Virgin America adapts in bid to get flying

18th Jan 2007

Virgin America has
responded to the U.S. Department of Transportation with a comprehensive
reply that revealed sweeping changes designed to address concerns about its
ownership and control.Despite the fact that the company and its shareholders firmly believe
that its application complies with U.S. law, changes outlined today in its
filing should remove any doubt that the airline is, and will remain, a
U.S.-owned and controlled company that meets all U.S. citizenship
  In its detailed response, Virgin America notified DOT that the company
and its investors were making substantive changes directly in response to
the Department’s tentative negative show-cause order of Dec. 27, 2006.
  “Our investors have made key changes to the company that we feel
demonstrably address DOT’s concerns so that we can get our airline up and
flying as soon as possible,” said Virgin America CEO Fred Reid. “We are
committed to creating the best airline possible and bringing much-needed
competition to the U.S. airline market.”
  Changes to the company structure and investor agreements are extensive,
and demonstrate the extent to which Virgin America and its investors are
prepared to go to get the airline approved. The key changes to the company
  *  Virgin Group dropping a Board of Directors seat, so they now only hold
    two of eight voting seats;

  *  despite being normal protections for a minority investor in a company,
    Virgin Group has given up veto or consent rights regarding various
    aspects of Virgin America’s operations or decision making;

  *  Virgin Group agreed to clarify and relax certain key terms in the
    Virgin trademark license to demonstrate how Virgin America is free to
    fly with or without the Virgin brand name;

  *  despite holding the 25 percent voting control allowed under U.S. law by
    a foreign investor, Virgin Group has agreed to put all of its voting
    shares in a voting trust with a DOT approved U.S. trustee;

  *  in response to the DOT’s concerns about ties to Richard Branson and
    Virgin Group, the company’s Board of Directors is prepared to remove
    its CEO should the DOT find that necessary;


  *  both of the U.S. investment funds, Cyrus Capital and Black Canyon, will
    limit investors to only U.S. citizens, and

  *  the U.S. Investors also have agreed to make an additional $20 million
    investment in Virgin America.
  “The importance of introducing Virgin America’s new innovative service
and our multitude of consumer benefits are too large to let anything stand
in our way,” the company said in its filing. “Virgin America is prepared to
expend every rational effort to get certified, start flying, and allow
consumers to enjoy the benefit of our service and in-flight experience. We
are confident that we will demonstrate that we can be an airline people
will love.”
  Virgin America will offer the best quality low-cost air service in the
U.S. We plan to fly into primary airports at a time when there is a
shortage of quality low-fare capacity in the U.S. domestic market-a
shortage that will only get worse after the conclusion of several large
airline mergers currently in the works.
  According to a study by the Campbell-Hill group, if Virgin America had
been flying last year it would have saved U.S. consumers more than $786
million dollars annually, or an average of $88 per roundtrip. Virgin
America’s entry into the market would generate more than 3 million new
one-way trips and have a significant discounting effect on air fares in
most, if not all, new markets.
  While it took 13 months to deliver its decision, DOT already found that
Virgin America: met the requirement that the President and two-thirds of
Board of Directors be U.S. citizens; satisfied standards for managerial
competence and compliance disposition, and met all financial fitness
  “We passed the FAA’s stringent safety review with flying colors, and we
now hope to move swiftly forward with our DOT certification,” said Reid.
“We are ready to bring new competition, lower fares, better service, as
well as jobs and economic benefits to the people and communities we will
  The airline intends to directly create more than 1,000 new U.S. jobs in
its first year and up to 5,000 within five years. In addition to this
direct U.S. job creation, by its fifth year Virgin America will be
responsible for indirectly creating and supporting approximately 50,000
total new U.S. jobs.
  “One of the Department’s mandates is to encourage competition and yet
it’s the U.S. traveler who stands to lose most if Virgin America is denied
the chance to fly. We invite consumers to visit our new website today,, to see the very first look at how we plan to make
flying better-and to show their support for the airline by signing our
online petition,” said Reid.
  “There are 170 Virgin America employees who have worked tirelessly for
years to get this airline off the ground. The majority of our shareholders
are American. Our Chairman is American. Our CEO is American. More than
two-thirds of our Board and managing officers are American. This airline
will benefit American consumers and the American workforce. Every day the
decision is delayed, our company is weakened. On behalf of our entire
staff, we ask for an immediate decision so that we can deliver a company of
which all Americans can be proud.”


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