US airline reform ditched because of jobs, security

ECONOMIES OF SCALE: Air travel in Europe and the US makes up 60 percent of global traffic, and greater foreign investment in US airlines may have reduced ticket prices


Thu, Dec 07, 2006 - Page 10

Travelers seeking cheaper flights across the Atlantic lost out after the administration of US President George W. Bush scrapped a proposal that would have permitted foreign investors to have more control of US airlines.

Transportation Secretary Mary Peters said on Tuesday the department bowed to job and security fears when it yanked a proposal to lift a 25-percent limit on foreign ownership of US carriers.

That dashed European hopes for an aviation deal in the near future that would strip away rules that give only few airlines the lucrative right to carry passengers across the Atlantic.

EU transport chief Jacques Barrot said dropping the foreign investment rule was "an essential element" to moving forward with talks. The EU had hoped for a deal this year.

Air travel in Europe and the US accounts for 60 percent of global traffic, and a "whole new era of pricing" would have been possible if foreign investors were allowed to control US airlines, according to Tom Parsons of, an online discount travel agency.

Parsons said the US government historically has limited foreign investment based on the rationale that it may need US airlines' planes to transport troops in the event of war.

Officials from both sides will meet early next year to discuss what can be done, but the US officials effectively turned down Europe's main demand -- to open up the US aviation sector to foreigners. That was viewed as a precursor to a pact allowing airlines from both regions to fly where they want and charge what they want across the Atlantic.

Only two US carriers -- AMR Corp's American Airlines and UAL Corp's United Airlines -- are permitted to fly into Europe's busiest airport, London Heathrow. Similar restrictions stop European airlines from flying from airports outside their home country to the US -- and prevent a new wave of low-cost carriers from competing with former state-owned air companies on the lucrative trans-Atlantic routes.

Advocates for a deal hoped it could increase air travel, lower air fares, create jobs and boost investment in US carriers and encourage more European airlines to combine.

But labor unions, some airlines and some Democrats in Congress opposed a move that could cost US jobs and allow foreign investors -- even foreign governments -- control over an industry critical to national security.

Airlines also have mixed feelings about the "open skies" deal. Atlanta-based Delta Air Lines Inc championed the pact, eager to expand its trans-Atlantic routes. But Continental Airlines Inc of Houston lobbied against it, saying it does not give US airlines enough access to Heathrow.

The chairman of British Airways PLC, Martin Broughton, pressed the European and US negotiators last November to go even further to open up airlines to competition. Others questioned whether the carrier was willing to give up landing slots at Heathrow to make such a pact work.

Delta said on Tuesday it was disappointed by the Department of Transportation's decision "given the promise the rule held for enabling the US to obtain an open skies agreement with the EU and for increasing US carrier access to capital."

The Atlanta-based carrier said it hoped US-EU future talks could still make a breakthrough.

Continental refused to comment when contacted on Tuesday, and American said it "doesn't take a position either way."