Lift barriers to foreign presence in U.S. airlines

THE ISSUE Senator Inouye has proposed that the Bush administration not be allowed to relax restrictions on foreign involvement in airlines.

THE political frenzy that resulted in the withdrawal of a United Arab Emirates state-owned company from managing several U.S. port terminals appears to have ended. However, it might have given life to unfounded opposition to the proposed relaxing of restrictions on foreign investment in U.S. airlines. The changes are needed to lure needed capital to the airlines while creating more competition.

The Bush administration informed Congress in November of its intended aviation rule changes to create flexibility allowed in other industries engaged in the global economy. Senator Inouye and Sen. Frank Lautenberg, D-N.J., have introduced a bill that would prevent the administration from adopting the rule changes. Airlines are divided on the issue; Hawaiian Airlines supports the changes. Organized labor is opposed.

The rules initiated 65 years ago discourage foreign involvement in U.S. airlines by imposing a test with a long list of subjective issues to assure "no semblance of foreign control." The burdensome test "has chilled cooperation with, and investment by, foreign entities," Jeffrey N. Shane, under secretary of transportation, told a House committee last month.

The congressional General Accountability Office reported in 2003 that "foreign airlines have on occasion invested significant amounts of capital into U.S. airlines, only to later disinvest due in part to U.S. policies concerning airline control." Shane said those policies caused KLM to withdraw its investment in Northwest Airlines in 1997.

The Department of Transportation proposes that the "semblance" list be shortened to assure that U.S. citizens will control decisions concerning national defense, aviation security, safety policies and corporate documentation. The proposal would maintain the requirement that 75 percent of the voting stock, two-thirds of the directors, the airline president and two-thirds of its officers be U.S. citizens.

While the Dubai pot was boiling, Lautenberg sent letters to Senate Majority Leader Bill Frist and Democratic Leader Harry Reid asking for quick action on his and Inouye's bill to preserve the archaic airline rules. "First our ports, now our airlines -- President Bush is holding a fire sale of vital parts of our U.S. economy," he said. "The safety and security of the flying public should be the president's top priority, not helping foreign companies with their bottom line."

The allegation is even more absurd than the hysteria surrounding the Dubai Ports World controversy. More than 60 percent of container terminals at the nation's 10 busiest sea ports are at least partly managed by foreign operators. In some cases, like DPW, the companies are controlled by foreign governments.

The modest airline rule changes are considered crucial in reaching agreement with the European Union to expand the Open Skies policy. The proposed agreement would allow any airline to fly between any point within member countries and any point between Europe and the United States.

Fifteen of the EU's 25 members already have Open Skies agreements with the United States. Britain's protectionist policy now allows United and American as the only American carriers to serve London's Heathrow Airport.