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Fri, May 05, 2006 - Page 10 News List

US to retain local control over airlines

RESTRICTIONS The US proposal to allow local directors of an airline to override foreign investors' decision-making power threatens its open skies deal with the EU


The US government insisted on Wednesday that foreign investors will have to stay in the back seat at US airlines, leaving a projected "open skies" deal with Europe hanging in the air.

The US Department of Transportation (DOT) said it was adding another 60 days for interested groups to comment on its latest revisions to an airline deregulation proposal that was first outlined in November.

"The original proposal was not well understood," said Jeff Shane, a DOT undersecretary in charge of the deregulation talks with the EU.

"When we say US citizens are able to control [airlines], we mean it. We made that more explicit," he said.

The DOT said that under its new proposal, US directors of a domestic airline "must retain the authority to revoke decision-making authority that international investors may acquire."

"For example, domestic board members might decide to revoke international investors' decision-making authority over scheduling and fleet composition if they felt that those decisions were not in their airlines' best interests," he said.

"The new provision would make clear that US citizens remain in `actual control' of the airline, as required by statute," a DOT statement said.

The latest proposals threaten to anger the EU, which is pressing for equal treatment of foreign investors in US airlines as part of an open skies deal to deregulate lucrative trans-Atlantic air routes.

US and EU negotiators agreed last November to allow unrestricted competition in trans-Atlantic air traffic, opening the prospect of cheaper tickets and more choice for passengers.

But a comprehensive open skies deal is still blocked over EU demands for the US government to relax foreign ownership rules that limit investments in US airlines.

The US limits foreign voting rights in its airlines to 25 percent of the capital. The EU has a higher ceiling of 49 percent.

Even if the US limit were raised, no foreign investor could exercise effective control of a US carrier under the DOT proposal.

Last November the DOT proposed new rules giving foreign investors more say in some aspects of US airline operations and making it easier for carriers to obtain overseas financing.

But it has no plan to change the 25 percent ceiling on voting rights, nor to relax another requirement that says not more than a third of the senior officers and directors of a US airline may be foreign citizens.

Since November, the US has come under pressure from its airline industry and from Congress to stand firm against further concessions, and an open skies agreement with the EU appears now to be months away at least.

But both sides need a comprehensive reform to replace a scattering of bilateral open skies deals between the US and individual EU members that were ruled illegal by the EU's top court in 2002.

Shane said that given the new 60-day consultation period, the US side will not be able to present a deal in time for a meeting of EU transport ministers next month.

After that, the US Congress heads off for a five-week break in late July.

Shane said he would be in Brussels next week for a meeting with air transport experts at the EU's executive commission.

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