financial Statements

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables summarize the consolidated financial and operating data for our business for the periods presented. You should read this selected consolidated financial and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, included elsewhere in this prospectus.

We derived the selected consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and the selected consolidated balance sheet data as of December 31, 2012 and 2013 from our audited consolidated financial statements included in this prospectus. We derived the selected consolidated statements of operations data for the years ended December 31, 2009 and 2010 and the selected consolidated balance sheet data as of December 31, 2009, 2010 and 2011 from our audited consolidated financial statements not included in this prospectus. We derived the selected consolidated statement of operations data for the nine months ended September 30, 2013 and 2014 and the consolidated balance sheet data as of September 30, 2014 from our unaudited consolidated financial statements included in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and results for the nine months ended September 30, 2014 are not indicative of the results expected for the full year.


	Year Ended December 31,															Nine Months Ended September 30,
	2009			2010			2011			2012			2013			2013			2014
	(in thousands, except per share data)
																(unaudited)
Consolidated Statement of Operations Data:
Operating revenues:
Passenger	$	490,791		$	655,448		$	950,933		$	1,215,178		$	1,289,268		$	962,289		$	998,365
Other		56,854			68,598			86,175			117,659			135,410			102,461			119,404

Operating revenues		547,645			724,046			1,037,108			1,332,837			1,424,678			1,064,750			1,117,769
Operating expenses:
Aircraft fuel (1)		149,277			246,699			417,815			537,501			507,035			382,633			380,625
Aircraft rent		117,318			138,422			187,876			236,800			202,071			156,058			137,440
Salaries, wages and benefits		87,934			108,901			138,276			176,216			196,477			143,614			175,370
Landing fees and other rents		61,723			69,036			87,133			110,165			122,621			91,305			98,594
Sales and marketing		51,684			59,990			81,901			107,136			106,599			79,246			84,693
Aircraft maintenance		23,502			23,017			34,596			58,934			61,854			47,692			47,163
Depreciation and amortization		16,220			10,530			10,155			11,260			13,963			9,767			10,417
Other operating expenses		78,969			79,888			106,752			126,558			133,177			97,143			97,147

Total operating expenses		586,627			736,483			1,064,504			1,364,570			1,343,797			1,007,458			1,031,449
Operating income (loss)		(38,982	)		(12,437	)		(27,396	)		(31,733	)		80,881			57,292			86,320
Other income (expense):
Interest expense - related party		(34,907	)		(53,896	)		(71,925	)		(113,708	)		(68,439	)		(59,346	)		(28,654	)
Interest expense (2)		(7,619	)		(6,247	)		(3,652	)		(2,402	)		(2,854	)		(2,229	)		(2,571	)
Capitalized interest (3)		435			3,541			2,320			2,176			534			—			1,840
Interest income and other		295			227			264			294			339			247			330

Net income (loss) before income tax		(80,778	)		(68,812	)		(100,389	)		(145,373	)		10,461			(4,036	)		57,265
Income tax expense		—			(137	)		14			15			317			—			1,028

Net income (loss)	$	(80,778	)	$	(68,675	)	$	(100,403	)	$	(145,388	)	$	10,144		$	(4,036	)	$	56,237

Net income (loss) per share:
Basic (4)	$	(15.25	)	$	(12.97	)	$	(143.09	)	$	(207.20	)	$	5.60		$	(5.75	)	$	31.04

Diluted (4)	$	(15.25	)	$	(12.97	)	$	(143.09	)	$	(207.20	)	$	3.68		$	(5.75	)	$	18.13

Shares used in per share calculation:
Basic (4)		701,671			701,671			701,671			701,671			701,671			701,671			701,671
Diluted (4)		701,671			1,233,712			701,671			701,671			1,646,821			701,671			1,992,446
Non-GAAP Financial Data (unaudited):
EBITDA (5)	$	(22,762	)	$	(1,907	)	$	(17,241	)	$	(20,473	)	$	94,844		$	67,059		$	96,737
EBITDAR (5)		94,556			136,515			170,635			216,327			296,915			223,117			234,177

(1)

Aircraft fuel expense is the sum of (i) the cost of jet fuel and certain other charges such as fuel taxes and certain transportation and distribution costs; (ii) settlement gains and losses arising from any fuel price hedging activity; and (iii) unrealized mark-to-market gains and losses associated with fuel hedge contracts.

Index to Financial Statements

(2)

Substantially all of the interest expense recorded in 2011, 2012 and 2013 and the nine months ended September 30, 2013 and 2014 relates to long-term debt held by our principal stockholders that is expected to be substantially repaid or redeemed or exchanged for shares of our common stock in connection with the 2014 Recapitalization. For more information, see “Use of Proceeds” and “2014 Recapitalization” elsewhere in this prospectus.

(3)

Interest attributable to funds used to finance the acquisition of new aircraft, including pre-delivery payments, or PDPs, is capitalized as an additional cost of the related asset approximately two years prior to the intended delivery date. Interest is capitalized at our weighted-average interest rate on long-term debt or, where applicable, the interest rate related to specific borrowings.

(4)	See Note 15 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted earnings per share.

(5)

EBITDA is earnings before interest, income taxes, and depreciation and amortization. EBITDAR is earnings before interest, income taxes, depreciation and amortization and aircraft rent. EBITDA and EBITDAR are included as supplemental disclosure because we believe they are useful indicators of our operating performance. Derivations of EBITDA and EBITDAR are well recognized performance measurements in the airline industry that are frequently used by companies, investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry. We also believe EBITDA is useful for evaluating performance of our senior management team. EBITDAR is useful in evaluating our operating performance compared to our competitors because its calculation isolates the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by capital lease or by operating lease, each of which is presented differently for accounting purposes) and income taxes, which may vary significantly between periods and for different companies for reasons unrelated to overall operating performance. However, because derivations of EBITDA and EBITDAR are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, derivations of EBITDA and EBITDAR as presented may not be directly comparable to similarly titled measures presented by other companies.

The following table represents the reconciliation of net income (loss) to EBITDA and EBITDAR for the periods presented:


	Year Ended December 31,															Nine Months Ended September 30,
	2009			2010			2011			2012			2013			2013			2014
	(in thousands)
																(unaudited)
Reconciliation:
Net income (loss)	$	(80,778	)	$	(68,675	)	$	(100,403	)	$	(145,388	)	$	10,144		$	(4,036	)	$	56,237
Interest expense		42,526			60,143			75,577			116,110			71,293			61,575			31,225
Capitalized interest		(435	)		(3,541	)		(2,320	)		(2,176	)		(534	)		—			(1,840	)
Interest income		(295	)		(227	)		(264	)		(294	)		(339	)		(247	)		(330	)
Income tax expense		—			(137	)		14			15			317			—			1,028
Depreciation and amortization		16,220			10,530			10,155			11,260			13,963			9,767			10,417

EBITDA		(22,762	)		(1,907	)		(17,241	)		(20,473	)		94,844			67,059			96,737
Aircraft rent		117,318			138,422			187,876			236,800			202,071			156,058			137,440

EBITDAR	$	94,556		$	136,515		$	170,635		$	216,327		$	296,915		$	223,117		$	234,177

Index to Financial Statements

The following table presents our historical selected consolidated balance sheet data for the periods presented:


	As of December 31,															As of September 30,
	2009			2010			2011			2012			2013			2014
	(in thousands)
																(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	21,619		$	29,904		$	159,815		$	76,018		$	155,659		$	184,454
Total assets		292,702			298,250			505,644			511,022			700,996			876,027
Long-term debt, including current portion		432,237			489,053			726,954			857,034			747,431			804,859
Convertible preferred stock		128,054			21,406			21,406			21,406			21,406			21,406
Total stockholders’ equity (deficit)		(432,817	)		(393,025	)		(484,473	)		(630,924	)		(384,027	)		(334,424	)

OPERATING STATISTICS


	Year Ended December 31,															Nine Months Ended September 30,
	2009			2010			2011			2012			2013			2013			2014
Operating Statistics (unaudited): (1)
Available seat miles—ASMs (millions)		6,546			7,652			9,853			12,514			12,243			9,191			9,196
Departures		33,047			35,737			44,696			56,362			58,215			43,289			43,778
Average stage length (statute miles)		1,415			1,546			1,571			1,567			1,474			1,491			1,471
Aircraft in service—end of period		28			33			44			52			53			53			53
Fleet utilization		11.3			12.7			12.1			11.6			10.8			10.9			10.8

Passengers (thousands)		3,654			3,909			5,030			6,219			6,329			4,752			4,888
Average fare	$	134.07		$	167.51		$	189.05		$	195.38		$	203.70		$	202.49		$	204.25
Yield per passenger mile (cents)		9.04			10.50			11.82			12.26			13.14			12.97			13.13
Revenue passenger miles—RPMs (millions)		5,419			6,236			8,034			9,912			9,814			7,417			7,603
Load factor		82.8	%		81.5	%		81.5	%		79.2	%		80.2	%		80.7	%		82.7	%
Passenger revenue per available seat mile—PRASM (cents)		7.48			8.56			9.64			9.71			10.53			10.47			10.86
Total revenue per available seat mile—RASM (cents)		8.37			9.46			10.53			10.65			11.64			11.59			12.15
Cost per available seat mile—CASM (cents)		8.96			9.62			10.80			10.90			10.98			10.96			11.22
CASM, excluding fuel (cents)		6.68			6.40			6.56			6.61			6.83			6.80			7.08
CASM, excluding fuel and profit sharing (in cents)		6.68			6.40			6.56			6.61			6.82			6.80			6.97
Fuel cost per gallon	$	1.71		$	2.43		$	3.24		$	3.32		$	3.18		$	3.19		$	3.13
Fuel gallons consumed (thousands)		87,383			101,482			128,852			161,404			159,326			119,810			121,422
Teammates (FTE)		1,421			1,781			2,002			2,395			2,482			2,376			2,428

(1)	See “Glossary of Airline Terms” elsewhere in this prospectus for definitions of terms used in this table.

Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

Virgin America is a premium branded, low-cost airline based in California that provides scheduled air travel in the domestic United States and Mexico. Established in 2005, we operate primarily from our focus cities of Los Angeles and San Francisco to other major business and leisure destinations in North America. We provide a distinctive offering for our passengers, whom we call guests, that is centered around our brand and our premium travel experience, while at the same time maintaining a low-cost structure through our point-to-point network and high utilization of our efficient, single fleet type. Our distinctive business model allows us to offer a product that is attractive to guests who historically favored legacy airlines but at a lower cost than that of legacy airlines. This business model enables us to compete effectively with other low-cost carriers, or LCCs, by generating a higher stage-length adjusted revenue per available seat mile. Conversely, while our lower density seating configuration and the cost of our premium services contribute to a higher stage-length adjusted cost per available seat mile than that of other LCCs, our underlying cost structure principally stemming from our single fleet type and point-to-point network is competitive within the industry. As of September 30, 2014, we provided service to 21 airports in the United States and Mexico with a fleet of 53 narrow-body aircraft.

Executing our strategy of providing a premium travel experience within a disciplined, competitive cost structure has led to improved financial results. For 2013, we recorded operating revenues of $1.4 billion, operating income of $80.9 million and net income of $10.1 million. We increased our revenue per available seat mile, or RASM, in 2013 by 9.3% compared to 2012, the largest increase of any major U.S. airline. Furthermore, our cost per available seat mile, or CASM, of 10.98 cents increased by only 0.7% from 2012. On a stage-length adjusted basis, our 2013 CASM was competitive within the industry and below that of legacy airlines. We completed a recapitalization of a majority of our operating lease and debt obligations in May 2013, contributing to a $34.7 million decline in aircraft rent expense and a $44.8 million decline in interest expense for 2013 compared to 2012. As a result of our RASM increase and the reduction in rent and interest expense, our financial performance improved from a net loss of $145.4 million in 2012 to net income of $10.1 million in 2013. In the first nine months of 2014, we had net income of $56.2 million, compared to a net loss of $4.0 million in the first nine months of 2013. Our RASM in the first nine months of 2014 increased by 4.8% from the prior year period, while our CASM in the first nine months of 2014 increased by only 2.4% from the prior year period.

2014 Recapitalization

As of September 30, 2014, we had a total of $678.8 million of principal and accrued interest outstanding under certain secured related-party notes, which we refer to in this prospectus as the “Related-Party Notes.” As of

Index to Financial Statements

September 30, 2014, the Virgin Group held approximately $417.1 million aggregate principal amount and accrued interest of the Related-Party Notes, and Cyrus Capital held approximately $261.7 million aggregate principal amount and accrued interest of the Related-Party Notes. The Virgin Group and Cyrus Capital also hold the majority of our outstanding warrants to purchase shares of our common stock, which we refer to in this prospectus as the “Related-Party Warrants.”

We intend to enter into the 2014 Recapitalization Agreement with the Virgin Group, Cyrus Capital and certain of our other security holders. The 2014 Recapitalization Agreement would provide that we will retain net proceeds of $219.6 million in connection with this offering (after we pay underwriting discounts on the shares sold in this offering and the expenses in this offering payable by us), and that remaining net proceeds, which we estimate to be $51.5 million (based on an assumed initial public offering price of $22.50 per share, the midpoint of the range set forth on the cover of this prospectus), would be used to repay a portion of the Related-Party Notes. Remaining principal and accrued interest under the Related-Party Notes would either be (1) exchanged for a new $50.0 million note bearing interest at a rate of 5.0% per annum, compounded annually, which we refer to as the “Post-IPO Note”; (2) repaid in connection with the release to us of cash collateral held by our credit card processors in exchange for a letter of credit facility arranged by the Virgin Group, which we refer to as the “Letter of Credit Facility”; or (3) exchanged for shares of our common stock. In addition, Related-Party Warrants either would be exchanged without receipt of cash consideration for shares of our common stock in amounts agreed to in the 2014 Recapitalization Agreement or be cancelled in their entirety.

We anticipate that, after consummation of the transactions contemplated by the 2014 Recapitalization Agreement and upon the closing of this offering, only the Post-IPO Note, and none of the Related-Party Notes or the Related-Party Warrants, would remain outstanding, and each of our issued and outstanding share of our convertible preferred stock and Class A, Class A-1, Class B, Class C and Class G common stock would be converted into one share of common stock. Based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range set forth on the cover of this prospectus), we do not anticipate that any warrants to purchase common stock will be outstanding upon the closing of this offering.

In connection with sale of 231,210 of our issued and outstanding shares held by VX Employee Holdings, LLC, a Virgin America employee ownership vehicle that we consolidate for financial reporting purposes, we expect to recognize compensation expense in our consolidated financial statements upon completion of this offering. Such compensation expense will be calculated as an amount equal to the value of the 231,210 shares based on the initial public offering price.

After the consummation of the transactions contemplated by the 2014 Recapitalization Agreement and after this offering of shares of our common stock at an assumed initial public offering price of $22.50 per share, the midpoint of the price range on the cover of this prospectus, after deducting underwriting discounts and estimated offering expenses payable by us and the application of such net proceeds as described under “Use of Proceeds” elsewhere in this prospectus, and after the PAR Capital Private Placement, based on an assumed initial public offering price of $22.50 per share (the midpoint of the price range on the cover of this prospectus), the Virgin Group and Cyrus Holdings will own approximately 19.0% and 32.8% of our outstanding voting common stock. If the PAR Capital Private Placement does not close, the Virgin Group and Cyrus Holdings will own approximately 19.0% (which does not include the Virgin Group’s non-voting common stock) and 37.6% of our outstanding common stock. This concentrated ownership may limit the ability of other stockholders to influence corporate matters, and, as a result, these stockholders may cause us to take actions that our other stockholders do not view as beneficial. For example, this concentration of ownership could delay or prevent a change in control or otherwise discourage a potential acquirer from attempting to obtain control of us.

Index to Financial Statements

In connection with the 2014 Recapitalization Agreement and the closing of this offering, we and certain entities affiliated with the Virgin Group would enter into amended and restated license agreements related to our use of the Virgin name and brand. For more information, see “Certain Relationships and Related Transactions—Virgin License Agreements” elsewhere in this prospectus.

2013 Recapitalization

In May 2013, we, the Virgin Group and Cyrus Capital agreed to modify and exchange a portion of our then outstanding related-party debt. The Virgin Group and Cyrus Capital reduced $318.4 million of our related-party debt and reduced the interest rates on certain of our remaining related-party debt from 15.0%-20.0% to 5.0% per year in exchange for the issuance of $75.0 million of new debt and certain Related-Party Warrants. We recognized a $150.5 million restructuring gain as a capital contribution with a direct increase in additional paid-in-capital due to the debt being issued to related parties. In addition, we also recorded Related-Party Warrants at fair value of $83.4 million on the date of issuance as a reduction to the carrying amount of the related-party debt and a corresponding increase to stockholders’ equity.

We also amended substantially all of our lease agreements with our existing aircraft lessors to reduce monthly base rent and/or maintenance reserve payments through monthly cash rent rebates. We estimate these amendments will result in annualized expense savings on base aircraft rent of approximately $47.2 million in 2014 as compared to what would have been recorded as aircraft rent expense under the original lease terms. Under some of our leases, we also extended the lease terms by three to five years.

For more information, see Notes 3, 8 and 10 to our consolidated financial statements included elsewhere in this prospectus.

Fleet Plan

In the fourth quarter of 2014 and first half of 2015, we expect our fleet count to remain stable at 53 aircraft. We are scheduled to take delivery of two aircraft in the third quarter of 2015 and three aircraft in the fourth quarter of 2015 under our purchase agreement with Airbus. We will incur capital costs on these aircraft prior to placing them in service.

We believe that, based on our scheduled flight activity, our capacity, as measured by available seat miles, may change between (1.0)% and 1.0% in the fourth quarter of 2014 as compared to the fourth quarter of 2013. We also believe that, based on changes in our network, our capacity may increase by approximately 1.0% to 3.0% for the full year 2015, with slightly increased capacity of 2.0% to 4.0% in the first quarter of 2015. We believe there may be relatively flat year-over-year capacity changes in the second and third quarter of 2015 and year-over-year growth of 6.0% to 8.0% in the fourth quarter of 2015 as we place our new aircraft into service.

Operating Revenues

Our operating revenues consist of passenger revenue and other revenue.

Passenger Revenue. Passenger revenue consists of base fares for air travel, including upgrades, points redeemed under our loyalty program, unused and expired passenger credits, which we call credit files, and other redeemed or expiring travel credits.

Other Revenue. Other revenue consists primarily of revenue generated from air-travel-related services such as baggage fees, change fees, seat selection fees, passenger-related service fees and inflight meals and

Index to Financial Statements

entertainment. Other revenue also includes advertising and brand revenues resulting from our co-branded consumer credit card agreement.

Operating Expenses

Our operating expenses consist of the following items:

Aircraft Fuel. Aircraft fuel expense is our single largest operating expense. It includes the cost of jet fuel, related federal and state taxes and certain fuel transportation and distribution costs. It also includes realized and unrealized settlement gains and losses arising from any fuel price hedging activity.

Aircraft Rent. Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the related operating leases and is recognized on a straight-line basis. Aircraft rent expense also includes that portion of maintenance reserves, also referred to as supplemental rent, which is paid monthly to aircraft lessors for the cost of future major maintenance activities and which is not probable of being reimbursed to us by the lessor during the lease term. Aircraft rent expense is net of the amortization of manufacturer credits and gains on sale and leaseback transactions on our flight equipment. Presently, all of our aircraft and spare engines are financed under operating leases.

Salaries, Wages and Benefits. Salaries, wages and benefits expense includes salaries, hourly wages, cash incentive compensation, teammate profit sharing and equity compensation paid to teammates for their services, as well as related expenses associated with employee benefit plans and employer payroll taxes.

Landing Fees and Other Rents. Landing fees and other rents include both fixed and variable facilities expenses, such as the fees charged by airports for the use or lease of airport facilities, fueling into-plane fees and overfly fees paid to other countries.

Sales and Marketing. Sales and marketing expense includes credit card processing fees, costs associated with our loyalty programs, advertising and distribution costs such as the costs of web support, our third-party call center, travel agent commissions and related global distribution systems, or GDS, fees. Sales and marketing also includes the license fee that we pay for use of the Virgin brand.

Aircraft Maintenance. Aircraft maintenance expense includes the cost of all parts, materials and fees for repairs performed by third-party vendors directly required to maintain our fleet. It excludes direct labor cost related to our own mechanics, which is included in salaries, wages and benefits. It also excludes the amortization of major engine maintenance expenses, which we defer under the deferral method of accounting and amortize on a straight-line basis as a component of depreciation and amortization expense until the next estimated overhaul event or end of the engine lease, whichever is earlier.

Depreciation and Amortization. Depreciation and amortization expense includes depreciation of fixed assets we own and amortization of software licenses, major engine maintenance and leasehold improvements.

Other Operating Expenses. Other operating expenses include guest services and supplies, crew and teammate travel, data and communications, legal and professional fees, facilities, aircraft insurance and all other administrative and operational overhead expenses.

Other Income (Expense)

Interest Expense. Interest expense on related-party long-term debt accounted for 95%, 98% and 96% of our interest expense in 2011, 2012 and 2013 and 96% and 92% of our interest expense in the nine months ended September 30, 2013 and 2014. Paid-in-kind interest was 91%, 85% and 68% of total interest expense incurred in 2011, 2012 and 2013 and 72% and 36% in the nine months ended September 30, 2013 and 2014.

Index to Financial Statements

Capitalized Interest. We capitalize interest attributable to pre-delivery payments (PDPs) as an additional cost of the related asset beginning two years prior to the intended delivery date, when we estimate the related aircraft has begun to be manufactured and when PDPs are required to be paid under the terms of our existing aircraft purchase contract. We capitalize interest at our weighted-average interest rate on long-term debt or, where applicable, the interest rate related to specific borrowings. Capitalization of interest ceases and expensing begins when the asset is ready for its intended use.

Interest Income and Other. Interest income and other includes interest income on our cash and cash equivalent balances, as well as activity not classified in any other area of the consolidated statements of operations.

Income Taxes

We account for income taxes using the liability method. We record a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We record deferred taxes based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carry forwards. In assessing our ability to utilize our deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will be realized. We consider all available evidence, both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis.

For the nine months ended September 30, 2014, we recorded a deferred tax liability and expense of $1.0 million resulting from the difference between the book and tax basis of indefinite-lived intangible assets that are not available to cover net deferred tax assets subject to a valuation allowance.

Trends and Uncertainties Affecting Our Business

We believe our operating and business performance is driven by various factors that affect airlines and their markets, including trends which affect the broader travel industry, as well as trends which affect the specific markets and customer base that we target. The following key factors may affect our future performance.

Competition. The airline industry is exceedingly competitive. The principal competitive factors in the airline industry are the fare and total price, flight schedules, number of routes served from a city, frequent flier programs, product and passenger amenities, customer service, fleet type, safety record and reputation and code-sharing relationships. The airline industry is particularly susceptible to price discounting because, once a flight is scheduled, airlines incur only nominal incremental costs to provide service to passengers occupying otherwise unsold seats. Airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to increase RASM. The prevalence of discount fares can be particularly acute when a competitor has excess capacity to sell.

Seasonality and Volatility. Our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business and our route network are subject to significant seasonal fluctuations. We believe our operations, as they are focused on Los Angeles International Airport (LAX) and San Francisco International Airport (SFO), are more susceptible to seasonality than some of the other domestic airlines because our discretionary customers in California may be less likely to fly to other regions of the United States during the colder seasons. We generally expect demand to be greater in the second and third quarters compared to the rest of the year. The air transportation business is also volatile and highly affected by economic cycles and trends. Consumer confidence and discretionary spending, fear of terrorism or war, weakening economic conditions, fare initiatives, labor actions, weather and other factors have resulted in significant fluctuations in revenues and results of operations in the past.

Aircraft Fuel. Fuel expense represents the single largest operating expense for most airlines, including ours. Fuel costs have been subject to wide price fluctuations in recent years. Fuel availability and pricing are subject to

Index to Financial Statements

refining capacity, periods of market surplus and shortage and demand for heating oil, gasoline and other petroleum products, as well as meteorological, economic and political factors and events occurring throughout the world, which we can neither control nor accurately predict. We source a significant portion of our fuel from refining resources located on the West coast and on the gulf coast of the United States. Jet fuel is subject to price volatility and supply disruptions on a seasonal basis in hurricane season when refinery shutdowns can occur and when cold weather demand for heating oil spikes, resulting in less jet fuel production at refineries, and on a location-specific basis when local refineries can be shut-down for maintenance or emergency purposes.

From time to time, we fix our jet fuel prices using fixed forward price contracts, or FFPs, for jet fuel, and we enter into option contracts for heating oil and crude oil to try and reduce the impact of significant price volatility. We generally manage approximately 35-40% of our forecasted fuel price exposure with FFPs or hedges on the basis of the next nine to twelve months where we layer in coverage over time with a dollar cost average approach to our purchases. The 35-40% is an approximate average of our coverage at any given time with more coverage sought in the near-term months and less coverage sought in the longer dated months.

Our fuel hedging practice considers many factors, including our assessment of market conditions for fuel, our access to the capital necessary to purchase coverage and support margin requirements, the pricing of hedges and other derivative products in the market and applicable regulatory policies. As of September 30, 2014, we had FFPs and hedges in place for approximately 38% of our then projected next twelve months of fuel requirements, with all of our then existing hedge contracts expected to settle by the end of the third quarter of 2015. We purchase our aircraft fuel at all of our stations under a single annual fuel service contract with a third-party fuel procurement administrator who, in turn, arranges fuel supply on our behalf at each station with various fuel suppliers. In some instances, the fuel procurement administrator is also our supplier. The future cost and availability of jet fuel cannot be predicted with any degree of certainty.

Labor. On August 13, 2014, our inflight teammates (whom other airlines refer to as flight attendants), representing approximately 32% of our workforce, voted for representation by the Transport Workers Union, or TWU. As a result, the TWU has been certified as the representative of our inflight teammates, and we will be engaged with the TWU in a collective bargaining process for a first contract for those teammates in accordance with the requirements of the Railway Labor Act. Although we currently have a direct relationship with our remaining teammates, airline industry employees are one of the most heavily unionized private sector employee groups, and any of our non-management teammates could seek unionization at any time. If one or more of our other teammate groups elects a union to represent them, that would require us to collectively bargain with the teammate group’s certified representative.

Aircraft Maintenance. As of September 30, 2014, the average age of our aircraft was 5.6 years. Due to the relatively young age of our fleet, our aircraft require less maintenance now than they will in the future. As the fleet ages, we expect that maintenance costs will increase in absolute terms and as a percentage of revenue. The amount of total maintenance costs and related amortization of major engine maintenance expense is subject to variables such as estimated usage, government regulations, the size and makeup of the fleet in future periods and the level of unscheduled maintenance events and their actual costs. Accordingly, we cannot reliably quantify future maintenance-related expenses for any significant period of time.

We expect that the final qualifying major engine maintenance events will be amortized over the remaining lease term rather than until the next estimated major maintenance event. This would result in significantly higher depreciation and amortization expense related to major maintenance in the last few years of the leases as compared to the expenses in earlier periods. Moreover, because our current aircraft were acquired over a relatively short period, significant maintenance that is scheduled on each of these aircraft occurs at roughly the same time, meaning we will incur our most expensive scheduled maintenance obligations, known as major maintenance, across our present fleet at approximately the same time. These more significant maintenance activities result in out-of-service periods during which aircraft are dedicated to maintenance activities and unavailable to fly revenue service.

Index to Financial Statements

In addition, the terms of some of our lease agreements require us to pay supplemental rent, also known as maintenance reserves, to our lessor in advance of the performance of major maintenance, resulting in our recording significant aircraft maintenance deposits on our consolidated balance sheet. However, the payments made after the final qualifying major engine maintenance event during the lease term are fully expensed, as these amounts are not reimbursable from the lessor. As such, it will result in both additional rent expense and depreciation and amortization expense for previously capitalized maintenance being recorded in the period after the final qualifying major engine maintenance event and just prior to the termination of the lease. For more information, see “Critical Accounting Estimates—Aircraft and Engine Maintenance and Repair” elsewhere in this prospectus.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss further below.

Revenue Recognition including Loyalty Program

We generate the majority of our revenue from sales of passenger tickets. We initially defer ticket sales as air traffic liability and recognize passenger revenue when the passenger flight occurs. Passenger revenue also includes upgrade fees, which we recognize when the related flights occur.

Tickets expire one year from the date of issuance, if unused by the passenger. We also issue travel credits to passengers for certain changes to flights if a residual value exists after application of any applicable change fee. Travel credits also expire one year from the date of issuance. We estimate and record advanced breakage for tickets and travel credits we expect will expire unused. These estimates are based on our historical experience of expired tickets and travel credits and consider other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets and travel credits.

Other revenue consists of baggage fees, change fees, seat selection fees, passenger-related service fees and inflight meals and entertainment. We recognize revenue for baggage fees, seat selection fees and passenger-related service fees when the associated flight occurs. We recognize change fee revenues as they occur.

Our Elevate^® loyalty program provides frequent flyer travel awards to program members based on accumulated points. Points are accumulated as a result of travel, purchases using the co-branded credit card and purchases from other participating partners. The program has an 18-month expiration period for unused points from the month of last account activity. For all points earned under the Elevate program, we have an obligation to provide future travel when these reward points are redeemed.

With respect to points earned as a result of travel, or flown points, we recognize a liability and a corresponding sales and marketing expense, representing the incremental cost associated with the obligation to provide travel in the future, as points are earned by passengers. We offer redemption of points for our Elevate program members through travel on our flights and our partner airlines. Incremental cost for points to be redeemed on our flights is estimated based on historical costs, which include the cost of fuel, passenger fees, complimentary beverages, insurance, miscellaneous passenger supplies and other airline payments. We adjust our liability periodically for changes in our estimate of incremental cost, average points to redeem and breakage estimates.

We account for member points sold to our partners, or sold points, including points related to our participation in other providers’ affinity loyalty programs and member purchases with partner credit card

Index to Financial Statements

companies as multiple-element arrangements. These arrangements have historically consisted of two elements: transportation and brand marketing-related activities. The transportation element represents the fair value of the travel that we will ultimately provide when the sold points are redeemed. The brand and marketing element consists of brand marketing related activities that we conduct with participating partners.

For points earned from purchases through our original co-branded credit card agreement, which we refer to as the “Original Co-Brand Agreement,” we recorded deferred revenue using the residual method. The fair value of a point is estimated on an annual basis using the average points redeemed and the estimated value of purchased tickets with the same or similar restrictions as frequent flyer awards. We recognize points redeemed as passenger revenue when the awards are redeemed and the related travel occurs. We recognize the residual portion, if any, upon sale of points as other revenue associated with the other marketing services delivered.

In 2013, we entered into a new co-branded credit card agreement with a new partner, which we refer to as the “New Co-Brand Agreement.” The New Co-Brand Agreement has a seven-year term beginning January 1, 2014, when the new co-branded card was introduced and services to our members began. Services with standalone value provided under this agreement include: (i) the points earned or the travel component; (ii) companion certificates for annual travel discounts up to $150; (iii) unlimited access to the use of our brand and customer list; (iv) advertising; (v) waived bag fees, which are limited to the first checked bag for the cardholder and their companion traveling on the same flight which must be purchased using the card; (vi) unlimited waived change fees provided the ticket is purchased using the premium card; and (vii) unlimited discounts on purchases made through our Red^® inflight entertainment system using the co-branded credit card. Under the New Co-Brand Agreement, our partner is required to provide annual guaranteed advance payments over the contract term. Any unearned advance at the end of the calendar year is carried over to the following year until the contract expires. At the end of the contract, we have no obligation to refund any unearned advances to the partner. As of September 30, 2014, excess advances totaled $14.9 million, which we recorded as air traffic liability.

Under the revenue recognition rules for multiple element arrangements, we determine the best estimated selling price, or BESP, of each element and allocate the arrangement consideration using the relative selling price of each element. Based on our valuation of the New Co-Brand Agreement, the majority of the value is attributable to points or the travel component and brand and customer list, for which the BESP is determined using our own and market assumptions as well as other judgments necessary to determine the estimated selling price of each element. When developing the relative selling price allocation attributable to the points or travel component, we primarily considered the total number of points expected to be issued, the BESP for points (specifically the value at which points could be redeemed for free or discounted travel), the number of points expected to be redeemed and the timing of redemptions. The BESP for points is derived based on our estimate of the redemption rate used by our guests to convert points into the equivalent ticket value for travel with us or with one of our airline partners. For brand and customer list, we considered brand power, the size of our customer list and the market royalty rate for equivalent programs. Our estimates of the BESP will not change, but the allocation between elements may change based on changes in the ultimate volume of sales of each element during the term of the contract.

We recognize and record revenue for the majority of the travel-related elements in accordance with our existing policies for such services. Revenue for brand and advertising is recognized in other revenue as such services are provided ratably over the contract term. Revenue from making available unlimited services such as waived bag fees, waived change fees and inflight discounts is recognized in other revenue on a ratable basis over the contract term subject to a contract limitation based on the proportion of cumulative points issued to total contract points expected to be issued.

We estimate breakage for sold points using a regression analysis model supplemented with qualitative considerations, which include the history and success of the program as well as member behavior. In addition, we also consider redemption trends by performing a weighted-average redemption rate calculation to evaluate the

Index to Financial Statements

reasonableness of our calculated breakage rates. Breakage is recorded for sold points under the redemption method using points expected to be redeemed and our recorded deferred revenue balance to determine a weighted-average rate, which is then applied to actual points redeemed. A change in assumptions as to the period over which points are expected to be redeemed, the actual redemption patterns or the estimated fair value of points expected to be redeemed could have a material impact on our revenue in the year in which the change occurs as well as in future years. Our estimates could change in the future as our members’ behavior changes and more historical data is collected.

Aircraft and Engine Maintenance & Repair

Under our aircraft operating lease agreements and FAA operating regulations, we are obligated to perform all required maintenance activities on our fleet, including component repairs, scheduled air frame checks and major engine restoration events. We estimate the timing of the next major maintenance event based on assumptions including estimated usage, FAA-mandated maintenance intervals and average removal times as recommended by the manufacturer. The timing and the cost of maintenance are based on third-party estimates, which can be impacted by changes in utilization of our aircraft, changes in government regulations and suggested manufacturer maintenance intervals. Major maintenance events represent six-year and 12-year airframe checks, engine restorations and overhauls to major components. We account for qualifying major engine maintenance under the deferral method wherein restoration costs and replacement of engine life limited parts are capitalized and amortized as a component of depreciation and amortization expense up to the earlier of the lease end or the estimated date for the next engine overhaul. Regular airframe and other routine maintenance costs are expensed as incurred.

In connection with our aircraft operating lease agreements, we are required to make supplemental rent payments to our aircraft lessors, which represent maintenance reserves made to collateralize the lessor. Our lease agreements provide that maintenance reserves are reimbursable to us upon completion of the major maintenance event in an amount equal to the lesser of (i) the amount of the maintenance reserve held by the lessor associated with the specific major maintenance event or (ii) the qualifying costs related to the specific major maintenance event, although in some instances we expect to receive a credit at the end of the lease for a portion of any excess reserves remaining after each event. We record the supplemental payments or maintenance reserves that we expect to recover as aircraft maintenance deposits in the accompanying consolidated balance sheets. When it is not probable that amounts on deposit with lessors will be recovered, we expense such amounts as a component of aircraft rent expense. When the underlying maintenance event is performed, the cost is either capitalized and amortized as a component of depreciation and amortization expense for qualified major engine maintenance or expensed for all other major maintenance, and the deposit is reclassified to a receivable in our consolidated balance sheet.

The terms of most of our aircraft lease agreements also provide that most maintenance reserves held by the lessor which relate to major maintenance events that fall outside of the lease term are nonrefundable to us at the expira