Taking to the air
Low-fare startup Virgin America says it has the funding to fly

Virgin America, a proposed low-fare airline that would be based at San Francisco International Airport, said Thursday its has arranged sufficient funding to begin flying.

The airline, partly owned by British celebrity entrepreneur and Virgin Atlantic founder Richard Branson, has applied for approval from the Department of Transportation and the Federal Aviation Administration and hopes to start operating in 2006.

If approved, it will become the only major airline based in California. The majority of the 2,000 jobs it will create, including flight attendants, pilots, maintenance technicians, engineers and dispatchers, will be in the Bay Area. That marks a success for local officials who vigorously courted Virgin.

Virgin has not been specific about the cities it wants to serve except to say they will be major metropolitan areas. But in a regulatory filing it said it had notified San Francisco International as well as the three major New York airports, Kennedy, La Guardia and Newark, about its plans.

Virgin said in June that it would base its operations in San Francisco but maintain corporate headquarters in New York. But that plan appeared inefficient and the airline decided to locate both functions in the Bay Area, Virgin America Chief Executive Officer Fred Reid said in an interview Thursday.

"We believe that a single home base in the Bay Area will help simplify operations during the company's intense startup period,'' said Reid, 55, a native San Franciscan who was previously president of Delta Airlines.

"It was shocking that California, as remarkable and as big as it is, had no hometown airline," Reid said. Concentrating operations in the state "made us proud," he added.

The company is considering several locations in the Bay Area for its corporate headquarters, including San Francisco.

Reid said employees will have the option of union representation. "We have a plan to be a close partner with our employees, whether they are represented or not,'' he said.

Reid estimated that as the nascent airline grows, an additional 20,000 to 30,000 indirect jobs will be generated nationwide.

San Francisco, San Mateo County and Gov. Arnold Schwarzenegger aggressively lobbied Virgin, which also considered Dulles International Airport near Washington and Boston's Logan International Airport as possible operating bases. California and San Francisco offered the airline more than $15 million in subsidies and incentives, including employment training grants and co-operative marketing.

Mark Moser, executive director of the California Commission for Jobs and Economic Growth, who had coordinated the state effort to attract Virgin America, said Schwarzenegger is gratified.

"We are obviously thrilled, given a several-month effort," Moser said. "Not only have they (Virgin) crossed the significant milestone to become an economic reality, they are moving permanently to San Francisco. It's a significant victory for the state.''

Virgin said it has secured $177.3 million, much of it from VAI Partners LLC, a group funded by private investment firms Black Canyon Capital in Los Angeles and Cyrus Capital Partners in New York. Both are putting in slightly more than $44 million, for a total of $88.9 million. Black Canyon managing director Mark Lanigan, 45, will serve as Virgin America chairman.

Lanigan said Thursday that he believes demand for air travel will grow and that low-cost carriers will continue to take market share from traditional airlines. He called Virgin "a very compelling investment opportunity.''

Branson, the swashbuckling businessman and adventurer who turned transatlantic carrier Virgin Atlantic into a major force in the airline industry, was the brains behind the new airline.

But a majority of Virgin America's shares will be owned by U.S. citizens. The United States limits foreign holdings in domestic airlines to 25 percent of the voting stock and 49 percent of the capital.

In this case, the U.S. investors, VAI Partners, will hold 75 percent of the capital stock and voting interest in the airline and is designating two-thirds of the voting members of the board of directors.

Branson's British Virgin companies will contribute $29.8 million in equity as well as $58.6 million in debt, the company said.

Airplanes will bear the Virgin logo, which the company and its backers believe is a strong brand name.

Low-cost carriers account for about 15 percent of SFO's operations of about 1,000 flights a day, airport spokesman Mike McCarron said. Discount carriers there are America West, ATA, Frontier and Canada's Westjet. Southwest Airlines moved its SFO operations to Oakland International about five years ago.

Virgin said it will operate 33 Airbus planes, of which 18 will be purchased and 15 leased from General Electric Capital Aviation Services.