Carriers Debate DOT's Foreign-Ownership Proposal

The U.S. Department of Transportation through Jan. 6, 2006, will accept comments on a proposal to ease foreign ownership restrictions covering U.S. carriers. DOT said the rule "clarifies how the Department will interpret 'actual control' of a U.S. carrier" and would allow U.S. carriers to access foreign capital and remain competitive in an evolving marketplace.

U.S. and international carriers offered conflicting viewpoints on the notice of proposed rulemaking, which was posted between negotiating sessions for a liberalized aviation pact between the United States and the European Union. The next round of talks was scheduled for this week in Washington.

Specifically, DOT said it proposes to "reduce substantially the significance of foreign influence over many purely economic decisions, such as choice of markets, type of equipment and rate-setting." The proposal would apply to investors from countries with which the United States has negotiated Open Skies aviation agreements and which allow similar investment by U.S. citizens in their airlines.

U.S. citizen control still would cover "those areas of airline operations where there currently remains significant government involvement or regulation," notably safety and security. The 25 percent cap on foreign voting interests in a U.S. carrier also would be unchanged.

"As the nation's airlines continue to evolve to meet dramatic changes facing the industry, they need the same kind of flexibility to raise money that other businesses have," said U.S. Secretary of Transportation Norman Mineta.

Continental Airlines blasted DOT's proposal as "a blatant attempt to circumvent the law that DOT has been unable to convince Congress to change" and an obvious concession to the European Union. The carrier said DOT is "attempting to gut the definition of 'actual control' " and that existing law requires U.S. citizens to control "all aspects" of a U.S.-based airline's operations.

Virgin Atlantic also opposed DOT's proposal, but for different reasons. "It appears that [U.S. regulators] are trying to secure access to London Heathrow Airport for their airlines while giving little or nothing in return," said CEO Steve Ridgway. "Their proposal would leave in place the fundamental restrictions on foreign companies investing in or controlling U.S. airlines."

Ridgway said DOT would use its proposal as leverage to allow U.S. carriers to fly unrestricted throughout Europe while still barring European carriers from operating within the United States.

In a speech last week at the International Aviation Club in Washington, D.C., DOT under secretary for policy Jeffrey Shane said some parties were "extremely prompt" in voicing their views. "It deserves more thought and consideration than was evident in those initial responses," he said. "Without changing any of the numerical ceilings in the statute—only Congress can do that—we would, if we adopt this proposal, allow far more scope for meaningful participation by offshore investors in the commercial decision-making that takes place in a U.S. airline."

Shane suggested that the proposal would facilitate cooperation between airline alliance members and negotiations between U.S. and E.U. regulators.

"If the E.U. talks were to collapse immediately after reconvening, we would not abandon the proposal, but would see it through to its conclusion," according to DOT under secretary Shane. "But I will not stand here and pretend that we don't care whether the proposal will have a positive impact on the U.S.-E.U. talks. Of course we do."

Along those lines, U.K. carrier BMI welcomed DOT's proposal, saying it "goes a long way" in opening market access as part of a new U.S.-E.U. aviation treaty. Unlike Virgin, BMI currently cannot operate nonstop service from Heathrow to United States gateways.

British Airways is one of four airlines that can. Its CEO, Willie Walsh, last month told BTN that existing regulations hinder meaningful progress in bringing commercial aviation into the 21st century.

"Because government regulators have had a lot to say about foreign ownership and control—where in most cases it cannot exceed 49 percent, or in the case of the United States, 25 percent—we have not seen cross-national mergers and sensible economic rationalization that we see in every other global industry," he said.