Friday, March 13, 2009

The Virgin America Citizenship Saga Continues

According to an article which appeared in yesterday's International Herald Tribune, Virgin America remains steadfast that it is still owned and controlled by U.S. citizens.  (For a discussion of U.S. statutory provisions on airline citizenship, see the previous blog post on Virgin America here.)  Contrary to what was reported in The Wall Street Journal earlier this week, Virgin America's Chief Executive David Cush stated that "[a]ny story saying that 76 percent of voting shares have been sold back to the Virgin Group and are being held by the Virgin Group is an inaccurate story." 

As discussed previously on the blog, Alaska Airlines has been leading the charge for the U.S. Department of Transportation to review (and, presumably, revoke) Virgin America's certificate of public convenience and necessity.  Yesterday, in its latest filing before the DOT, see Petition of Alaska Airlines . . . , Dkt. No. OST-2009-0037, Reply of Alaska Airlines, Inc. and Motion for Leave to File (Mar. 12, 2009), Alaska cited the WSJ story that the U.K.-based Virgin Group "owns virtually 100 percent of Virgin America's voting securities."  Alaska also requested that the DOT not be swayed by Virgin America's choice to leave its apparent former U.S. investors on its shareholder board with control of at least 75% of the voting stock.  As Alaska argues:

If it becomes acceptable for a foreign citizen owning virtually all of a carrier's voting stock to insulate its foreign ownership by placing the voting rights to 75 percent of the stock in the hands of of a U.S. 'rent-a-citizen' with absolutely no beneficial interest in that stock, it could be reasonably said that there is nothing left of the statutory requirement that U.S. citizens maintain ownership of 75 percent of a carrier's voting securities.

In a footnote to its filing, Alaska did recognize that Annex 4 to the 2007 U.S./EC Air Transport Agreement stated that "ownership by Nationals of a [EU] Member State or States of 50 percent or more of the total equity of a U.S. airline shall not be presumed to constitute control of that airline.  Such ownership shall be considered on a case-by-case basis."  Even so, the alleged fact that the Virgin Group now owns nearly 100% of Virgin America's equity and that, according to Alaska, there exists no "countervailing influence from U.S. citizen shareholders is more than enough to call Virgin America's citizenship into question."

Not surprisingly, Alaska Airlines is not alone in its dogged pursuit of Sir Richard Branson's brainchild.  Both the Air Line Pilots Association and the Association of Flight Attendants filed supporting answers last month.  Additionally, the Aircraft Mechanics Fraternal Association (AMFA) filed its own petition for the DOT to review Virgin America's citizenship.  See Petition of Alaska Airlines . . . , Dkt. No. OST-2009-0037, Answer of Virgin America Inc. to Petition of [AMFA] (Mar. 3, 2009) (requesting the DOT to consolidate the Alaska Airlines and AMFA petitions).  Branson has never been shy about his disdain for the unions.  They, in turn, were extremely vocal in opposing Virgin America's initial certificate application in 2006.  It is difficult to gauge what (if any) influence they will have over the present proceedings.  Assuming Virgin America isn't able to unload 75% or more of its voting shares into the hands of U.S. citizens, all eyes will be on the DOT to see if it is willing to find some plasticity in the statutory requirements, particularly given the language of Annex 4 of the U.S./EC Agreement.  But even "some plasticity" may not be enough if the Virgin Group ultimately holds nearly 100% of Virgin America's equity.  Even placing a majority back into U.S. hands may assuage some DOT concerns and give the agency enough interpretive wiggle room to allow Virgin to stay airborne.  On the other hand, given the nativist rumblings of Rep. James Oberstar and the nationalistic provisions in the pending 2009 FAA Reauthorization Act, how long will it be before Congress steps in to steer the DOT's hand?  It had no problem doing so in 2003 during the DHL Airways proceedings, see DHL Airways, Inc. . . . , Dkt. No. OST-2002-13089, Order Declining Review (May 13, 2004), or in the DOT's 2005 Notice of Proposed Rulemaking, see 71 Fed. Reg. 26,425 (May 5, 2006) (discussing the legislative and political backdrop of the proposal).  There's little reason to suppose they'll sit tight now.

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