Airline Reapplies For US Operating Approval
Virgin America, based in
Burlingame, CA, announced sweeping changes in its corporate
governance rules Wednesday to placate regulators at the US
Department of Transportation (DOT). The fledgling airline
has reapplied for an operating license to begin commercial
service in the US.
As ANN reported, the airline
was denied a permit because US law requires ownership -- and more
importantly for this case, control -- of US-registered airlines to
remain within the country's borders. The law allows for foreign
ownership up to 25 percent, but ultimate control of any
US-registered airline must remain with US citizens.
And that's the rub for Virgin America. After reviewing the
airline's first request for an operating license, the
DOT concluded Virgin America's close relationship with
UK-based Virgin Group indicated it was not under
ultimate control of US citizens. Most specifically, the DOT
said Virgin Group's intimate involvement in the creation of
Virgin America and a continuing licensing agreement between the two
gave the UK company too much influence and control of the proposed
US carrier's decisions.
Now, Virgin America says it has made changes that should satisfy
the DOT's concerns. Among them, it will surrender certain veto
rights its UK minority owner maintained, place its minority owner's
shares in a US trust and even replace its CEO Fred Reid, hired by
Virgin Group's flamboyant boss Richard Branson, if necessary.
"We have really jumped through rings of fire, bent over backward
and shown ourselves to be in good faith," said Reid in a phone
interview with the San Francisco Chronicle. "There is no good
reason to deny this application, which is squarely in the public
Virgin America says it has also changed its trademark licensing
scheme allowing it to drop the Virgin name if necessary, and
removed a Virgin Group seat on the board of directors leaving
only two of eight to the UK company.
At least one industry analyst
believes the changes should win DOT approval for the airline. Henry
Harteveldt, a senior analyst with Forrester Research told the
Chronicle, "The fact that they are taking steps to create a voting
trust, relinquishing a board seat and the fact that they would be
willing to drop the Virgin reference in the brand name shows this
is a company that is serious about taking to the skies."
Harteveldt says this whole dispute is more about competition
than regulatory rules. He says US carriers -- who initially lodged
complaints with the DOT -- fear another creative upstart like
JetBlue, which has made significant inroads in several major
markets on the US east coast.
"If you had the same investment in an airline called Air Potato,
you would have none of the opposition," said Harteveldt.
Virgin America's latest proposal goes up for public
comment for 14 days before going to the DOT for review. That review
could take several months according to a department
spokesman. Reid says the airline could be operating within a
couple of months of winning federal approval.