U.S. – European Union talks on an open aviation agreement took a welcome turn in early November in the view of European Union negotiators, but many in the industry have raised their voices against the latest U.S. proposal. A rumored takeover of BAX Global by Deutsche Bahn’s Schenker freight forwarding group is unlikely to be affected.
The U.S. Department of Transportation (DOT) published a notice of proposed rulemaking (docket OST-03-15759) which seeks to address factors used in determining what constitutes “actual control” of a U.S. airline and modifies the procedures and regulations for reviewing an air carrier’s citizenship status. The goal, said DOT, is to allow more access to foreign investment capital. Executives at British Airways and Virgin Atlantic called it an effort to trick the European Union into an “unbalanced deal” in the current Transatlantic Open Aviation Area talks. They point to the fact DOT has not attempted to raise the 25% limit on foreign ownership that has constrained repeated efforts by European carriers to raise their stake in the U.S. market.
The “citizenship” issue was raised when Deutsche Post World Net (DPWN) subsidiary DHL sought to acquire U.S. cargo carrier Airborne Express. Airborne separated its airline operations from its ground network, clearing the way for the acquisition. During that proceeding, the DOT Inspector General recommended DOT publicly address the factors used to determine whether an air carrier is under “actual control” of U.S. citizens and that it modify procedures and regulations for reviewing an air carrier’s citizenship status. DOT said in its proposed rulemaking, “We propose to adapt our interpretation of how this private foreign capitalization affects the ‘actual control’ of U.S. airlines . . ..”
DOT hinged its argument on the process of economic deregulation begun in the late 1970s. At that time, the U.S. government withdrew restrictions in most economic areas of airline operations, including domestic pricing and entry. “The Department has also aggressively sought to extend these principles to international markets,” said the DOT rulemaking. The U.S. has open aviation agreements or relationships with over 70 other countries permitting airlines of both nations much the same independence from government restrictions. Where those freedoms exist for U.S. airlines in foreign countries, DOT would allow those countries’ airlines more latitude in investing in U.S. airlines. Operational control affecting safety, security and the Civil Reserve Air Fleet (CRAF) program must remain with U.S. citizens.
The dire condition of the U.S. passenger airline industry was part of DOT’s rationale. It stated that since 2000, U.S. scheduled passenger airline industry has lost nearly $30 billion – roughly one third of the aviation industry’s total annual revenue. It also stated more than 100,000 airline employees have lost their jobs.
British airline executives responded to the announcement with a warning that the U.S. was trying to secure more access to London’s Heathrow airport, Europe’s busiest international hub but was offering nothing substantial in return.
