Lawmakers Say Open-Skies Deal Bad for Security, Jobs

Feb. 9, 2006
The open-skies agreement with the European Union would allow European companies to increase their ownership stake in U.S. airlines, while keeping a 25% cap on voting stock.

WASHINGTON (MarketWatch) -- House lawmakers worried Wednesday that a new aviation agreement with Europe could jeopardize U.S. domestic security and threaten American jobs.

One lawmaker said that he would try to delay the agreement.

The open-skies agreement with the European Union would allow European companies to increase their ownership stake in U.S. airlines, while keeping a 25% cap on voting stock. The deal would also ease restrictions on flights between E.U. nations and the United States by foreign and domestic carriers.

Transportation Department officials vowed that foreign companies would not have a major impact on the way U.S. carriers do business, but lawmakers are squeamish about the idea of foreign influence on domestic airlines.

The government agency is preparing to enforce the new rules as early as October, giving foreign companies the chance to invest in and make management decisions for U.S. airlines.

The proposal also would allow flights between the United States and Europe with few restrictions, and strike the agreement called Bermuda 2 between the United States and the United Kingdom that limits the number of carriers, fares, airports and cities served.

Supporters of the agreement, such as United Airlines (UAUA) and Boeing Co. (BA) , said that the changes could help bail domestic carriers out of financial instability. They insist that current rules are out of date in a growing global economy.

United, which only recently emerged from bankruptcy protection, has significant global partnerships, and UAL executives think that an open-skies agreement would further bolster its competitive capabilities.

"U.S. airlines should be allowed to function just like any other global businesses, driven by the dictates of a free market, not government economic edict," United Vice President Michael Whitaker said in his testimony.


But every lawmaker at the hearing expressed strong reservations. They argued that Congress should have a role in changing the rules about airline ownership. But Transportation Department officials plan to go forward with the agreement without input from Congress.

In response, Rep. Jim Oberstar, D-Minn., has introduced legislation that would postpone any action for a year.

Rep. Jerry Costello, D-Ill., warned that an implementation of this open-skies plan could have "serious consequences" and could allow foreign interests to restructure the U.S. airline industry. "Employees of U.S. airlines could lose jobs to foreign employees," he said.

Costello and other members also drilled Transportation Undersecretary Jeff Shane and John Byerly, a State Department official, on how the plan would impact domestic routes and homeland security.

Because foreign investors would have some control in a U.S. airline's commercial decisions, some fear that foreigners could technically decide security and aircraft issues.

"It's not wise to put our security in the hands of some foreign investor," said Rep. Ted Poe, R-Texas.

Shane and Byerly insisted the plan would not affect U.S. jobs or American citizens' "actual control" in safety issues.

Rep. Peter DeFazio, D-Ore., echoed Poe's concerns. "During the Gulf War, a European Union member didn't supply us with a type of carrier we needed when we ran out because they didn't support the war," he said.

DeFazio also challenged Shane's assurance that the proposed plan would not affect American jobs.

"The European Union has much lower wage rates than we do," DeFazio said. "And that doesn't have an impact on American jobs?"

Shane said that his department discussed the plan with other government agencies, including the Defense Department, before going forward with the proposal. For domestic flight interests, he added that the plan would not allow foreign carriers to fly passengers between U.S. airports.

Only four carriers -- British Airways (BAB) , Virgin Atlantic (VIRGY) , American Airlines (AMR) and United Airlines -- offer trans-Atlantic flights today from London's Heathrow Airport to the United States.

Shane told the subcommittee that the Transportation Department will continue to push forward with its agreement unless Congress passes legislation to postpone action. The subcommittee plans to hold further hearings on the issue.

Transportation Secretary Norman Y. Mineta said in a Nov. 2005 statement that the deal would provide an "historic opportunity to increase travel, reduce fares, expand commerce and bring two continents closer together than ever before.

"It provides new opportunities for U.S. and European airlines, healthier competition for a growing travel market and greater connections between cities and towns of all sizes on both sides of the Atlantic," he added.

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