UPDATE 2-US to approve Virgin America if changes made

(Adds Virgin America response, other reaction, byline)

By John Crawley

WASHINGTON, March 20 (Reuters) - Virgin America, the low-cost start-up airline with ties to British entrepreneur Richard Branson, will have to ditch its chief executive and restructure its ownership to win final approval to operate, U.S. officials said on Tuesday.

The Transportation Department said "fully executed" changes to Virgin America's corporate structure, as promised by the carrier, would satisfy a law requiring domestic airlines be controlled by U.S. citizens.

"The tentative decision does not change current U.S. airline investment law or its application," the Transportation Department said in a statement.

The ownership issue led the government in December to reject Virgin America's initial application.

Virgin America then offered several steps, including replacing its chief executive, Fred Reid. Regulators said Reid's "longstanding association with foreign investors" had raised concerns about who would control the new carrier.

Reid is a veteran airline executive who held overseas posts with AMR Corp.'s (AMR.N) American Airlines and was chief operating officer of Germany's Lufthansa (LHAG.DE). He is also a former president of Delta Air Lines DALRQ.PK.

Transportation regulators in December also cited the pervasive involvement of Branson's flagship Virgin Group VA.UL and its executives in creating Virgin America, and found the new carrier would probably be controlled by Branson and his interests.