=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/c/a/2007/01/18/BUGOBNKG0J= 1.DTL --------------------------------------------------------------------- Thursday, January 18, 2007 (SF Chronicle) Changes as Virgin America seeks approval/Airline tries to overcome percepti= ons about ownership Ryan Kim, Chronicle Staff Writer Virgin America, the fledgling Burlingame airline that has been stymied in its attempts to get its wings, announced a sweeping set of corporate governance changes Wednesday in another push to win federal approval to fly. In a response to a tentative rejection last month from the Department of Transportation, the carrier said it would surrender certain veto rights for its British minority owner, the Virgin Group, place the Virgin Group's minority ownership shares in a U.S. trust and even offer to dismiss Virgin America's new chief executive, Fred Reid. "We have really jumped through rings of fire, bent over backward and sho= wn ourselves to be in good faith," said Reid in a phone interview. "There is no good reason to deny this application, which is squarely in the public interest." The company has run into trouble over perceptions about its ownership. U.S. law requires that domestic airlines be at least 75 percent owned by American citizens. The company maintains that has been the case with Virgin America, which is 25 percent owned by the Virgin Group. But Department of Transportation officials maintained the company's intricate structure, which involves some Cayman Islands corporations, gave foreign interests more than the allowable amount of ownership. The government also said that a licensing agreement with Virgin Group founder Richard Branson ties the carrier to Virgin Group and that Reid was beholden to Branson, who hired him. Reid said the concessions show the company is firmly controlled by Americans. He said the minority ownership shares would be controlled by a trustee approved the Department of Transportation. He said the company has also liberalized its trademark license in such a way it could drop the Virgin name if necessary. And the company also said it removed one of Virgin Group's seats on the board of directors, leaving Virgin Group with two of the eight remaining seats. Virgin America has touted itself as an innovative low-fare airline that will bring about changes to the industry, including an environmentally friendly business plan. The company has raised $177 million from investors, rented offers near San Francisco International Airport, hired a staff of 169 people and ordered 33 planes. A Department of Transportation spokesman declined to comment on Virgin America's response. The public will have 14 days to comment on the carrier's plans. Regulators then could take a few months to issue a decision. Reid said the carrier could begin flights within a couple months of approval. Henry Harteveldt, a senior analyst with Forrester Research, said the changes made by Virgin America are significant enough to win approval from the Department of Transportation. "The fact that they are taking steps to create a voting trust, relinquishing a board seat and the fact that they would be willing to drop the Virgin reference in the brand name shows this is a company that is serious about taking to the skies," Harteveldt said. He said the holdup has occurred because of opposition from traditional domestic carriers that are not keen on more competition, especially from a carrier that is connected to an innovator like Branson. Branson founded Virgin Atlantic Airways of London and sells a slew of Virgin-branded products, everything from vodka and comics to cell phones and colas. "If you had the same investment in an airline called Air Potato, you wou= ld have none of the opposition," said Harteveldt. "The carriers are seeing what JetBlue did six years ago and they're worried they're going to lose more market share to another creative upstart." David Miree, a spokesman for San Francisco Mayor Gavin Newsom, said he hopes Virgin America has now satisfied the federal government's concerns and can soon begin flights out of San Francisco International Airport. E-mail Ryan Kim at rkim@xxxxxxxxxxxxxxxx -------------------------------= --------------------------------------- Copyright 2007 SF Chronicle