Its hard to think this is not the conclusion of a quid-pro-quo re EU-US Open Skies. What happens to Fred Reid now? More gems – Virgin America questions the Department’s objection to a restriction preventing Virgin America from operating planes with 20 seats or less because the use of small planes are not typically used by domestic commercial airlines. Virgin America also questions the Department’s objection to a restriction on flights above 85,000 feet, despite “the inability of current civilian jet aircraft to operate at such altitudes,” including those that Virgin America plans to use. We are clearly talking Galactic here.

From the DOT Docket OST-2005-23307:

By Order 2006-12-13, issued December 27, 2006, the Department tentatively found that the applicant, Virgin America, Inc. (“Virgin America”), had failed to establish that it was a U.S. citizen and that it would be owned by and remain under the actual control of U.S. citizens. In response to that finding, Virgin America filed a substantially revised application proposing material changes in its financial arrangements, its management, and its corporate governance. Although our decisions on air carrier fitness look at the “totality of the circumstances” surrounding the applicant, and not any single factor, it is quite apparent from the record that Virgin America has either made or offered to make fundamental and highly constructive changes in its application. These modifications, when complemented by certain additional conditions we propose to include, now support a tentative finding that the applicant can meet our stringent tests for citizenship.

The most important reforms to be undertaken by Virgin America include:

• Amending a variety of material agreements, including existing aircraft leases, so as to address concerns about the role of the applicant’s largest foreign investor in the formation of the airline, by restricting the Virgin Group’s power over changes in such agreements and other related matters such as capital expenditures.

• Amending the company’s loan agreements with the Virgin Group and other formative documents to eliminate the latter’s ability (through veto rights and the requirement of prior written consent) to control the applicant’s business.
• Replacing its current Chief Executive Officer, who the record suggested might be considered “beholden” to foreign interests under DOT precedent, with a new official presumably having no prior affiliation with the non-U.S. investors of Virgin America.
• Restructuring its board of directors so as to reduce the number of Virgin Group designees.
• Establishing a voting trust to administer the Virgin Group’s 25 percent equity interest in the airline.

Our review shows, however, there do remain a few areas where the revised application, as proposed by Virgin America, still falls short of the rigorous standards we apply in determining whether U.S. interests have “actual control” of the airline. Therefore, we are proposing to stipulate further conditions that the applicant must accept (or persuade us not to require) before making its certificate authority effective. Among other things, these conditions include:

• Requiring that the disinterested directors on the Virgin America board (that is,
  U.S. citizens) separately approve of the appointment or replacement of the trustee of Virgin Group’s shareholdings.

• Amending the voting trust agreement to require that the Trustee vote its shares proportionally to the other shareholders as to any matter that, in the opinion of the
  U.S. investor directors, creates a conflict of interest between the interests of Virgin Group and that of U.S. shareholders.

• Modifying the Virgin Trademark License Agreement to remove certain geographic and operational restrictions on Virgin America and the requirement that it pay royalties to the Virgin Group should the applicant conduct operations independent of the Virgin name.
• Confirming that the current CEO has terminated employment with the applicant within 90 days of the certificate being issued and any follow-on consultancy within 180 days following termination of employment.
• Submitting copies of all executed and signed agreements prior to certification.
• Reporting to the Department in advance if any additional loans (or other debt funding) are to be provided to it from the Virgin Group.
  As discussed further below, based on our review of the amended record of this case we now tentatively find that Virgin America will be a citizen of the United States, will be fit, willing, and able to provide interstate scheduled air transportation of persons, property, and mail, and should be issued a certificate of public convenience and necessity authorizing such operations, subject to conditions.
  As is our normal practice, we will provide interested parties 21 days to comment on our tentative findings and conclusions here.