Reply #11: Current law limits foreign ownership of U.S. airlines to 25 percent. [View All]

[Bluebear]

Current law limits foreign ownership of U.S. airlines to 25 percent. Airlines also must be controlled and operated by U.S. citizens, either individuals or corporations.

Various proposals have been offered to increase the ownership limit to as much as 49 percent. In theory, U.S. airlines would benefit from fresh investment capital while the 49 percent limit would maintain U.S. control.

Both of these assumptions are questionable at best. Few foreign investors have taken advantage of even the 25 percent limit. The airline industry is volatile and airline stocks are not good performers. The few exceptions in the airline sector already are well capitalized and would not benefit materially from an increased limit. The airlines most in need of additional capital are unlikely to attract foreign investment for the same reasons that U.S. investors have shunned them.

The argument that a 49 percent limit would preclude control is a mathematical fiction based on the unlikely presumption that all 51 percent of those holding the remaining control would be in a position to effectively oppose proposals from the foreign owner(s). Indeed, it is quite possible to effectively control a corporation with far less than 49 percent ownership.

While it may be possible to structure stocks so that 49 percent ownership does not equate to the ability to cast 49 percent of votes on corporate matters, that ignores a fundamental business question: Why would anyone take such a large position in a company if they could not exert some amount of control over that company’s operations?

One obvious economic implication of foreign control is the concern that a foreign airline could divert the U.S. airline’s international operations to the foreign airline. The U.S. carrier would lose those operations and the accompanying revenues and jobs and be relegated to acting as a feeder service for passengers who would be shunted to the foreign carriers’ flights.

There are other concerns over foreign ownership, some of which overlap with issues raised by cabotage. For example, there are national security interests at stake. U.S. airlines that participate in the government’s Civil Reserve Aircraft Fleet (CRAF) program pledge the availability of portions of their fleet to provide airlift capacity to the military in times of war or other emergencies. Foreign airlines may be reluctant to put the aircraft of their U.S. subsidiary at risk or have them taken out of their service to promote U.S. interests. In an extreme case, a foreign government might pressure a foreign airline to withhold CRAF aircraft because of foreign policy differences with U.S. government actions.

ALPA is opposed to changing the current rules on foreign ownership

http://www.alpa.org/Default.aspx?tabid=237