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 interest."

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.

FMI: www.virginamerica.com, www.dot.gov