Blow for Branson's US lowcost airline

PLANS by Virgin Atlantic chairman Sir Richard Branson to launch a discount airline in America have been dealt a serious blow by Congress.

It has defied a call from President Bush and Europe to loosen restrictions on foreign ownership of US airlines. Under legislation approved last week, this will continue to be restricted to 25%.

Despite the setback, Branson vowed this weekend to press ahead with his lowcost venture, though the original launch timing of early next year appears to be slipping.

In another blow for the Virgin boss, Congress also amended regulations to make it even more difficult for non-Americans such as Branson to exercise control over US carriers.

He had hoped the US would raise the limits on voting rights to 49%. Now he may seek a deal with a US airline in which he would own a 49% stake but have control over only a quarter of the voting rights.

The moves by Congress, which followed action to impose tariffs on foreign goods amid a continuing row over America's ban on some foreign steel imports, are seen as another irritant to transatlantic-relations. 'Congress went in exactly the wrong direction,' said a Washington transport lawyer, who represents foreign airlines.

'Bush wanted Congress to lower the barriers to foreign ownership and it raised them. This was silly, coming as it does just before talks on an agreement on a transatlantic air pact.'

Congress's action came just days after Branson toured Philadelphia airport to judge if it was suitable as a base for his discount airline.

However, a source in the US Transportation Department said Branson had not formally applied for approval to establish an airline.

'I would think he was awaiting clarification on how much of the operation he could own and this would not have been what he was hoping to hear,' he said.

Anglo-American talks are bogged down at present.

The sticking points are over calls for the US to lift ownership restrictions and open its air space to foreign airlines and for the British Government to allocate more landing and take-off slots to US carriers at Heathrow.

Among reasons cited by Congressmen for blocking increased foreign ownership has been national security and the fear that a foreign-controlled airline might not follow US foreign policy in a crisis.

Trade experts fear that protectionism pressures will grow in the run-up to next November's Presidential and Congressional elections.

Will Whitehorn, Branson's spokesman, said: 'These are unfortunate setbacks, though we were expecting them. Nevertheless-we will be going ahead with the launch of the new airline in the US in the summer.'

The US market already has two low-cost carriers - Southwest Airlines and JetBlue - but Branson insists that there is room for a third player.

The airline will be modelled on Virgin Blue, his successful Australian joint venture, which is due to float as a public company next month in Sydney. Its stock market value will be up to £1 billion.

Some of the estimated £100 million Branson will raise from the deal will be used to fund his US-based budget carrier.