KEY POINTS:
Billionaire Richard Branson's bid to start an American airline may help Virgin Atlantic Airways, the UK carrier he controls, regardless of the decision by US authorities.
US approval of Virgin America, the planned start-up, would give Branson domestic routes in the world's biggest aviation market. Rejection may let him keep rivals off the US-UK routes where Virgin Atlantic is the second-largest airline.
"If Virgin's domestic application ends up not being approved, or being delayed another year or two, it's going to be hard for the US to make a big push on opening the markets in the UK," said Ed Faberman, former deputy chief counsel for the US Federal Aviation Administration.
A decision on Virgin America's bid might come this month, said one source.
Branson's closely held Virgin Group put up 25 per cent of the initial US$177 million ($258 million) investment to start California-based Virgin America, as well as a $53 million loan.
Officials from Virgin America say US investment firms Black Canyon Capital in Los Angeles and New York-based Cyrus Capital Partners control 75 per cent of the carrier.
Virgin America, which plans to start flying between New York and San Francisco, recruited Fred Reid, a former Delta Air Lines president, to be chief executive and Donald Carty, former chairman and CEO of American Airlines parent AMR Corp, to be chairman.
Continental Airlines, American Airlines and US Airways Group oppose Virgin America's bid. The start-up doesn't meet rules limiting foreigners to 25 per cent of US airline voting equity and barring them from having "actual control", the US rivals said in government filings.
Virgin America filed its plan with the US Transportation Department a year ago this week, and Branson predicted in January the new airline would be flying in six to nine months.
Those hopes were dashed when the department put off a decision while it pored over additional information requested from Virgin America, including ownership details.
"There is a possibility" the application would be denied, though Virgin America might get a list of changes needed to win approval, JetBlue Airways CEO David Neeleman said.
Virgin America, if approved, eventually might try to send passengers to Virgin Atlantic, said Faberman. That would let Branson share in the revenue going to alliance partner Continental, which funnels travellers from 19 US cities to Virgin Atlantic, he said.
A Virgin America spokesman, Gareth Edmondson-Jones, said it was too soon to speculate on any alliance with London-based Virgin Atlantic. "The purpose of Virgin America is to be a damn good airline in its own right," he said.
"There is no managerial or operational link between Virgin Atlantic and Virgin America," said Paul Charles, the UK airline's director of corporate communication.
Under a pending US-EU aviation agreement, more US carriers could fly to London's Heathrow airport. A 1977 US-UK treaty limits US-Heathrow routes to Virgin Atlantic, British Airways, American and United.
Rejection of Virgin America would let Branson argue the UK Government should oppose the agreement because the US didn't open its market to him, said Charles Hunnicutt, an assistant transportation secretary under President Bill Clinton. A "no" from any EU nation would sink the accord.
Killing the aviation agreement would block more competition on the US-UK routes, where Virgin Atlantic trails only British Airways in passenger traffic.
However, the aviation treaty was unlikely to advance anyway, said Rigas Doganis, a London-based consultant.
- BLOOMBERG
