Virgin mulls bid for bankrupt airline as fast route into US

Virgin is considering making an offer for America's recently bankrupted low-cost operator Independence Air in a move which would finally allow Sir Richard Branson to break into America's budget airline market.

Virgin America, a subsidiary of the Virgin group, has been on the drawing board for the past two years but has yet to launch its domestic US service due to problems in complying with the country's restrictive foreign ownership rules governing airlines.

The San Francisco-based company is understood to be looking closely at Independence's operating licence and other assets as a way to bring its fledgling airline into the skies by the first half of next year.

Independence declared bankruptcy last Monday after just 17 months as in independent operator, after its cash was eroded and it was forced to slash its capacity.

While some rivals would like Independence to sink completely because it has forced them to dramatically cut their own fares, others view it as attractive because of the popular east coast routes it flies and because its base in Washington's Dulles airport is regarded as a prime spot.

Independence filed for Chapter 11 bankruptcy protection with Delaware's bankruptcy court with $379m (£279m) in assets, $455m in liabilities and $24m in cash. It said it would auction itself to the highest bidder. Interested parties must register with the court by 1 December and submit formal offers by 16 December.

The launch of Virgin America, which is operated separately from the long-haul Virgin Atlantic business, has been delayed because the company has been talking to US private-equity firms about taking stakes in its business to satisfy rules limiting foreigners to owning 25 per cent of an airline's voting shares. Virgin could fast-track a launch by buying Independence's operating licence, which would require it to satisfy an "informal fitness review" by the US Department of Transportation (DoT). However, this process could start immediately and would be likely to be successful. But ultimately, Virgin must still comply with the ownership regulations.

The DoT relaxed these rules two weeks ago but consultation on exactly what the new guidelines mean for foreign investors will stretch into early next year, making it difficult for Virgin and its potential private-equity partners to evaluate a deal with Independence.

Virgin would not comment on its interest in Independence.

A possible deal comes as talks take place this week in Washington between the US government and the European Union over deregulation of the world's aviation market.