Virgin America again seeks U.S. approval to fly

By John Crawley
Wednesday, January 17, 2007; 7:11 PM

WASHINGTON (Reuters) - Virgin America Inc. revised its ownership application on Wednesday, hoping to reverse a tentative decision by U.S. regulators to deny its bid to start low-cost airline service this year.

The company, with branding and financial ties to British entrepreneur Richard Branson's Virgin Group <VA.UL>, has made significant changes to its original proposal, which the U.S. Transportation Department rejected on December 27.

Virgin America said it would ditch its chief executive, Fred Reid, if necessary, and reduce any potential influence that Branson's business empire could have over the San Francisco-based operation that wants to start flying early this year.

"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 company said in a statement.

A Transportation Department spokesman said the agency would carefully review the revised application.

In its determination last month, transportation planners said Virgin America failed to satisfy a long-standing federal law that limits foreign participation in U.S. airlines. Carriers must be controlled by U.S. citizens and overseas equity is restricted to 25 percent of voting stock.

Regulators found Virgin America had too much financing from entities based in the Cayman Islands and foreign limited partnerships.

Virgin America said in its revision its U.S.-based investment funds, Cyrus Capital Partners and Black Canyon Capital, would limit investors to U.S. citizens only. American investors have also pledged another $20 million.

Regulators in December also cited the pervasive involvement of Virgin Group and its executives in the creation of Virgin America, and found the new carrier would probably be controlled by Branson and his interests.

Virgin Group committed $88.4 million in debt and equity financing -- slightly less than one-half of the company's start-up financing of $177.3 million. The debt agreements show Virgin America's survival is contingent on Virgin Group financing, the Transportation Department said.

In response, Virgin Group has agreed to "clarify and relax" certain items in its trademark license to "demonstrate how Virgin America is free to fly with our without the Virgin brand name."

Virgin Group also proposed to give up a board seat and relinquish veto or consent rights regarding some aspects of Virgin America's operations. Virgin Group would hold two of eight seats with voting rights.

Virgin Group would also place its voting shares in a trust with a trustee approved by the Transportation Department.

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