Virgin America Gets DOT's Conditional OK

March 20, 2007
Revised plan "should meet U.S. ownership rules" that cap foreign control of a U.S. airline at 25 percent. The startup still faces opposition from several U.S. airlines.

The Transportation Department on Tuesday removed a barrier to Virgin America's plans to start a U.S. airline, voicing support for its plan to comply with laws limiting foreign control of a domestic carrier.

The agency gave a tentative OK to a revised plan filed in January by Burlingame, Calif.-based Virgin America, saying in a prepared statement that the revised plan "should meet U.S. ownership rules" that cap foreign control of a U.S. airline at 25 percent. The startup still faces opposition from several U.S. airlines.

One condition for the Transportation Department's support is that Virgin America replace CEO Fred Reid, the former Delta Air Lines Inc. president hired by British billionaire Richard Branson to run the startup airline.

The agency said replacing Reid with a CEO "who has no prior affiliation" with Branson's Virgin Group Ltd. would "substantially" alleviate concerns about the airline's independence. Virgin Group has a minority stake in the company.

After removing Reid as CEO, which the agency acknowledged would pose challenges for the new airline, Virgin America would be allowed to retain him as a consultant for six months.

In December, the Transportation Department tentatively denied Virgin America's application to fly, mainly because of its ties to Branson, who came up with the idea.

Virgin America in January proposed concessions to allay the agency's concerns. The proposed reforms included selling more stock to U.S. investors, eliminating one of the three board seats awarded to Branson's Virgin Group and, if necessary, firing Reid.

Virgin America also launched a Web site, http://www.letvafly.com, and has been encouraging consumers to send petitions urging officials to approve the application.

The airline in late January added Samuel Skinner, the Transportation Department's secretary under President George H.W. Bush in the late 1980s and early 1990s as vice chairman.

Several of the major U.S. airlines, including AMR Corp.'s American Airlines, Delta Air Lines Inc. and Continental Airlines Inc., have spearheaded the drive to prevent Virgin America from flying. Opponents have 21 days to object to the agency's tentative conclusions.

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