AP
Virgin America Gets OK for U.S. Airline
Friday May 18, 4:54 pm ET
By Alan Zibel, AP Business Writer
Virgin America Gets Approval for U.S. Airline, Agrees to Replace CEO and Other Concessions
WASHINGTON (AP) -- Startup airline Virgin America won final approval Friday to take to the skies in the United States.
Federal regulators approved the company's revised plan to operate U.S.-based commercial flights after the company made numerous concessions, including replacing its chief executive, to allay concerns about the foreign ownership stake of Richard Branson's London-based Virgin Group Ltd.
Service is expected to start this summer with flights from San Francisco International Airport to John F. Kennedy International Airport in New York.
In a statement, the Transportation Department said Virgin's revised plan, filed in January by Burlingame, Calif.-based Virgin America, is now in compliance with laws that limit foreign control of domestic air carriers.
That includes company ownership rules that cap foreign control of a U.S. airline at 25 percent of voting shares. Virgin also agreed to replace CEO Fred Reid, the former Delta Air Lines Inc. president hired by British billionaire Branson, founder of London-based Virgin Atlantic Airways.
The DOT said it concluded that replacing Reid with a CEO not affiliated with Branson's Virgin Group would alleviate worries about the airline's independence. Reid will be allowed to stay with the company for six months after its start.
"This has been quite a journey, but I'm truly happy that we will be able to launch our airline," Reid said in a prepared statement.
Other DOT conditions include requiring U.S. directors on Virgin America's board to approve a trustee to represent Virgin Group's 25 percent stake and reporting to federal regulators any loans Virgin Group plans to make to the U.S. carrier.
"It's tough to think of a company that has done as much to meet our standards for becoming a commercial airline," Transportation Secretary Mary Peters said in a statement.
In December, the DOT tentatively denied Virgin's application, mainly because of ties to Branson, who has long said he wanted a U.S.-based airline.
Virgin America in January proposed concessions, including selling more stock to U.S. investors, eliminating one of three board seats awarded to Branson's Virgin Group and, if necessary, replacing Reid.
The airline also named Samuel Skinner vice chairman in late January. He was Transportation Department secretary under President George H.W. Bush in the late 1980s and early 1990s.
Major U.S. airlines, including AMR Corp.'s American Airlines, Delta Air Lines Inc. and Continental Airlines Inc., unsuccessfully sought to prevent Virgin America from flying. The AFL-CIO labor union also has been critical, arguing that workers would be harmed by more foreign involvement in U.S. airlines.
Within the 12 months of startup, the airline plans to serve San Diego, Las Vegas, Los Angeles and Washington, D.C.'s Dulles International Airport. The company is also considering numerous other cities for future service.
American Airlines fell 26 cents to $26.74 in after-hours trading and ended the regular trading session up 3 cents to $27. Continental Airlines fell 34 cents to $37.87 in after-hours trading and ended the trading session up a penny to $38.21. Delta Air Lines rose 9 cents to $19.40 in after-hours trading and ended the trading up 29 cents to $19.31.
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