Pending Thumbs Down 'Worst-Kept Secret In Washington'
The reaction to the
federal government's probable rejection of Virgin America's
application to fly has come fast and furious since the unofficial
news emerged last week.
The rejection is particularly troubling to US Transportation
Secretary Mary Peters, whose "open skies" agreement seeks opening
aviation with the European Union.
Continental and other major US carriers objected to federal
approval because, they say, part-owner and British citizen Richard
Branson (below right) will exercise actual control of the new
carrier. This would be contrary to US law, which requires control
of airlines to rest with U.S. citizens, according to the San
In reviewing such proposals, DOT considers a law limiting
foreigners to 25 percent of US airline voting equity and bars them
from "actual control" of a US carrier.
Virgin America's Chief Executive Officer Fred Reid insists that
Branson is just an investor and that the company is licensing the
Reid told both the Wall Street Journal online edition and
Bloomberg News last week that Virgin America had heard informally
from contacts in the government that its application would be
rejected and the news will be delivered next week - perhaps the
slowest news week of the year.
Reid told Bloomberg that he expected the application eventually
to be approved, but it was "theoretically possible" the
government's objections could be so sweeping that the airline would
not be able to get off the ground. Reid told Bloomberg that Virgin
America could still take to the air sometime in 2007.
Michael Roach, of Roach & Sbarra in San Francisco, also weighed
in. "It is inconceivable to me DOT would make any other decision
given the politics of the situation. The mood in Washington is
moving toward protectionism, and the recent election increased
that," Roach said.
On the other side, Gerald Bernstein, principal at the Velocity
Group in San Francisco, an aviation consulting and communications
company, said he was surprised to hear the Transportation
Department could reject the application.
"There's really no reason for rejecting a good application,"
Bernstein said. "I would have thought this was a no-brainer and
that (Virgin America) would have the ability to make this
Henry Harteveldt, an airline analyst and head of the San
Francisco office of Forrester Research, noted that Virgin America's
application has received an unusually high degree of scrutiny,
chiefly because of Branson's involvement.
"I believe there's a double standard being applied toward Virgin
America," Harteveldt said. "This stems from the fact that Richard
Branson is involved. It's not so much Mr. Branson himself. Toyota
can open factories in this country and US banks buy branches
overseas. But there's this belief that airlines are essential to
US carriers especially covet greater access to
London's Heathrow airport, which handles more international traffic
than any airport in the world. Conversely, European carriers are
eager to fly more freely in the United States, the world's biggest
However, an open-skies pact has met with nationalistic and security
concerns. Virgin America's application appears to have been swept
up in this debate, Harteveldt said. Virgin America had completed
the last formal step in the Federal Aviation Administration's (FAA)
airline certification review - that of flight proving runs. The
airline only awaits approval from the DOT before it can begin
Branson's closely held Virgin Group Ltd. put up 25 percent of
the initial $177 million investment to start Virgin America, as
well as a $53 million loan. Virgin America officials say U.S.
investment firms Black Canyon Capital in Los Angeles and New
York-based Cyrus Capital Partners control 75 percent of the
carrier, which has 169 employees, nine aircraft, and plans to
implement service between San Francisco and New York's JFK.
Virgin America, billing itself as a 'new generation' low-fare
airline, is based at San Francisco International Airport and has
firm orders for 34 A319 and A320 passenger aircraft, according to