US Rejects Virgin America Airline, Citing Foreign Ownership

Posted 28 December 2006 @ 04:45 pm EET     Print     Reprint     E-Mail     Comments

WASHINGTON (AP) - US authorities denied approval for a new low-cost airline called Virgin America to start operations, saying the carrier "is not under the actual control of US citizens."

The US Department of Transportation said in a statement that Virgin America would have to revise its ownership, corporate structure and other agreements to be 75 percent owned and controlled by US citizens before it can receive an operating certificate. The agency said it was "tentatively denying" the request for US certification, giving the group the opportunity to appeal.

The upstart low-cost airline has been licensed to use the "Virgin" brand by Britain's Virgin Group, but maintains that it is independent from the companies headed by Richard Branson who founded Virgin Atlantic, and a host of other Virgin-branded firms.

However the DOT statement said that it "tentatively concludes that Virgin America's close relationship with the UK-based Virgin Group indicates that the carrier is not under the actual control of US citizens."

It cited the "pervasive involvement" of the British group and its executives in the creation of Virgin America, funding and interlocking financial agreements, "and the Virgin Group's ability to influence decisions of the carrier's board."

The US agency said it "tentatively found that less than the required 75 percent of voting interest in Virgin America is owned or controlled by US citizens." Reacting to the announcement, Virgin America said it was confident it could meet DOT's requirements.

"While we disagree with this tentative order, we respect the Departments decision and intend to use the order as a roadmap to address the issues raised and to demonstrate to the DOT that Virgin America will meet all ownership and control requirements," said airline spokesman Gareth Edmondson-Jones.

"Accordingly, we plan to respond to the Department as requested on January 10 so that we may move forward with DOT certification, launch our airline, and bring new high-quality service and much-needed competition to the marketplace. We remain committed to getting our wings."

Virgin America, which is based at San Francisco International Airport, said last week it had passed the Federal Aviation Administration's (FAA) airline certification review and was preparing to launch in the US market in 2007.

It has placed orders for 34 Airbus A319 and A320 passenger jets and has already taken delivery of nine aircraft.

Virgin America last year said it would seek to operate as a US airline and announced it had raised 177.3 million dollars from VAI Partners, an investment group funded by equity groups Black Canyon Capital and Cyrus Capital Partners.

At the time, it was announced that 25 percent of the capital was held by the British-based Virgin Group and 75 percent by US investors. Former airline executive Fred Reid, 55, was named chief executive.

The airline has said it hopes to start passenger flights in 2007 between San Francisco and New York's John F. Kennedy International Airport before expanding its operations.

The US government earlier this month nixed a proposal to give foreign investors a greater management say in US airlines, even though it cast doubts on the future of an "open skies" deal with Europe.

The European Union argued that the change would be "essential" part of a pact to liberalize transatlantic air traffic that was reached a year ago. The United States made clear its intention to limit foreign voting rights in its airlines to 25 percent of the capital. The EU has a higher ceiling of 49 percent.