By Mary Kirby in Philadelphia
Hoping to prevent further delay of its certification, Virgin America has for the first time admitted that the Virgin group of companies synonymous with UK entrepreneur Richard Branson is responsible for initiating the US startup carrier’s business plan, developing its basic infrastructure and soliciting investors through an investment banker.
The carrier believes the revelations, made in a filing to the US Department of Transportation (DoT), will placate the regulator’s concerns about how VAI Partners, the company that controls the startup and owns 75% of its voting rights, developed a relationship with the Virgin group.
It also hopes the disclosure will persuade the DoT to drop its demand that the airline supply copies of all communications with Branson or any party related to the carrier concerning its formation, operations, management or services.
Such an inquiry, says Virgin America in its filing, appears to require “a worldwide investigation by individuals and entities that could be potential custodians of responsible records”. And it would focus on past activities instead of Virgin America’s current US ownership and control, breaking with DoT precedent.
To avoid such an extensive, burdensome and time-consuming production “resembling those found in full-flown class-action litigation”, Virgin America says it is willing to submit a stipulation that it believes will allow the regulator “a factual basis from which to continue” its review of Virgin America’s application for certification.
As part of this process, the startup now admits that the group of companies that use the Virgin brand - referred to as simply Virgin in the filing - “undertook steps to bring the concept of a new, low-fare, US air carrier to reality.
“Virgin was fully cognisant of the fact that under applicable US federal aviation law, US investors must hold actual and constructive control of any domestic air carrier. As a result, it solicited, directly and through financial advisors and representatives, interested US investors who would be willing to participate in and fund the project and exercise actual control over the airline. The current members of VAI Partners…were among the US investors solicited,” says the startup carrier.
Also, Virgin America acknowledges that Virgin “prepared an initial draft business plan for presentation to potential investors, hired consultants and other qualified individuals to serve as potential management for the airline, and took other steps to facilitate the creation of some of the basic infrastructure of the airline, including pursuing initial arrangements with aircraft, inflight entertainment, customer product and other vendors”.
The startup says Virgin assumed this role “in order to increase the attractiveness of the project to potential investors and in an attempt to minimise the time period required between capitalisation of the airline and eventual commencement of operations”.
Significantly, Virgin America concedes that between the period leading to investment by VAI Partners and the eventual formation of Virgin America, Branson “was kept informed of general developments, and he was consulted from time to time for his personal entrepreneurial and airline experience to help improve the initial development and marketability of the project”.
Virgin America was established in 2004 and had initially planned to launch service from San Francisco in mid-2005. But the carrier’s application has faced numerous complaints from US carriers, including Continental Airlines and Delta Air Lines, which have demanded the company disclose various confidential details to prove its US citizenship.
In its filing, Virgin America says the complainants seem intent on “highlighting the historical antecedents of Virgin America so as to divert attention from the applicant’s current US ownership and control”.
It says that only those airlines “who fear competition from a well-capitalised, low-cost, high-quality US airline" have any reason to prolong this proceeding.
Source: Flight International
