US says Virgin America can't fly as structured

US says Virgin America can't fly as structured
Wed Dec 27, 2006 5:00 PM ET

WASHINGTON, Dec 27 (Reuters) - U.S. transport regulators said on Wednesday they had tentatively rejected Virgin America Inc.'s application to fly, saying its ownership structure did not meet a U.S. citizenship test.

The U.S. Department of Transportation said the low-cost airline, with a name made famous by British entrepreneur Richard Branson, did not meet the requirement that 75 percent of its voting interest be owned or controlled by U.S. citizens.

Virgin America said it would respond to the department on Jan. 10 and demonstrate that it will meet the ownership and control requirements.

"We remain committed to getting our wings," said Virgin America in a statement. The airline had said last week it was expecting the rejection.

Virgin America has faced opposition from U.S. carriers such as Continental Airlines <CAL.N>, who argue that Branson's Virgin Group [VA.UL] effectively controls the airline in violation of U.S. law.

In rejecting the application for an operating certificate, the department cited Virgin Group's and its executives' pervasive involvement in the creation of Virgin America.

It also cited the funding Virgin Group provided to the carrier, various interlocking financial agreements, and Virgin Group's ability to influence decisions of the carrier's board.

The department added that the restrictive name-brand licensing agreement between Virgin Group and the airline impedes the carrier's independent, decision-making authority.

"... properly structured licensing or franchise agreements between U.S. and international carriers are now, and will continue to be, permissible," the department said in a statement.

British-based Virgin Group has stakes in airlines in Europe, Australia and Nigeria.

The company has 33 Airbus planes on order and was planning to start operation with just two to four aircraft, beginning with a San Francisco-New York route.