L.A. makes its pitch as Virgin seeks base for budget airline.

L.A. city officials are mounting a strong pitch to Sir Richard Branson's Virgin Group to make Los Angeles the headquarters for a new low-cost airline Virgin intends to launch next year.

The headquarters would bring about 500 permanent jobs to L.A. over a five-year build-up, along with hundreds of related airfield jobs. Together, these jobs would pump tens of millions of dollars a year into the local economy.

"We have been in conversations and negotiations with Virgin for several months about the siting of their U.S. headquarters and we Fed-Ex'd them an offer on Nov. 7," said Renata Simril, L.A. Mayor James Hahn's new deputy mayor for economic development.

Simril said that officials from Hahn's Business Team, Los Angeles World Airports, the city Community Development Department, Councilwoman Cindy Miscikowski's office and the Economic Development Corp. of Los Angeles County have all met with Virgin representatives over the past several weeks.

L.A. is one of six U.S. cities vying for the headquarters of the new airline, tentatively called Virgin USA. The others include San Francisco, Boston, New York, Philadelphia and Washington D.C.

Virgin officials said earlier this month that Branson intends to raise $200 million from U.S. investors to start the airline by summer or early fall of 2004. It would compete with other low-cost carriers that operate coast-to-coast flights, including JetBlue Airways. London-based Virgin Group already operates Virgin Atlantic Airlines, which has overseas routes from several U.S. cities.

Decision by year-end

Virgin Group officials said they intend to make a decision on a headquarters location by the end of this year, after which time they will announce more details about the airline. Sources close to the negotiations said last week that regardless of where the headquarters is cited, Virgin USA would likely have operations in all six cities.

While the four East Coast cities would appear to have the edge because of their proximity to the majority of Virgin Atlantic's U.S. operations, either of the California locations would give Virgin another entree into the lucrative Asian travel market.

Virgin Group spokeswoman Lori Levin, reached late last week, said the company had no comment on either the status of the proposed new airline or the headquarters search at this time.

But sources close to the negotiations said last week that L.A.'s offer includes up to 85,000 square feet of space in a building near Los Angeles International Airport for headquarters operations, a training facility and a call center. It also includes gate space at LAX, as well as unspecified financial incentives.

Nearly two months ago, L.A. area economic development officials led Virgin executives and their real estate broker, CB Richard Ellis, on a tour of about a dozen buildings, both along the Century Corridor and in El Segundo.

But city officials didn't actually put an offer on the table until Nov. 7, several weeks after other cities submitted their written bids. Last week, Bay Area economic development officials traveled to Virgin's New York offices to make their presentation in person.

As of late last week, L.A. officials had yet to hear back from Virgin on whether they would be asked to make a presentation in person. "We're hoping to hear back in the next several days," Simril said.

L.A. does have an advantage: vacancy rates in the Century Boulevard corridor are among the highest in the L.A. area, topping 28 percent in the third quarter, according to Grubb & Ellis Co. That gives L.A. officials lots of flexibility in assembling space at reasonable rent levels.

Incentives a factor

But CB Richard Ellis Senior Vice President Craig Meyer said the headquarters search would more likely turn on the level of incentives offered by the various cities.

"We know that Boston and Philadelphia have assembled extremely attractive financial packages," Meyer said. Among the incentives Virgin is seeking: city and state tax abatement programs, rent-free facilities at LAX, gate fee discounts or waivers, and help in setting up worker training programs.

Simril would not disclose what incentives L.A. has offered to Virgin. However, she did confirm that the offer included a specific building "very close" to the airport.

One issue that has not appeared to surface is Hahn's proposed $9 billion makeover of LAX, which would have dramatic impacts on all of the surface streets around the facility. The timeline for build-out of that plan--2012 or later--is so far into the future that it would have little impact on a lease signed next year, sources said.

One major obstacle for the two California bids has been the comparatively high cost of doing business in the state. Late last month, then-Gov.-elect Arnold Schwarzenegger placed two calls to top Virgin Group officials offering them reassurance that California's workers' compensation costs and other costs would come down, according Deberah Bringelson, president and chief executive of the San Mateo County Economic Development Association.

Meyer said another issue of concern is how a new administration at LAX would address gate allocations and fees and terminal space. Earlier this year, Lydia Kennard stepped down as executive director of Los Angeles World Airports; she has been replaced on an interim basis by Kim Day while the Airport Commission conducts a national search for a permanent replacement.

"It remains to be seen what the new administration is going to do to attract a high-profile airline headquarters," Meyer said.

Staff Reporter Danny King contributed to this article.