Foreign Control of Skies Debated

Overseas investments in U.S. airlines challenged

With its poll numbers slipping and many issues vying for its attention, the Bush administration has quietly withdrawn its proposal to liberalize rules governing foreign ownership of U.S. airlines, officials say.

The proposal has stirred free market advocates who say it would pump much-needed capital into an industry that has lost $42 billion since 2001. It also has upset labor groups, lawmakers and some industry executives who say it could decimate "the crown jewel" of the U.S. transportation system when it is most vulnerable.

"Foreign ownership is a bad idea from a national perspective," said Mike Boyd, president of the Boyd Group, an Evergreen, Colo., airline consulting firm. He spoke in a telephone interview.

"Foreign investments in U.S. airlines will be for control. I firmly believe if you allow a foreign entity control of United Airlines, they will maximize their investment by selling it off, breaking it up. They don't care.

"I have no idea why the Bush administration would favor this."

The proposal by the Department of Transportation was first issued as a Notice of Proposed Rulemaking last November. After a 60-day public comment period that featured criticism from more than 100 members of Congress, DOT shelved the process.

In mid-2006, DOT said it was reviving its proposal to alter the definition of foreign ownership or "actual control" of U.S. airlines.

Rep. James Oberstar, D-Minn., ranking Democrat on the House Transportation and Infrastructure Committee, said the rulemaking proposal was unconstitutional because it bypassed Congress to amend a federal law. Other lawmakers criticized the proposal as a job killer for U.S. airline employees.

In August, DOT officials again said they were delaying their proposed rulemaking.

"It's our understanding the (Bush) administration has backed off its attempt to change the foreign ownership rules through a Notice of Proposed Rulemaking," said Jim Berard, Democratic communications director for the House Transportation and Infrastructure Committee, in a telephone interview.

"It appears to us the issue has been dropped."

But James Burnley isn't so sure. A Republican, he served as U.S. secretary of transportation from 1987 to 1989 under Presidents Ronald Reagan and George H.W. Bush. He has also been a transportation adviser to the current Bush White House.

"I think it will surface again," Burnley said in a telephone interview. "The reason it will is because the executive (branch) is driven by a desire to have Open Skies agreements with Great Britain and Europe. DOT will remain under a lot of pressure to figure this out."

Under a 1940 U.S. statute, only an airline that qualifies as "a citizen of the United States" may provide service between U.S. cities or on international routes obtained by the United States through international agreements.

The law says an airline may qualify as a U.S. airline only if it is "a corporation or association . . . which is under the "actual control" of U.S. citizens."

Federal statutes define "actual control" as requiring at least 75 percent of the voting shares of the airline to be held by U.S. citizens; two-thirds of the directors and officers must be U.S. citizens, according to federal law.

The DOT proposal would permit foreign investors to exercise control over all commercial aspects of U.S. airline operations. That would include aircraft fleet mix, routes, frequencies, classes of service and pricing.

DOT's new standard would require U.S. citizens to control only decisions affecting national defense, security, safety and corporate organizational documents.

Bush administration officials told Congress earlier this year that the European Union has made a long-sought Open Skies agreement between the United States and the European Union conditional on adoption of DOT's proposed rulemaking on foreign ownership. The proposed Open Skies agreement would allow a foreign carrier to fly from any point in the foreign country to any point in the United States.

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