Tentative Finding Requires Changes In Order To Meet Citizenship
Test For US Carrier Status
Virgin America would have to revise
its ownership, corporate structure and associated agreements to be
75 percent owned and actually controlled by U.S. citizens before it
can receive an operating certificate, the U.S. Department of
Transportation (DOT) said Wednesday, 12/27, in tentatively denying
the company’s application.
Under the Federal Aviation Act, to be certificated as a U.S.
airline, a company must first show that it is actually controlled
by U.S. citizens, that the president and two-thirds of the board of
directors are U.S. citizens, and that at least 75 percent of the
voting interest is owned or controlled by U.S. citizens. The
Department recently withdrew a proposed rule that would have
amended its interpretation of the statute’s “actual
control” requirement so as to allow additional foreign
investment.
In its show-cause order,
the Department tentatively concludes that Virgin America’s
close relationship with the U.K.-based Virgin Group indicates that
the carrier is not under the actual control of U.S. citizens. The
order cites the Virgin Group’s and its executives’
pervasive involvement in the creation of Virgin America, the
funding Virgin Group provided to the carrier, various interlocking
financial agreements, and the Virgin Group’s ability to
influence decisions of the carrier’s board. The Department
also said that the restrictive name-brand licensing agreement
between Virgin Group and the airline impedes the carrier’s
independent decision-making authority. However, the
Department’s tentative decision reflects its review of the
specific terms of the Virgin America licensing agreement, and DOT
emphasized that properly structured licensing or franchise
agreements between U.S. and international carriers are now, and
will continue to be, permissible.
The Department also tentatively found that less than the
required 75 percent of voting interest in Virgin America is owned
or controlled by U.S. citizens, with most of its voting equity held
by companies that are majority-owned by non-U.S. citizens.
In order for an application to be granted, Virgin America would
have to demonstrate that it is independent of the Virgin Group and
other non-U.S. citizens, and that at least 75 percent of its voting
equity is held by U.S. citizens.
On July 12 the Department found the company’s application
to be complete. DOT’s tentative decision follows an extensive
review of Virgin’s heavily contested submissions and public
comments.
Virgin America may file an objection to the proposed decision
within 14 calendar days. Answers to objections will be due seven
business days afterward. The show-cause order and other documents
in the case may be found on the applicable section of the DOT
website.
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