Virgin America CEO Fred Reid is extremely confident the startup carrier’s application for US DOT certification will withstand regulatory scrutiny, saying it was arranged “emphatically to address being within the right boundaries of foreign ownership laws”.
Speaking to ATI, Reid says the carrier “knew all along that detractors might attempt to draw unfavorable attention” to its ownership structure, and thus has been “very, very careful here”.
He adds that Virgin America has “hired very good legal counsel who is extremely well versed with the DOT”.
US major airlines and pilot unions recently asked the regulator to suspend procedures for approving Virgin America’s application, claiming the company has not clarified issues relating to its ownership and management.
Continental Airlines initiated the assault, by questioning Virgin America’s business connections and saying that these links, particularly with Virgin Atlantic Airways chairman Richard Branson, “undermine” the airline’s claim that it is controlled by US citizens.
Delta Air Lines charged that Virgin America’s “bare-bones application raises more questions than answers on the key issue of whether ‘actual control’ of the applicant rests with US citizens as required by law”.
Virgin America responded by suggesting the DOT let interested parties access its confidential exhibits and documents.
“Access to the confidential materials will fully address issues raised by Continental’s December 16, 2005 motion, and the answers to that motion filed to date by other parties,” says Virgin America in its filing with the regulator.
The DOT on December 23 granted immediate interim access to Virgin America’s confidential documents to parties who file appropriate affidavits. The regulator, however, also decided to defer the 21-day deadline for the filing of application answers until 14 days after it has ruled on Continental’s motion, which is expected this week.
Of the total $177.3 million in capital raised by Virgin America, $90 million is from VAI Partners, a US investment group funded by Black Canyon Capital and Cyrus Capital Partners. About $30 million comes from various companies owned by Branson and the rest is debt held by Virgin companies. One of these is licensing the Virgin brand to the new domestic airline.
Reid assures that Virgin America is a “US-led and US-controlled company” that has concentrated on “meeting all the complexities” of the legal requirements and “doing everything right”.
He says one reason why Virgin America took longer than expected to reveal its investors is because it knew “we had a lot of work to do to make sure that the application met very stringent legal requirements pertaining to minority foreign ownership”.
Despite its links to the Virgin brand, Virgin America has “no agreements, handshakes, nothing” that would obligate it to work or codeshare with any carrier, Virgin or otherwise, says the CEO.
“We are under no contractual, implied or other obligation to work with any Virgin carriers, or even give them a preference. This is a very arms length deal,” he adds.
Virgin America hopes to receive DOT certification “as soon as possible” to prepare for a possible 2006 start of service from San Francisco with Airbus A320 family aircraft.
Its first route, linking the California city with New York, is the only one yet announced by the carrier.
Reid says Virgin America chose San Francisco as both its base of operations and headquarters “because we think it’s a market underserved by low-fare carriers and “we like the workforce out here”. A grant of $10 million in job training aid from the state was also a contributing factor, he says, adding that the carrier might also yet receive some state assistance with its public relations.
A frequent flyer program is also in the works; Reid says he would preferably like to be able to launch services with one already in place.
The CEO is also “open minded” about changes to the carrier’s Airbus narrowbody fleet. “We have had no discussions with any alternative vendors of aircraft. Over time, it’s possible that we could diversify our fleet, but we would look at any number of opportunities.
“The main thing is to concentrate on getting the airline going with the planes we have.”
MARY KIRKBY / PHILADELPHIA
Source: Flight International
