Foreign Control of Skies Debated

Overseas investments in U.S. airlines challenged

"We want to conclude the (Open Skies) agreement -- not only for the market access that U.S. carriers will achieve, but because it can be expected to enhance the quality of competition across the Atlantic in a dramatic way and provide impetus for further aviation liberalization around the world," Jeffrey N. Shane, DOT's undersecretary for policy, told the Aviation Subcommittee of the House Transportation and Infrastructure Committee earlier this year.

"However," Shane continued, ". . . the decision to initiate this (rulemaking) proceeding was based on our assessment that the proposed change in the DOT approach was long overdue and is in the best interests of the United States, its air transportation industry and those that rely on that industry, not only for transport services, but also directly and indirectly for jobs."

Shane's remarks are available on the DOT Web site at .

Edward Wytkind, president of the AFL-CIO's Transportation Trades Department, testified before the Aviation Subcommittee on the same day Shane spoke.

Wytkind, whose department is affiliated with American Airlines mechanics' Transport Workers Union, said the proposed rules threaten U.S. airline jobs.

"The burden is on the (Bush) administration to make the case that allowing foreign entities to control U.S. airlines serves the best interests of the aviation industry, its employees and our nation," Wytkind said in testimony available on the DOT Web site.

"The problem with the department's stated rationale is that it is not supported by any real and persuasive evidence. The financial challenges confronting the industry are well known -- fuel prices have skyrocketed, pension obligations must be met, security costs and fees have increased, a system capacity crisis is looming, and air carriers have largely been unable to price their product at a level sufficient to achieve and maintain profitability.

"It is hard to understand how allowing foreign interests, including foreign airlines, to control U.S. carriers would solve any of these problems."

Burnley, the former DOT secretary and a senior member of the government and legislative practices at the law firm Venable LLP in Washington, D.C., doesn't believe foreign investors would purposefully ruin a U.S. airline.

"We have (airline) alliances today, and the dominant carriers tend to be the U.S. carriers," Burnley said. "In this day and age, it makes no difference who owns how much stock in an airline anywhere in the world."

Fred Russell, who follows the airline industry for Fredric E. Russell Investment Management Co. in Tulsa, agrees with Burnley.

"If foreigners invested in an U.S. airline, they would do everything they could to make it profitable and indispensable," Russell said. "If we give foreign airlines the ability to invest in and control U.S. airlines, we would have to do the same with U.S. rights overseas.

"The capital, efficiencies and investments in technology would benefit everyone."

Tim Wagner, spokesman for American Airlines, the largest carrier in the world, said the company hasn't adopted a position on DOT's proposed rulemaking on foreign ownership.

"Our position is airlines should abide by the rules," said Wagner, whose company employs 7,000 in Tulsa. "If the U.S. government changes the rules, we would abide by them like everybody else."

Similarly, the Air Transport Association, the trade group in Washington that represents the nation's airlines, doesn't favor or oppose a change in the rules governing foreign ownership of U.S. airlines.

However, Houston-based Continental Airlines opposes the DOT liberalizing foreign ownership rules.

"DOT proposes to unilaterally limit the application of the law to only certain aspects of airline management, while the statute requires that U.S. citizens have actual control over all aspects of airline operations," Continental said in a written statement.

"This shows that either the DOT has misinterpreted the law or has ignored the realities of internal airline management and how airlines operate. Actual control over day-to-day operations, including scheduling, pricing, employment and labor decisions and financing, provides foreign citizens actual control of the very areas DOT is trying to carve out. Airline operations cannot be split in the manner DOT is suggesting."

British Airways is one of four United Kingdom carriers that operate nonstop service from London's Heathrow Airport to U.S. gateways.

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