DOT 124-06
Wednesday, December 27, 2006
Contact: Bill Mosley
Tel.: (202) 366-4570
VIRGIN AMERICA MUST GIVE UP INTERNATIONAL OWNERSHIP AND CONTROL TO MEET
CITIZENSHIP TEST FOR U.S. CARRIER STATUS, ACCORDING TO TENTATIVE FINDING
Virgin America would have to revise its ownership, corporate structure and
associated agreements to be 75 percent owned and actually controlled by U.S.
citizens before it can receive an operating certificate, the U.S. Department of
Transportation (DOT) said today in tentatively denying the company’s
application.
Under the Federal Aviation Act, to be certificated as a U.S. airline, a company
must first show that it is actually controlled by U.S. citizens, that the
president and two-thirds of the board of directors are U.S. citizens, and that
at least 75 percent of the voting interest is owned or controlled by U.S.
citizens. The Department recently withdrew a proposed rule that would have
amended its interpretation of the statute’s “actual control” requirement so as
to allow additional foreign investment.
In its show-cause order, the Department tentatively concludes that Virgin
America’s close relationship with the U.K.-based Virgin Group indicates that the
carrier is not under the actual control of 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 Department also said that the restrictive
name-brand licensing agreement between Virgin Group and the airline impedes the
carrier’s independent decision-making authority. However, the Department’s
tentative decision reflects its review of the specific terms of the Virgin
America licensing agreement, and DOT emphasized that properly structured
licensing or franchise agreements between U.S. and international carriers are
now, and will continue to be, permissible.
The Department also tentatively found that less than the required 75 percent of
voting interest in Virgin America is owned or controlled by U.S. citizens, with
most of its voting equity held by companies that are majority-owned by non-U.S.
citizens.
In order for an application to be granted, Virgin America would have to
demonstrate that it is independent of the Virgin Group and other non-U.S.
citizens, and that at least 75 percent of its voting equity is held by U.S.
citizens.
On July 12 the Department found the company’s application to be complete. DOT’s
tentative decision follows an extensive review of Virgin’s heavily contested
submissions and public comments.
Virgin America may file an objection to the proposed decision within 14 calendar
days. Answers to objections will be due seven business days afterward. The
show-cause order and other documents in the case may be found on the Internet at
http://dms.dot.gov, docket OST-2005-23307.
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Briefing Room
