Virgin America's Tie to Branson Haunts Review

SAN FRANCISCO INTERNATIONAL AIRPORT -- As Virgin America launched a trial flight to New York from here this week for federal officials, the fledgling discount airline simultaneously awaited government notification on its application to fly domestic flights across the United States.

The startup carrier, based in Burlingame, is undergoing an operations review this week from the Federal Aviation Administration. That's not related to the application response from the U.S. Department of Transportation.

Virgin America has waited 29 months for the OK to launch its new domestic air service, which is expected to bring 1,600 jobs to the Bay Area. Much of the delay lies in the controversy over British billionaire Richard Branson's position as part owner of the airline.

Branson's involvement has drawn opposition from U.S. airlines such as Continental, American and US Airways. They have voiced concern that Branson might control the carrier, while Virgin America's application details that it complies with the U.S. rules limiting foreigners to 25 percent of U.S. airline voting equity and barring them from actual control.

"We still haven't heard anything" about the application, said Gareth Edmondson-Jones, spokesman for Virgin America.

Edmondson-Jones said the airline does not expect full transportation department approval or rejection this week, but rather "caveats andconcern" about the citizenship issue regarding Branson and the application to operate as a U.S. carrier. Indeed, the company is anxious to "hear something" from the transportation officials.

The Transportation Department refused to tip its hand on the announcement.

"It is under review, and I can't speak to the timing or any action pending," department spokesman Bill Mosley said.

The airline announced in October at an unveiling of its new aircraft at SFO that it expected to launch service out of San Francisco around March 1.

Edmondson-Jones confirmed that a Virgin America aircraft took off from SFO on Monday and arrived in New York with FAA officials in tow -- a typical "proving run" for airlines seeking approval to fly.

The airline employs about 100 people at its Burlingame headquarters and plans to bring 1,600 jobs here within two years of its launch. The airline has said it will fly discount service to New York and other metropolitan areas, but has not named the other cities.

"The DOT still seems hung up on the citizenship issue and it seems unresolved," said Michael Roach, an analyst with Roach and Sbarra, an airline consultancy. "Virgin is apparently ready to go."

Roach stressed that the delays are "about competition" for the airlines opposing approval. Branson has done well running Virgin Atlantic as a discount option and the legacy airlines are mindful of that, he added.

"The airlines think they made a case, and hope Branson will go away," Roach noted.

Virgin America has raised $177 million in financing and licensed the "Virgin" brand from Branson, who has a 25 percent ownership stake in Virgin America. The airline recently lined up $53 million in financing from Branson's Virgin Group.

Virgin America maintains that the U.S. investment firm Black Canyon Capital in Los Angeles and Cyrus Capital Partners of New York control 75 percent of the carrier.

Virgin America had hoped to be flying this year, but the approval process slowed to a crawl.

"The competition will continue to resist Virgin America being a full-fledged participant in the industry," said Gerald Bernstein, partner in the Velocity Group, a San Francisco-based airline consultancy. "The attorneys will try to slow the approval process in any way they can."

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