Wednesday, December 27, 2006

American Bully Tactics

The US is always so full of itself, with its supposed "free market" and its "free trade" rhetoric.

Using these arguments, we have been negotiating with the EU for the opening of their aviation markets. Since 1977, a treaty between the US and the UK limits Heathrow access to Virgin Atlantic, British Airways Plc, American, and United Air Lines. America has been using the "free competition" byline with some success, and negotiations are advancing in our favor.

[Thanks to for the photo.]

Then along comes Branson of Virgin Airlines, the British aviation success story, forcing us to put up or shut up. He wants access to the US internal air travel markets. Being much smarter than he sounds in his public appearances, he realizes he has to work around the existing protective barriers: He must create an American company that is owned and operated at least 75% by US citizens.

So he does it; or he thinks he does it. Everything goes according to plan. He figures out the US maze of barriers. He spends thousands of man-hours getting approval from the FAA for his aircraft, obtaining the permits, filing petitions and negotiating deals.

Obviously, these rumblings in their own home court don't appeal to the competition, Continental, American Airlines, Delta, US Airways, and the airline unions. They immediately get on the phone to their friendly Washington lobbyist, who jump onto the phone to their favorite Senators and Congress people, and -- bingo -- somehow the the Transportation Department "Sees the Light." Virgin America is not 75% controlled by US citizens. The oracle hath spoken.

Looking at the numbers, Branson's Virgin Group Ltd. only put up 25% of the initial $177 million investment, plus a $53 million loan. The rest of the company belongs to Black Canyon Capital in LA and Cyrus Capital Partners, a hedge fund in NY. Between them, they control 75% of the new airline. The crux of the matter seems to rest, according to an article at Bloomberg, upon the hiring of a fellow named Fred Reid as Virgin America CEO. Continental argues 'that since Reid "was hired by, and is clearly beholden to, the Virgin Group'' he cannot qualify as a citizen under U.S. law. Continental also argued that the Virgin Group conceived, financed and designed Virgin America, and hand-picked its fleet and key personnel.'

Hmmm. It would seem to me that either he's a citizen, or he's not. Period.

All of this is embarrassing for the Transportation Secretary Mary Peters, not only because they are the ones pressing for the opening of EU air space, but now Mr. Branson (presumably who has lobbyists of his own) can start to play hardball. The fist fight is on to decide who is the bigger bully.


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