Virgin America Should Be Considered "American" for Now

Yesterday, Barbara Hernandez posted a piece here on BNET that had some harsh words for Sir Richard Branson and Virgin America in regards to the airline’s ownership structure. Though I have often been critical of Virgin America’s business model, I find myself compelled to defend the airline in this particular instance. Virgin America has proven itself to be compliant with federal ownership laws and nothing has happened to change that fact . . . yet.

According to US law, no more than a quarter of an airline’s voting shares can be owned by a foreign entity. Virgin America was under severe scrutiny for many months, and it was required to make multiple changes to its ownership structure, before finally be approved to fly in July of 2007. Once that approval was received, there would be no further reason to question its ownership status unless something material changed. Alaska Airlines is trying to argue that circumstances have changed and a public inquiry is necessary.

In Alaska’s complaint (read the petition submitted to the DOT), the airline claims that things have changed since then. Specifically, they say that the airline has received multiple loans to cover cash shortfalls and has employed an investment bank to find new investors in case the existing ones cash out as they were so permitted (see our earlier story), among other allegations. Ms Hernandez says, “And while usually this kind of story would just be considered sour grapes, there seems to be a little more to this controversy.” But I have to disagree. I don’t think there is much more here at this point.

There is no question that Alaska would like to see Virgin America disappear, but at the very least the airline would like to see more information put into the public eye. I can’t say I blame them, and they have every right to give this a shot if they want. But I don’t see how it’s going to succeed.

I don’t doubt that any ownership changes will be reviewed very carefully by the DOT. If existing investors decide to cash out, then the DOT will be watching to make sure that other Americans take over that stake. If not, I would expect the airline to eventually be shut down. But to the best of my knowledge, this is mostly speculation. Those owners haven’t cashed out yet, and there’s nothing out there that makes it look like there has been any change in the structure.

The time to argue whether the structure is adequate or not is over, despite the fact that there is plenty of ammo for such an argument. That chapter ended when the DOT approved the deal in 2007. Now, only when a change occurs should we begin to be concerned about the viability of the company’s structure. I haven’t seen anything yet to show that this has happened. The potential for existing investors to drop out would be very concerning to me, but that hasn’t happened.