Air Transport World

The foreign-ownership dilemma; U.S. airlines are raising needed capital from non-U.S. investment as the regulators look the other way.

U.S. Airlines are raising needed capital from non-U.S. investment as the

regulators look the other way. Should cabotage be next? By Joan M. Feldman.

More foreigners are investing in more U.S. airlines. The U.S. has agreed to exchange cabotage rights with Canada. These actions should mean that the U.S. finally has decided to promote a more liberal aviation policy.

Not exactly. True, the U.S. is allowing ever-higher levels of foreign investment. Witness the makeup of Wings Holdings, Continental and Hawaiian. But approvals for those investments are wrapped in contradictory twaddle that leaves people utterly confused. Transportation Secretary Sam Skinner held a press conference to announce the start of broad new negotiations with Canada but he did not volunteer the fact that cabotage is included. Ownership limits still are not part of those talks.

The "pragmatists" at DOT say this is progress. But it is not the kind of progress they will support across the board, heart and soul, from every possible podium. To some people, that is not progress at all.

The reason for the cat-and-mouse game is obvious. U.S. laws limit foreign investment in airlines and ban aviation cabotage. These principles were adapted from the statutes on ocean shipping, which was deemed important to national security and therefore had to be protected from foreign takeover. The World War I-inspired U.S. Shipping Act of 1916 limits noncitizen ownership of U.S. shipping lines and was used as the model for aviation. The ban on foreign participation in U.S. domestic aviation commerce takes its precedent from U.S. law against oceangoing cabotage dating as far back as 1789.

Since the shipping laws were created, promotion of international trade and economic expansion have replaced fear of attack as the dominant foreign-policy driver in most nations. Protection and subsidy have fallen into disrepute. Exhibit A is the U.S.'s own Jones Act, which failed to protect the U.S. merchant-marine industry.

While the world changes, aviation remains mired in its own anachronistic regulatory structure. Still, under enormous pressure from business, even aviation is having to modernize. It might happen faster if the U.S. espoused a clearer policy on foreign ownership and cabotage.

On Oct. 11, Jeffrey Shane, DOT assistant secretary for policy and international affairs, acknowledged to Congress that "international sources can provide much-needed new capital for our airlines.... As a nation, we cannot afford to forgo these benefits [foreign investment and cooperative links/alliances], and therefore, we encourage these developments. But we do so within the limits of the law." He did not suggest changing the law.

According to the Federal Aviation Act, U.S. airlines have to be U.S. citizens in order to hold U.S. operating rights. That's not different from requirements in most other countries. Section 1 01 of the Act says that a U.S. airline is one where 75 per cent of the voting interest is owned or controlled" by U. …

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