View Full Version : All Quiet On The Western Front

14th Dec 2003, 04:14
Has anyone heard any more news/rumours about Virgin's foray into trhe low-cost market in the US?
Last reports were several months ago and nothing since then. If this is for real and they hope to be up and running by "June 2004", then they will have to start recruiting/training and acquiring aircraft pretty soon.
Also, past reports have suggested that Sir RB was looking @ an existing US carrier because of current US ownership laws (although on record he has said he would rather start his own from scratch than take on someone elses debt/problems). Be interesting to see which way he eventually goes. If Virgin Blue and Virgin Pacific Blue is anything to go by, it should be interesting watching this plan evolve.
Just wondering what the latest is...
Any reports in the Sunday Telegraph/Times/Guardian in recent weeks?:hmm:

14th Dec 2003, 04:18
In these days of international capitalism and globalisation, why are non-us citizens not allowed to own more than 49% of an airline based in the US?

14th Dec 2003, 04:27
DC10RealMan wrote

In these days of international capitalism and globalisation, why are non-us citizens not allowed to own more than 49% of an airline based in the US?

49% or 25% ?

14th Dec 2003, 04:29
Probably for the same reason that an FAA pilot cannot fly an American-built, G-registered aircraft!
No, seriously, I agree wholeheartedly with you. You do have a point and this "rule" may be changing soon anyways which is why Branson is real interested. It is NOT the first time he has been sniffing around here. Perhaps the time is right. Time will tell.

14th Dec 2003, 04:42
Foreign owner ship is limited to 49 percent of the airline and 25 percent of the voting shares of stock.

Don't look for that to change as the airlines are an integral part of the national defense of the USA because of the CRAF (Civil Reserve Airfleet) All the major airlines are flying (still) dozens of military flights a month to the Middle east.

Any hope of changing the foreign ownership rules died with France's anti US stance leading up to the Iraq war. They will never take the chance of foreign controll of our prime method of moving troops now...


Boss Raptor
14th Dec 2003, 04:54
The ownership issue actually is two seperate requirements, 'Substancial Ownership' and 'Effective Control'

Substancial Ownership - considered to be the ownership of 50% or more of voting shares of the airline stock. However recently with airline stock becoming traded multinationally and also cross border airline mergers the benchmark is revised and more flexable to allow for example 60% of the stock to be in the hands of foreign shareholders (individuals or corporate) as long as 40% are 'substancially owned' by nationals who represent the most important owners.

Effective Control - has nothing to do with numbers or stock but rather who effectively controls (runs) the airline i.e. the right to hire and fire, to set corporate goals, make strategic decisions. The US Securities Exchange Act of 1934 defines control as 'means the possession, direct or indirect, of the power to direct or to cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise'.

The US DOT sets a 'control test' which looks at financial control through equity ownership and then at control through personal relationships. Satisfaction of the US statutory requirements for 'Substancial Ownership' is not sufficient to determine an airline is a US airline - the airline must also be deemed to be 'Effectively Controlled' by US citizens.

The EU has defined a definition of 'effective control' under Regulation 2407/92 of 23 July 1992 which is similar to the US direction.

14th Dec 2003, 08:15

So, what's the answer? Is Branson really going to do this (as countless reports over the past 10 months would have us believe)?
He has said on many occasions, that he would rather do it from scratch with his own people and planes rather than team up with an already-existing US airline. We all know of his successes with Virgin Blue in Australia but I guess the market forces in the US are somewhat different.
If, and it seems like this is a big if, this gets off the ground, then it's going to be mighty interesting watching what will happen in terms of what routes and the type of passenger he hopes to attract. I'm saying this because to me this seems a double-edged sword. While it would certainly stir the pot vis-a-vis the low-cost carriers, everybody here is screaming about over capacity! Do we really NEED yet another LCC when the amjority continue to struggle. A lot of folks don't realize that the industry in the US is far worse than in EU or indeed, many other parts of the world. Pundits say that it is the worse downturn in 30 years - not just the usual 10-year cycle.
On the other hand Sir RB is no fool either. He does his homework and very rarely backs a loser (one being Virgin Trains which he readily admits was a mistake). Also, he has had a high-level team in NY for some time looking into all the possibilities and talking to potential investors etc. One report even suggested a link up with mainline VS from their US gateway cities.
Either way, I think there are interesting times ahead....

15th Dec 2003, 00:08
Ask your nearest Venezuelan pilot about the importance of limiting foreign ownership....