The government tossed a roadblock in the path of startup airline Virgin America on Wednesday, ruling that the company must change its ownership and corporate structure before it can receive an operating certificate.
Under the law, a U.S. airline must be 75% owned and controlled by Americans and the Department of Transportation said Virgin America does not currently meet that requirement.
Virgin America is based in Burlingame, Calif., and had planned to begin flights in 2007.
The airline has 14 days to object to the department's action.
A spokesman for Virgin America said a response to the announcement was being prepared.
While Richard Branson, head of England's Virgin Airlines, was instrumental in getting Virgin America started, the new airline had indicated it had financing from a variety of sources.
But DOT said it was tentatively denying Virgin America's application because it doesn't meet the requirement that the president and two-thirds of the board of directors are U.S. citizens, and that at least 75% of the voting interest be owned or controlled by U.S. citizens.
The Department recently withdrew a proposed rule that would have amended its interpretation of the statute's "actual control" requirement so as to allow additional foreign investment.
The department said the new airline's close relationship with the British Virgin Group and the active involvement of executives in the U.K. firm in getting Virgin America started "indicates that the carrier is not under the actual control of U.S. citizens."
It also cited interlocking financial agreements and the Virgin Groups ability to influence decisions of the carriers board.
The department also concluded that less than the required 75% of voting interest in Virgin America is owned or controlled by U.S. citizens, with most of its voting equity held by companies that are majority-owned by non-U.S. citizens.