Virgin America: First Step To Approval Is Rejection

DOT issued a tentative show-cause order rejecting Virgin America's application to operate in the U.S., citing foreign-control issues, prompting the startup to define stiff upper lip:

"The Department of Transportation’s Show Cause Order is a long awaited step in our certification process," said Virgin America spokesman Gareth Edmondson-Jones. "While we disagree with this tentative Order, we respect the Department's decision and intend to use the Order as a roadmap to address the issues raised and to demonstrate to the DOT that Virgin America will meet all ownership and control requirements. "Accordingly, we plan to respond to the Department as requested on January 10 so that we may move forward with DOT certification, launch our airline, and bring new high-quality service and much-needed competition to the marketplace. We remain committed to getting our wings."

The order itself is here, a 27-page .pdf under docket OST-2005-23307; here's the gist from public affairs:

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.

Airports interested in Virgin America's fate include the following, from the company's website:

Our first route is from San Francisco to New York-round trip, of course. Beyond that, we're thinking initially about cities like Seattle, Portland, Los Angeles, San Diego, Phoenix, Las Vegas, Salt Lake City, Denver, St. Louis, Minneapolis, Chicago, Detroit, Indianapolis, Dallas, Austin, Houston, New Orleans, Tampa, Ft. Lauderdale, Miami, Orlando, Atlanta, Washington, Baltimore, Philadelphia and Boston....

Stories available include those by Bloomberg, The Washington Times and Aviation Daily.