DOT blocks launch of Virgin America airline

DOT blocks launch of Virgin America airline In another setback for globalization of the airline industry, the U.S. Department of Transportation on Wednesday tentatively denied start-up airline Virgin America’s application for an operating certificate because it determined that foreign ownership and control of the airline exceeded U.S. limits.
   Virgin America is backed by Sir Richard Branson, the billionaire founder of Virgin Atlantic airlines based in the United Kingdom, and two U.S. private equity firms, Black Canyon Capital and Cyrus Capital Partners.
   Under U.S. citizenship requirements, foreigners can only own 25 percent of an airline’s voting stock, and Americans must constitute two-thirds of upper management and the board, and control company operations.
   The DOT order said the low-cost carrier is closely tied to the Virgin Group and would have to revise its corporate structure and associated agreements to be actually 75 percent controlled by U.S. citizens.
   “The order cites the Virgin Group’s and its executives’ pervasive involvement in the creation of Virgin America, the funding Virgin Group provided to the carrier, various interlocking financial agreements, and the Virgin Group’s ability to influence decisions of the carrier’s board,” the DOT said in a news release announcing the decision. The department also said that “the restrictive name-brand licensing agreement between Virgin Group and the airline impedes the carrier’s independent decision-making authority.”
   Branson’s Virgin conglomerate contributed about a quarter of the equity to the venture. A Virgin America spokesman told several news outlets that the company intends to address the DOT’s concerns during the upcoming 14-day appeal period and move ahead with plans to launch the airline.
   Earlier this month, the DOT pulled its proposal to increase foreign minority owners’ level of operational control of U.S. airlines under heavy congressional pressure. The proposal was seen as a way to increase access to capital for the U.S. airline industry.   
   Continental Airlines has been the most vocal opponent within the airline industry of rules that open up domestic carriage to foreign competition. The airline pressed the DOT to block Virgin America’s application.