Airline Remains A 'U.S. Citizen', DOT Finds

The DOT announced last week that after conducting a thorough review it has found that Virgin America remains a U.S. citizen and remains under the actual control of U.S. citizens.  Under U.S. law, only airlines that meet the standards for U.S. citizenship may hold authority to operate as a U.S. airline.

DOT originally certified the airline's citizenship status in August 2007.  The air carrier later notified the Department of a significant potential shift in its shareholder makeup. As a result, DOT launched a review into whether the air carrier would continue to meet U.S. citizen requirements.

To meet the necessary standards, at least 75 percent of an air carrier's voting stock must be owned or controlled by U.S. citizens, the president and at least two-thirds of the board of directors and managing officers must be U.S. citizens, and the air carrier must be under the actual control of U.S. citizens. DOT examines a variety of factors to determine "actual control" based on the totality of circumstances in each case.

Following discussions between DOT and the air carrier, Virgin America agreed to make a number of changes to ensure that the air carrier would remain under the ownership and actual control of U.S. citizens. These changes include, among other things, provisions to ensure that new investments of capital from entities other than the Virgin Group - a collection of the United Kingdom companies and/or citizens that own 25 percent of the air carrier's stock - can and will be obtained. Virgin America also will add an additional U.S. citizen to its board, resulting in seven U.S. citizen investor designees as voting members on the nine-member board.

As part of the proposed transaction, Virgin America will obtain an additional $68.4 million in unsecured debt from its shareholders. This facility will further improve the liquidity of the company, positioning it for additional growth in 2010 and beyond.

"Today is a great day for airline competition, for our traveling guests and for our teammates," said Virgin America President and CEO David Cush in a news release following the announcement. "We're extremely pleased with the Department of Transportation's announcement. With this behind us, we intend to focus on what we do best: injecting new competition into markets as we grow, creating new jobs and delivering an unrivalled guest experience."

DOT also dismissed petitions by Alaska Airlines and the Aircraft Mechanics Fraternal Association for a public inquiry into Virgin America's citizenship.

FMI: www.regulations.gov