The US DOT is reviewing Virgin America's citizenship amid reports that US investors have sold their stake in the carrier to its UK-based parent company Virgin Group.

US federal law requires that US-based carriers be at least 75% owned and controlled by US investors.

"Earlier this year Virgin America informed the department of proposed transactions involving its United States shareholders. Presently, the department is reviewing these transactions and the results of this review will inform any future action of the department on this matter," DOT under secretary of policy Roy Kienitz says in a letter to US Congressman James Oberstar, chairman of the US House transportation and infrastructure committee.

Oberstar, along with North American union the Air Line Pilots Association (ALPA) and Virgin America rival Alaska Airlines have pushed for the department to investigate Virgin America's citizenship.

"I find it significant that in its answers opposing these petitions, Virgin America does not deny that there has been a sale or other transfer of financial interest in the stock," says Oberstar in a letter to US transportation secretary Ray LaHood. "If Virgin had been able to make this denial, it presumably would have done so, since this would be a strong, if not irrefutable, argument for denial of the requests for an investigation."

The latest citizenship challenge comes as Virgin Group has been looking for new investors for Virgin America. Financial advisor Lazard is expected to find new investors for Virgin America by the end of 2009, ATI sister publication Commercial Aviation Online reports.

Hedge funds Cyrus Capital Partners, Black Canyon Capital and a few undisclosed other US investors held almost 77% of Virgin America when the startup launched operations in August 2007 after a lengthy battle to convince regulators that the airline met US citizenship requirements and control rules.

An investment vehicle of Virgin Group controlled the remaining stake of the privately-held airline.

Source: Air Transport Intelligence news