Only a part of the airline will be owned by Virgin Group

The airline will create 600 jobs in the first five years and 700 in the next 10, in a 15 year commitment worth $69m(£37.6m) to the local economy.

Operations will be based in San Francisco, hiring 1,800 workers in two years, and will be the first airline to have operations based California.

The airline, due to launch in 2005, will be US-owned and operated.

"We are delighted to make these announcements. The company is up and running here in the US but we will not begin flights until some time during 2005," a Virgin USA spokesman told BBC News Online.

The exact timing depends on the granting of licences from US aviation and transport authorities.

The airline industry is an important engine of our economic growth, and we must do all we can to support expansion as we continue to create opportunities for all New Yorkers New York mayor Michael R Bloomberg

In exchange for basing its HQ in New York, Virgin can earn $5.5m of sales tax benefits for equipping and renovating its headquarters, and other benefits from New York State.

Flight attendants, engineers and workers in related functions will be hired in San Francisco.

Virgin USA said a minority stake in the new airline would be held by Virgin Group, the conglomerate that also operates carriers Virgin Atlantic and Virgin Express.

Confidence boost

The company said it plans to offer a customer-focused low-cost airline providing more comfort and entertainment.

"Virgin will bring more than 700 jobs and millions of dollars in investment, benefiting the entire region and reinforcing people's confidence in New York City," said mayor Michael R Bloomberg.

"The airline industry is an important engine of our economic growth, and we must do all we can to support expansion as we continue to create opportunities for all New Yorkers."

Governor George E Pataki applauded Virgin's decision "to bring their world-class brand to New York".

'Innovate support'

As well as sales tax benefits, Virgin is also eligible for $3.5m of marketing and training advisory services, and up to $1.2m of training grants, plus $445,000 in energy savings.

Fred Reid, chief executive of the new airline, and a veteran of Delta Air Lines, said Virgin had received "innovative support services from the city and state".

Virgin plans to start the US fleet from scratch, but has not made any announcement yet on aircraft purchase or numbers needed.

Under US law, foreign companies are only allowed to own 25% of the voting rights in an US airline, and up to 49% of the equity.