Virgin Gets Nod to Fly Inside U.S. New Carrier Agrees to Alter Financing

By Jeff Bailey and Nicola Clark

Virgin America, a proposed airline backed by Richard Branson, has won tentative Transportation Department approval to operate flights in the United States after agreeing to jettison its chief executive and revamp its financing to reduce the influence of Branson and other non-U.S. citizens.

If Virgin America succeeds in starting operations this summer, as planned, it would add a major new player to the market for flights between the East Coast and West Coast, potentially pushing fares down and offering travelers more choices.

While good for consumers, that could hurt other airlines, which have been enjoying rising fares because of a big reduction in the domestic industry’s fleet since 2001. Other major carriers – including American Airlines, Delta Air Lines, Continental Airlines, United Airlines and US Airways – had filed objections with regulators over Virgin America’s plans.

Also Tuesday, Virgin Atlantic Airways, Branson’s successful trans- Atlantic carrier, said it might invest as much as l100 million, or $194 million, on new routes over the next two years if the European Union and the United States ratify an agreement to open trans- Atlantic air travel to increased competition.

The plan by Virgin Atlantic, which is Britain’s second-largest airline after British Airways, appeared to be a tacit admission that London’s intense lobbying effort to block a proposed “open skies” pact had failed.

Paul Charles, a Virgin Atlantic spokesman, said the carrier was “intensely” studying plans to add daily flights to New York from several major European cities, including Paris, Frankfurt, Milan, Amsterdam and Zurich.

If ratified by the 27 EU member states and Congress, the open skies accord would allow any European or U.S. airline to fly any route between any city in Europe and any city in the United States. Currently, European carriers may fly to U.S. destinations only from their home countries.

EU transport ministers plan to meet Thursday to approve the agreement, which would lift the current restrictions in October this year. In recent weeks, Virgin Atlantic has joined British Airways in criticizing the deal, saying it gives away too much to U.S. carriers and offers little benefit to European airlines in return. British Airways in particular has resisted terms that would end a 30-year deal giving the two British carriers, as well as United and American, the exclusive rights to fly between the United States and London Heathrow Airport, Europe’s busiest.

In its effort to start U.S. domestic service, Virgin America was rebuffed in December by the Transportation Department, which found that the company had failed to meet rules establishing American control of airlines operating in the United States.

Since then, Virgin America offered to replace its chief executive, Fred Reid, a former Delta executive, with someone having no previous ties to Branson or other foreign investors in the company. It also offered to reduce the number of board members designated by Branson’s Virgin Group and to place the group’s 25 percent voting power in a trust.

Labor groups in the United States also opposed the Virgin America plan, which could add to financial pressures on domestic airlines and thus endanger some jobs.

“This decision will set a deadly precedent and open the door to foreign competition in our aviation industry,” said Patricia Friend, president of the Association of Flight Attendants. She said the government’s tentative approval was aimed at winning European support for the open skies plan.

Virgin America, based in Burlingame, California, near San Francisco’s airport, said it was pleased by the ruling and hoped to start flights between San Francisco and Kennedy International Airport in New York by midsummer. Within nine months of beginning flights, it said it planned to serve Los Angeles, San Diego, Las Vegas and Washington.

JetBlue Airways, which operates from Kennedy and derives about one-third of its revenue from flying between the coasts, would be the most affected of domestic airlines. But JetBlue did not oppose the Virgin America start-up, said a spokeswoman, Jenny Dervin. She said JetBlue welcomed the competition.

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Jeff Bailey reported from New York and Nicola Clark from Paris.

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