U.S. airlines sing the blues over Virgin startup

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Just how American is the proposed startup airline Virgin America? Not American enough, critics say.

The proposed low-cost carrier, which is seeking approval from the Department of Transportation to begin flying, is facing strong opposition from several major domestic airlines that accuse it of trying to skirt U.S. ownership laws.

Virgin America is the brainchild of British entrepreneur and billionaire Richard Branson, who heads the British business conglomerate Virgin Group, which includes the successful Virgin Atlantic airline. Other airlines in Branson's Virgin brand include Australia's Virgin Blue and Polynesian Blue.

Mr. Branson long has wanted to expand his empire to the American skies, but has been hindered by U.S. laws forbidding foreign ownership and control of domestic airlines.

So Mr. Branson partnered with U.S. investors to set up an ownership structure in which 75 percent of Virgin America's voting stock is U.S.-held, the minimum threshold required. The Virgin Group controls the remaining 25 percent.

Virgin America last year secured $177.3 million in funding led by VAI Partners LLC, an investment group funded by U.S. investment firms Black Canyon Capital and Cyrus Capital Partners. The deal is among the largest of any startup airline in U.S. history.

The airline's chief operating officer is an American, Fred Reid, ensuring that the airline is free of foreign control, company officials say.

Don Carty, who served as chief executive and chairman of AMR Corp., the parent company of American Airlines, from 1998 until he was forced out in 2003, is Virgin America's chairman.

"Some of the arguments against [Virgin America] have been pretty spurious -- like Fred Reid was hired by a foreigner, so he must be a foreigner," airline spokesman Gareth Edmondson-Jones said. "Virgin America's application is within current U.S. law."

Not so, say several U.S. carriers, who say Mr. Branson's influence would be anything but minor. Those carriers include Continental, U.S. Airways, Delta and American airlines.