bluesideup340
Well-known member
- Joined
- Sep 16, 2003
- Posts
- 150
Why Are There Restrictions on Airline Ownership?
The restrictions on international ownership of US airlines are a historical remnant of a different era. Their origins date back to the days of sailing ships in the 19th century. During the period of airline regulation they were of course extended, and since then these restrictions have been perpetuated primarily due to the political fact that US airlines are a very effective lobbying group, whereas international investors have virtually no lobbying clout in Washington.
There are actually two very different restrictions that prevent a full open market for airlines in the US at present. Opponents of an open market have tended to try and mix together the 'worst' of each issue as support for their opposition to the other concept. So let's clearly understand these two different concepts :
Cabotage or Eighth Freedom Rights
The so called 'Freedoms of the Air' spell out, by international treaty, how airlines based in one country can operate over and in other countries. The US does not currently allow this Eighth Freedom to international carriers, and it hides behind the bilateral concept of 'we will only let a foreign country's carriers participate in our market if the foreign country has a similar sized market and lets our carriers participate in their market, too'.
Foreign Ownership of US based Carriers
This is totally different to cabotage. The US limits the amount of foreign ownership in its domestic airlines to a maximum of 49%, with a maximum of 25% control.
Most other countries have similar protective provisions limiting ownership of their airlines, but there are some notable exceptions - for example, the Australian government. Australian law requires the airline to be staffed and managed by Australians, and has an Australian board of directors. The net result has been tremendously beneficial to the Australian public, while the major carrier (Qantas) does not seem to have been unduly harmed, either.
A number of myths and misunderstood half-truths have been offered as reasons to 'protect' the US carriers from fair free open-market competition. But most of these half-truths apply only to restrictions on cabotage, and have no relevance to allowing foreign ownership of domestic, US based, airlines.
None of these allegations stand up to scrutiny, so let's look at them.
Myth 1 : We Need US Carriers for National Security
As recently as 3 April 2003, Speaker Dennis Hastert used this argument to defend Congress' $3.2 billion airline aid plan. He said '[it is necessary that] we don't have a whole industry collapse at a time when maybe we need it most' (referring, presumably, to the Iraqi conflict).
It is true that there is a program (the CRAF - Civil Reserve Air Fleet) whereby US airlines hire planes to the military when needed, giving the military additional airlift capacity. But this program would apply equally to any US based, US incorporated airline, no matter where the shareholders were based.
A US corporation is bound by US laws, no matter who or where its shareholders are based.
Furthermore, the US airlines are generously remunerated in return for their military charters, indeed some recent study suggested it would be cheaper and better if the US government simply tendered for charters on the open market!
Myth 2 : Foreign Airlines Don't Have the Same Security Standards
Maybe foreign airlines do, maybe they don't have the same security standards as US airlines. But, who cares? This is a red herring argument, because we're not talking about foreign airlines. We're talking about a US airline, subject to all US regulations and controls.
Sure, the airline may be owned in part or by whole by off-shore investors, but it is a US airline, operated by US permanent residents and citizens, and following all US standards and procedures.
Myth 3 : Foreign Airlines Don't Have the Same Safety Standards
The answer to this myth is exactly the same as the answer to myth #2.
Myth 4 : Foreign Airlines Would Take Away Jobs from Americans
A US based carrier is subject to the same laws for who it can employ, no matter who its owners might be. All US carriers have to employ either lawfully admitted foreign nationals on special work visas, or US permanent residents, and indeed, for some jobs, they can only employ full US citizens. There is no difference in these laws if the airline is owned by people in London or Little Rock.
Myth 5 : A Foreign Airline would replace High Paying Jobs with Low Paying Jobs
Any company is free to set whatever terms of employment it can agree upon with its workers (and possibly the unions that represent them).
And, in case anyone hasn't noticed, all those 'high paying' airline jobs are under massive threat at present as the traditional carriers lay off staff and reduce the wages (and pension plans!) of those that remain.
Myth 6 : A Foreign Airline would 'cherry pick' only the Profitable Routes
This myth suggests that the foreign (owned) airline would only fly on the 'easy major routes that any airline can make a profit on'. By reducing the ability of the existing airlines to make profits on the major routes, the existing airlines would no longer be able to subsidize the other loss-making routes that they currently operate as a public service.
As recently as this week, a noted travel writer commented 'having a national airline protects the nation's transportation network from being at the mercy of foreign carriers to whom profits are more important than whether the country's capital has daily service from New York, Chicago, Tokyo, or Timbuktu.'
This myth is full of nonsense in several areas. Any start-up airline, no matter who or where their owners are, carefully works out a business plan that has them concentrating on some 'easy' routes that they think they can make a profit on. As the new airline grows, they build out from their core routes so as to grow their total network in an organic manner.
The second piece of nonsense is there is no such thing as an 'easy' major route that any airline can make a profit on! If there was, then all airlines would be on that route already, and more, totally US owned, airlines would be starting up to add more services to that route.
The third piece of nonsense is that none of the major airlines operate as a social charity. If they can't make money on a route, they will stop flying it. Plain and simple. All 'for profit' airlines work on the same basis, no matter where their shareholders sit.
Myth 7 - Profits will be Taken Offshore
Some people have made the ridiculous suggestion that allowing foreigners to own US airlines means that they'll take all the profits offshore and somehow harm the US economy in the process. Look around you. Exactly which US carrier is making so much profit that transferring some share of it offshore would harm the economy!?
Even in a very good year, shareholder dividends rarely exceed a very few percent of total revenue - repatriation of dividends is a negligible matter.
And such concerns haven't prevented foreign ownership of just about every other type of company (with the exception of media outlets and shipping companies). So let's allow foreign ownership of airlines, too.
The Reality
The so-called 'protection' of our domestic airline business is not helping anyone.
Who or what are we protecting, and against who or what?
Our entire society has been very successfully built on the premise of free enterprise, and the abolition of tariffs and trade barriers. Why should the failing airline industry be an exception to this cornerstone of capitalistic freedom?
The restrictions on international ownership of US airlines are a historical remnant of a different era. Their origins date back to the days of sailing ships in the 19th century. During the period of airline regulation they were of course extended, and since then these restrictions have been perpetuated primarily due to the political fact that US airlines are a very effective lobbying group, whereas international investors have virtually no lobbying clout in Washington.
There are actually two very different restrictions that prevent a full open market for airlines in the US at present. Opponents of an open market have tended to try and mix together the 'worst' of each issue as support for their opposition to the other concept. So let's clearly understand these two different concepts :
Cabotage or Eighth Freedom Rights
The so called 'Freedoms of the Air' spell out, by international treaty, how airlines based in one country can operate over and in other countries. The US does not currently allow this Eighth Freedom to international carriers, and it hides behind the bilateral concept of 'we will only let a foreign country's carriers participate in our market if the foreign country has a similar sized market and lets our carriers participate in their market, too'.
Foreign Ownership of US based Carriers
This is totally different to cabotage. The US limits the amount of foreign ownership in its domestic airlines to a maximum of 49%, with a maximum of 25% control.
Most other countries have similar protective provisions limiting ownership of their airlines, but there are some notable exceptions - for example, the Australian government. Australian law requires the airline to be staffed and managed by Australians, and has an Australian board of directors. The net result has been tremendously beneficial to the Australian public, while the major carrier (Qantas) does not seem to have been unduly harmed, either.
A number of myths and misunderstood half-truths have been offered as reasons to 'protect' the US carriers from fair free open-market competition. But most of these half-truths apply only to restrictions on cabotage, and have no relevance to allowing foreign ownership of domestic, US based, airlines.
None of these allegations stand up to scrutiny, so let's look at them.
Myth 1 : We Need US Carriers for National Security
As recently as 3 April 2003, Speaker Dennis Hastert used this argument to defend Congress' $3.2 billion airline aid plan. He said '[it is necessary that] we don't have a whole industry collapse at a time when maybe we need it most' (referring, presumably, to the Iraqi conflict).
It is true that there is a program (the CRAF - Civil Reserve Air Fleet) whereby US airlines hire planes to the military when needed, giving the military additional airlift capacity. But this program would apply equally to any US based, US incorporated airline, no matter where the shareholders were based.
A US corporation is bound by US laws, no matter who or where its shareholders are based.
Furthermore, the US airlines are generously remunerated in return for their military charters, indeed some recent study suggested it would be cheaper and better if the US government simply tendered for charters on the open market!
Myth 2 : Foreign Airlines Don't Have the Same Security Standards
Maybe foreign airlines do, maybe they don't have the same security standards as US airlines. But, who cares? This is a red herring argument, because we're not talking about foreign airlines. We're talking about a US airline, subject to all US regulations and controls.
Sure, the airline may be owned in part or by whole by off-shore investors, but it is a US airline, operated by US permanent residents and citizens, and following all US standards and procedures.
Myth 3 : Foreign Airlines Don't Have the Same Safety Standards
The answer to this myth is exactly the same as the answer to myth #2.
Myth 4 : Foreign Airlines Would Take Away Jobs from Americans
A US based carrier is subject to the same laws for who it can employ, no matter who its owners might be. All US carriers have to employ either lawfully admitted foreign nationals on special work visas, or US permanent residents, and indeed, for some jobs, they can only employ full US citizens. There is no difference in these laws if the airline is owned by people in London or Little Rock.
Myth 5 : A Foreign Airline would replace High Paying Jobs with Low Paying Jobs
Any company is free to set whatever terms of employment it can agree upon with its workers (and possibly the unions that represent them).
And, in case anyone hasn't noticed, all those 'high paying' airline jobs are under massive threat at present as the traditional carriers lay off staff and reduce the wages (and pension plans!) of those that remain.
Myth 6 : A Foreign Airline would 'cherry pick' only the Profitable Routes
This myth suggests that the foreign (owned) airline would only fly on the 'easy major routes that any airline can make a profit on'. By reducing the ability of the existing airlines to make profits on the major routes, the existing airlines would no longer be able to subsidize the other loss-making routes that they currently operate as a public service.
As recently as this week, a noted travel writer commented 'having a national airline protects the nation's transportation network from being at the mercy of foreign carriers to whom profits are more important than whether the country's capital has daily service from New York, Chicago, Tokyo, or Timbuktu.'
This myth is full of nonsense in several areas. Any start-up airline, no matter who or where their owners are, carefully works out a business plan that has them concentrating on some 'easy' routes that they think they can make a profit on. As the new airline grows, they build out from their core routes so as to grow their total network in an organic manner.
The second piece of nonsense is there is no such thing as an 'easy' major route that any airline can make a profit on! If there was, then all airlines would be on that route already, and more, totally US owned, airlines would be starting up to add more services to that route.
The third piece of nonsense is that none of the major airlines operate as a social charity. If they can't make money on a route, they will stop flying it. Plain and simple. All 'for profit' airlines work on the same basis, no matter where their shareholders sit.
Myth 7 - Profits will be Taken Offshore
Some people have made the ridiculous suggestion that allowing foreigners to own US airlines means that they'll take all the profits offshore and somehow harm the US economy in the process. Look around you. Exactly which US carrier is making so much profit that transferring some share of it offshore would harm the economy!?
Even in a very good year, shareholder dividends rarely exceed a very few percent of total revenue - repatriation of dividends is a negligible matter.
And such concerns haven't prevented foreign ownership of just about every other type of company (with the exception of media outlets and shipping companies). So let's allow foreign ownership of airlines, too.
The Reality
The so-called 'protection' of our domestic airline business is not helping anyone.
Who or what are we protecting, and against who or what?
Our entire society has been very successfully built on the premise of free enterprise, and the abolition of tariffs and trade barriers. Why should the failing airline industry be an exception to this cornerstone of capitalistic freedom?
