The US Department of Transportation has tentatively approved Virgin America’s plan to reconfigure its ownership and management structure. The department said that the carrier could earn its operating certificate if it meets certain conditions, including replacing CEO Fred Reid, who has overseen the certification process after he left Delta Air Lines in April 2004. Virgin America’s revised plan, filed after rejection of the original application on grounds that the airline was not visibly owned and controlled by US citizens and was influenced unduly by minority investor Virgin Group.
San Francisco-based Virgin America in its official communique has said that it welcomes the tentative ruling and plans a midsummer launch. However, the company still did not promise that it will meet all conditions. Fred Reid has stated that the company is now planning to meet with its shareholders immediately to address the Department’s proposed conditions.
Virgin America had already offered to replace its chief executive, Fred Reid, to placate regulators who raised concerns about his longstanding association with foreign investors. The company has also said that it would revise loan agreements and eliminate certain powers of Branson’s Virgin Group in its next plan. The carrier is also likely to modify its trademark to ensure independence from British-based Virgin Atlantic and establish a voting trust to administer Virgin Group’s equity interest in the airline.
U.S. airlines that have gained ground against lower-cost rivals appear likely to face a stiff challenge from Virgin America Inc. This start-up carrier is backed by British billionaire Sir Richard Branson. Though the company is hoping to start its operations in mid-2006 but has been obstructed by intense opposition from established carriers such as AMR Corp.’s American Airlines and Continental Airlines Inc.
Experts have said that the revised application of San Francisco based company should meet U.S. ownership rules provided the company fully executes the proposed modification to its initial plan.
