ATW Daily News

DOT tentatively approves Virgin America, but CEO Reid must go

Wednesday March 21, 2007

US Dept. of Transportation yesterday tentatively approved Virgin America's plan to "reconfigure its ownership and management structure" and said the carrier could earn its operating certificate if it meets certain conditions, including replacing CEO Fred Reid, who has overseen the certification process since he left Delta Air Lines in April 2004.

DOT said VA's revised plan, filed after rejection of the original application on grounds that the airline was not clearly owned and controlled by US citizens and was influenced unduly by minority investor Virgin Group (ATWOnline, Jan. 19), "puts it back on track to meet strict US citizenship tests." The retooled application "should meet US ownership rules provided the company fully executes the proposed changes to its original plan." Among those changes is the ouster of Reid, formerly president and COO of Delta, who DOT said has "longstanding association with foreign investors [that] raised concerns about who would control the new carrier."

San Francisco-based Virgin America said it "welcomes" the tentative ruling and plans a midsummer launch but did not promise it will meet all conditions. "We plan to meet with our shareholders immediately to address the Department's proposed conditions," Reid said.

Those conditions, DOT said, include "removing the Virgin Group's veto power over certain contracts and expenditures, amending the company's loan agreements with the Virgin Group, restructuring its board of directors to reduce the number of foreign representatives, revising its trademark license to ensure that the US carrier can operate independently of UK-based Virgin Atlantic, and establishing a voting trust to administer the Virgin Group's equity interest in the airline." Virgin Group owns a 25% stake in VA.

US airlines are expected to file objections to yesterday's ruling. DOT's decision comes shortly after US and EU negotiators reached a tentative agreement on an open skies deal that seeks to ease US airline ownership, franchising and branding rules (ATWOnline, March 6).

by Aaron Karp

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