Air Transport World

Empty gesture?

Airline ownership and control issues continue to plague policymakers

Ten years have passed since the U.S. Department of Transportation raised the cap on non-U.S. investors' ownership of U.S. airlines' nonvoting stock to 49% while retaining the 25% limit on voting stock. That decision, which bypassed Congress, specifically accommodated the leveraged buyout of Northwest Airlines.

DOT juggled numerous considerations in setting the new policy: The 25% equity limit and control restrictions in U.S. law; Northwest's LBO-induced need for money; the fact that non-U.S. ownership, mostly KLM's, already had exceeded 50%; and, in part, a desire to liberalize ownership, or at least to provide better control guidelines than existed.

Ken Quinn, at the time counselor to DOT Secretary Sam Skinner, recalls: "Skinner believed that expanding foreign investment was a higher goal. But there was no thinking about the issue before Northwest came along as a vehicle."

Congress complained about, but didn't formally challenge, the policy. SAS, already invested in Continental parent Texas Air, increased its holdings, and British Airways bought into USAir after a failed attempt to buy into United, while Wall Street looked the other way.

But no other investor has put that much into a Major U.S. airline. Without the control that DOT would not permit to KLM or any other investor, interest waned fast, though some say 49% buys effective control and DOT policy allows even more than 49% if no control exists.

There was a reason for the lack of interest. DOT policymakers had pulled their punches. Post NWA-KLM, Quinn says, "We had hoped to guide the industry with a more defined set of transactions. [But] there was a lot of trepidation about the control test, which had a checkered past. It changed based on nuances of transactions and what individuals at DOT thought." The BA-United deal gave pause. …

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