We Told You So: Virgin Denied

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Our take on the Virgin America DOT application has been the same for the last year. That take? That the airline’s application was not going to be approved by the DOT.

Today, after weeks of rumblings that this is what was going to happen, the DOT finally made it official.

Here’s the DOT release:

VIRGIN AMERICA MUST GIVE UP INTERNATIONAL OWNERSHIP AND CONTROL TO MEET CITIZENSHIP TEST FOR U.S. CARRIER STATUS, ACCORDING TO TENTATIVE FINDING

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 today 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 Internet at http://dms.dot.gov <http://dms.dot.gov/> , docket OST-2005-23307.

Our friend Steve Lott over at Aviation Daily advised today that we all need to look at the show cause order, especially the appendix at the end, where the DOT tries to “sketch out” the ownership structure. Steve said it is hilarious. It is. And I think it gives us a pretty good idea of the impossible battle Virgin has in trying to convince the DOT of its ownership structure. Or rather, what it wants the DOT to think is its ownership structure.

http://dmses.dot.gov/docimages/pdf99/434510_web.pdf

Does this mean Virgin America is really dead? No, as the DOT comments said, objections can be filed in the next 14 days. After that, answers to objections are due within 7 days.

But I don’t see the airline being approved. Not enough is going to change between now and then. There are way too many attachments to the mother ship here. Always have been.

Anyone want a brand new headquarters? How ’bout some nice never-flown Airbus aircraft? I know. How about a bank account in the Cayman Islands?

More on this mess in next week’s PlaneBusiness Banter.

1 thought on “We Told You So: Virgin Denied

  1. Chuck

    Maybe they can rename it “Albatross America” with the albatross around their necks portrayed in this instance by Sir Richard.

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