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U.S. protectionism threatens next phase of open-skies talks

Rez O. Lewshun

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U.S. protectionism threatens next phase of open-skies talks

By: Michael FabeyFebruary 23, 2009
A key sticking point in negotiations over Open Skies II, which are set to resume in May, is the issue of foreign ownership of U.S. airlines.
If anything, the competing views of Europe and the U.S. seemed to grow further apart this month.
In the U.S., Rep. James Oberstar (D-Minn.), chairman of the House Transportation Committee, reaffirmed his support for tightening foreign-ownership restrictions by inserting protectionist language in legislation to reauthorize FAA funding.
The European perspective was articulated last week by Giovanni Bisignani, director general and CEO of IATA, in a speech at the Wings Club in New York. Bisignani insisted that restrictions must be loosened, not tightened, if airlines serving the market hoped to survive the recession.
"To manage through this crisis without bailouts, airlines cannot have one hand tied behind their back with outdated restrictions on ownership," Bisignani said.
U.S. law limits foreign ownership of a domestic airline to 25% of the voting shares and 49% overall, requires that the president and two-thirds of the officers and directors be U.S. citizens and stipulates that U.S. citizens must be in "actual control."
Bisignani and European Union officials have long regarded the U.S. law to be an impediment to greater transatlantic aviation cooperation. Oberstar’s measure would actually toughen the language on control.
"I hope that early in President Obama’s term we will be able to change the structure of aviation, not with bailouts but with commercial freedoms," Bisignani said. "Our goal is to give airlines the tools to deliver sustainable profitability that generates value for investors and a more secure future for our workers."


Labor's big influence
But it is concern about workers, specifically the reaction of organized labor, that is widely seen as the real stumbling block to opening the U.S. airline industry to greater foreign investment.
Industry analysts note that the Obama administration might prove to be especially sensitive to union demands, given labor’s support of candidate Obama during last year’s presidential campaign.
"President Obama is going to stay true to some of the promises he made to labor," predicted Vaughn Cordle of AirlineForecasts.
Labor has also cultivated a warm relationship with Oberstar and has voiced support for his tougher language on control.
Capt. John Prater, president of the Air Line Pilots Association, said, "ALPA strongly backs language in the bill affirming that U.S. citizens must control key operational aspects of U.S. airlines. This bill does that by identifying fleet composition, route selection, pricing and labor relations as among the operational elements that the Department of Transportation must ensure U.S. citizens control."
Oberstar’s language would require U.S. citizens to "control all matters pertaining to the business and structure of the air carrier, including operational matters such as marketing, branding, fleet composition, route selection, pricing and labor relations."
That language is a direct response to a 2005 proposal by the Bush administration to permit foreign investors in a U.S. airline
to control some aspects of marketing, customer service and other functions.
The Bush plan was advanced as a way to offer the E.U. a measure of liberalization without actually changing the U.S. law.


Under the proposal, U.S. citizens would have to remain in control of decisions affecting safety, security, corporate governance and the airline’s commitments to the Pentagon’s Civil Reserve Air Fleet program, under which civil aircraft can be deployed for the military in a national emergency.
Although national security concerns are often cited as a fundamental reason for the citizenship requirement, the 2005 proposal was acceptable to the Pentagon. What killed it was congressional and labor opposition. Oberstar’s proposed language would appear to drive a nail in its coffin.
It would also send a strong signal that Congress is not disposed to allow the increased foreign investment that the E.U. hopes to achieve in the next round of talks.
Ultimately, the most ardent free marketers on both sides of the Atlantic hope to bring about an "open aviation" model in which any
European or U.S. airline, and possibly any Canadian airline, would be free to set up shop anywhere in the region and freely operate between any city pair.
Bisignani and his European counterparts say that for that to happen, protectionist restrictions have to give way.
"Why restrict international capital from offering Americans aviation jobs?" Bisignani asked in his speech. "And why confine U.S. carriers operating in a mature market from developing new opportunities when companies like IBM, Dell or DuPont can operate global franchises? What is different about aviation? The answer is absolutely nothing."


Virgin's experience
An example of the difficulties facing "global franchises" in aviation is the predicament of Richard Branson’s Virgin Group, which has been trying to foster the development of airlines in different countries under variations of the Virgin brand.
Each enterprise, however, had to be structured and financed to meet unique national laws in Nigeria, Australia and the U.S. on citizenship and investment.
For Virgin America, this meant not only a two-year regulatory battle against incumbent airlines and labor unions but also the constant risk of regulatory intervention.
Earlier this month, for example, Alaska Airlines petitioned the DOT to open a new investigation of Virgin America’s capital structure on the grounds that changed circumstances might have diminished the level of control being exercised by its U.S. citizen investors.
The bottom line, Bisignani said after his speech, is that "passengers don’t care" about the citizenship of an airline’s owners.
 

Colonel Savage

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"The bottom line, Bisignani said after his speech, is that "passengers don’t care" about the citizenship of an airline’s owners."

Probably not, but the airline's employees sure as he11 do. He would get strung up by the airline workers in Itlay for saying that about them.
 
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