Virgin America Surprises with Significant Changes

Virgin America

Man, looks like I posted too soon. This afternoon, Virgin America announced that they’ve made some pretty hefty changes to their ownership structure that should make it very difficult for the DOT to turn them down now. You can read the full 190 page order here (PDF).

What exactly did they change? Well, here’s what they’ve said in the press release with additional information I pulled from the actual order.

  • Virgin Group will give up one board seat so that it now only holds two. The other six voting directors and one non-voting director will be US citizens.
  • Virgin Group will give up most of its rights to veto and to give consent on “various aspects of Virgin America’s operations or decision making” while US investors will retain those rights.
  • Virgin America will now have a relaxed brand license agreement with the Virgin Group. The DOT had originally objected partially because they interpreted the agreement as prohibiting Virgin America from flying outside of North America or from codesharing outside that area with anyone other than Virgin Atlantic. Virgin America’s response is that the interpretation is incorrect. In fact, the airline can fly or codeshare outside of North America as long as it doesn’t use the Virgin name. Now they’ve expanded the agreement to allow Virgin America to completely drop the Virgin America name if they so please and then the restrictions on brand usage would no longer apply within North America or outside.
  • Virgin Group will put all its voting shares in a voting trust with a US trustee approved by the DOT. The trust can only be revoked with the permission of the DOT unless Virgin Group wants to sell its shares to a third party.
  • If the DOT feels that ties between Fred Reid (CEO of Virgin America) and Richard Branson (CEO of Virgin Group) are too strong, Fred Reid will be removed from the board or even from the CEO position entirely.
  • Both US investment funds will require investors to be US citizens in order to have voting rights.
  • The US investors will make an additional $20 million loan to Virgin America that is not secured by Virgin Group.

I must admit that it’s an entertaining read. Virgin America seems to hold nothing back and is really harsh in dealing with the DOT. Though that hardly seems like the right tactic to take, they do address all of the issues raised by the DOT head on.

I can’t say I’m an expert at knowing what the DOT is truly looking for, but this application seems like it will be hard to deny with these additional changes. The thing that seems like it could be most objectionable is the brand license agreement. The fact that they cannot use the Virgin America name to fly outside of North America could still be construed as control over the airline, but I can understand why Virgin Group does it. They do need to protect their own brand, and it hardly seems unreasonable.

I’m impressed that they were able to make such drastic changes in such a short time. Hopefully this means we’ll see them flying sometime soon, but I wouldn’t be surprised to see many further delays.

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