ALPA: Virgin America Application Fails to Satisfy U.S. Law

August 8, 2006

ALPA blasted Virgin America’s application to engage in interstate scheduled air transportation in its recent comments to the Department of Transportation (DOT), citing that Virgin America’s failure to satisfy citizenship requirements contained in aviation statutes as reason for immediate rejection of the application.

“Virgin America’s application would have us believe that a company created, funded, organized, and staffed by foreign interests satisfies current U.S. law that prohibits foreign control of U.S. airlines,” said ALPA President Duane Woerth. “Virgin’s blatant smoke and mirrors attempt to steal into the U.S. market does not pass the straight-face test.”

U.S. law specifically states that, to provide air transportation in the U.S. domestic market, a corporation must be under the actual control of U.S. citizens. Yet, the Virgin Group, a foreign entity, is clearly in a position to control Virgin America.

The Virgin Group created, funded, and organized Virgin America, right down to hiring most of its key managers, including its CEO. The Virgin Group has provided more than $130 million—or 90 percent of its financing to date—to Virgin America, including the company’s start-up capital. Foreigners currently hold more than 75 percent of the voting interest of Virgin America. Finally, the Virgin brand is essential to the applicant’s business plan, leaving it completely bound to whatever brand guidelines the Virgin Group may impose.

“It is obvious that the Virgin Group currently exerts powerful influence over Virgin America in myriad ways and will continue to do so in the future, especially through appointments to the company’s board,” Woerth continued. “Because the Board has the final say in Virgin’s structure, management, operations, business plan, aircraft purchases, and key managers, there’s little doubt where the power lies.”

Virgin America’s application to the DOT claims that it has U.S. investor partners, yet these partners did not approach the Virgin Group—rather the Virgin Group solicited them. The U.S. investor partners do not have an extensive track record in terms of aviation or business experience.

“I’ve got a bridge in Brooklyn to sell to anyone who is naive enough to believe Virgin’s assertion that a few hand-picked U.S. hedge fund investors with no aviation management experience will do more than defer to the dominant expertise of the Virgin Group,” Woerth said.

Even if the Department of Transportation were to implement its misguided proposal to allow foreign control of U.S. airlines, the Virgin America application would still fail to qualify as a U.S. citizen.

“Virgin America’s organizational structure presents an affront to the laws of this land,” concluded Woerth. “However, Virgin America has sought to keep this structure out of the public eye by asking that its organizational documents be kept secret. Because the application so openly challenges the long-standing U.S. policy that prohibits foreign interests from controlling U.S. airlines, the company’s relationship with the Virgin Group should be put on the public record and its application should be the subject of an open debate, not a clandestine, backdoor deal.”