=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/06= /03/BUGPI6VIGO33.DTL --------------------------------------------------------------------- Thursday, June 3, 2004 (SF Chronicle) Home of Branson's Virgin USA still up in the air/With Boston out of the rac= e, SFO, New York wait to hear where new carrier will land George Raine, David Armstrong, Chronicle Staff Writers There's every reason for free spirit entrepreneur Richard Branson to make San Francisco home base for his Virgin USA airline, a carrier that can only be found on paper, and plenty of reasons why New York could be his choice instead. San Francisco gets high points because it is offers an offbeat culture that may well appeal to Branson, a maverick who has positioned his international carrier, Virgin Atlantic Airways, as a cheeky outsider. Moreover, San Francisco International Airport has extensive maintenance facilities and a large and deep labor pool of laid-off airline employees let go by other employers during the economic downturn that began in 2000. On the other hand, New York makes sense because Branson's Virgin Atlanti= c, where he is 51 percent owner, already has a major presence in New York, gateway to the Atlantic and the large European market. New York also has a large pool of experienced mechanics and other airline workers. Moreover, it is a world media capital, an enticing attraction for Branson, who loves to be the center of attention. "Branson can sprinkle his magic pixie dust and create a terrific experience" wherever he bases Virgin USA, said Henry Harteveldt, principal airline analyst at Forrester Research in San Francisco. Should the airline take off as scheduled in early 2005, Branson, a Briti= sh citizen, could own no more than 49 percent of the carrier, as stipulated by U.S. law. Branson has said he would be starting Virgin USA as a domestic low-cost carrier, like JetBlue and Southwest, flying chiefly within the United States. One industry analyst suggested Branson might divide the airline's operations between San Francisco and New York, getting the best of both worlds. Branson is wrestling with the decision now, after eliminating Boston, where for months officials had been led to believe that the South Boston waterfront and SFO were Virgin USA's favored options. The airline needs a headquarters and a maintenance facility, but more important, it needs a culture, and Virgin is a well-known brand that would give Virgin USA a good lift-off. "Unless they do something stupid, they should have plenty of business," said Morton Beyer, president and chief executive of Morton Beyer & Agnew, airline industry consultants in Arlington, Va. San Francisco made a major push for Virgin USA in February, and expected to hear the verdict within weeks. But so far, a decision has not been forthcoming. SFO officials say they would offer several unused gates in the International Terminal to Virgin USA. In April, Branson named Fred Reid, the former president of Delta Airline= s, as chief executive of Virgin USA. Since then, the management team has had little to say publicly about its plans and has concentrated on raising capital for the airline, which would have to be majority U.S.-owned. Both cities have major liabilities as well as major strengths, aviation industry analysts say. SFO's chief drawbacks are its limited runway capacity and often foggy summer weather, which limits the quick turnaround times airlines want, said Arthur McMahon, a senior consultant with Airline Capital Associates in New York. Such delays prompted low-fare pioneer Southwest Airlines to pull out of SFO and establish its base at Oakland International Airport, noted Air Travelers Association President David Stempler. On the other hand, no low-cost carrier has headquarters at SFO, which might attract Branson, Stempler noted. Kennedy Airport is congested from 4:30 to 7:30 in the evening, McMahon noted, but otherwise has ample runway capacity, as well as entire terminals sitting unused. Another advantage of Kennedy would be its proximity to Europe. Passengers flying to the United States from Europe, especially Britain, might prefer to stay on a Virgin airline rather than switch airlines to travel within the United States, said Kevin Mitchell, chairman of the Business Travel Coalition. But first, Branson has to find the funding and the wherewithal to fly the new airline. In Branson's ideal world, he would create an airline from scratch, said Harteveldt of Forrester Research, "because he wants to create his own culture, and he wants to have his own airplane done the way he wants, rather than buying something with existing problems and image." Several airline industry sources said they do not think Branson has ever inquired about joining with or taking over an airline, and spokesmen for two mid-size carriers, Midwest Airlines and Air Wisconsin, said they had not been approached. In an impromptu handicapping of the pros and cons of San Francisco and N= ew York, Harteveldt noted that both Kennedy Airport and SFO have available space: the showplace architecture of the old TWA terminal at JFK and the abandoned old International Terminal at SFO. London is seven hours or less from New York, but San Francisco may be attractive because there is no other airline headquartered here, "and it remains a perennial popular destination," said Harteveldt. "The big problem in San Francisco is not San Francisco or SFO. It's the bigger issue about doing business in California -- the problems of health and safety, minimum wage," said Harteveldt. It remains to be seen whether Branson, in building a low-cost airline, would fight union representation. That is not his choice, but that of his employees, said Joe Tiberi, a spokesman for the International Association of Machinists in Washington. He said the union would seek to organize the new airline's employees except for the pilots, who have separate representation. "What matters is how productive and efficient the airline is," said Harteveldt. "Southwest Airlines is heavily unionized, so if you have good labor relations and keep things focused, you can run a good airline." The two-city theory has already been tested, Harteveldt said. American Airlines, based in Fort Worth, has for decades operated its maintenance facility in Tulsa. Beyer added that if it were his choice, he would reject both San Francis= co and New York. "Both of those places -- particularly California -- have the highest rental rates in the world for housing and industrial properties," he said. "I would end up in the middle of the country, where there is a high population and low rent, like Indianapolis." He noted thatIndianapolis has a major maintenance facility abandoned by United Airlines in its bankruptcy. All things being equal, San Francisco's reputation as a maverick city could tip the balance in its favor, Kevin Mitchell said. "But I don't think that would be the deciding factor by itself," he said, adding that Virgin Atlantic has an offbeat reputation, too, but nevertheless bases its North American operations in staid suburban Connecticut. Finally, Stacy Geagan, a spokeswoman for Virgin USA, said Wednesday from New York, "We're still negotiating with both San Francisco and New York, and both would like to have the Virgin-branded airline in their cities. We don't know yet which one to call home." Virgin USA's choices. San Francisco -- Offbeat culture -- Extensive maintenance facilities -- Deep labor pool -- Virgin USA would be only airline headquartered at SFO. New York City -- Available terminal space -- Proximity to Europe -- World media capital -- Richard Branson's international carrier Virgin Atlantic already a maj= or presence in city -- Large pool of mechanics and other airline workers Source: Chronicle research E-mail the writers at graine@xxxxxxxxxxxxxxx and davidarmstrong@sfchronicle .com. ------------------------------------------= ---------------------------- Copyright 2004 SF Chronicle