- The Washington Times - Tuesday, June 4, 2002

The federal government, prompted by the desperate financial condition of the airline industry, is considering allowing foreign businesses buy a bigger share of U.S. carriers.
Deputy Transportation Secretary Michael Jackson met last month with a representative of the European Union to discuss international aviation issues, including conditions for increased foreign ownership of U.S. airlines. Although Transportation officials say they are open to the idea, they would need authorization from Congress to change the rules.
Congress has the option of incrementally increasing the amount of foreign ownership allowed or completely eliminating the restrictions, in which case foreign companies could make outright purchases of U.S. airlines. However, the airlines run the risk of relinquishing control over an industry that is vital to the nation's economy and that the United States dominates internationally.
Foreigners currently may own no more than a 25 percent voting share of U.S. airlines and no more than a 49 percent nonvoting equity share. The voting rights give investors authority to participate in major business decisions, such as choice of corporate directors and partnerships with other companies.
The issue of relaxing rules to allow more foreign ownership has arisen in the past, but never with the urgency that has developed since the September 11 terrorist attacks.
The number of airline passengers dropped by half immediately after the attacks and continues to be about 12 percent below pre-September 11 levels. Meanwhile, airlines have lost billions of dollars.
Major airlines, such as U.S. Airways Inc. and America West, are running out of options for funding sources as deteriorating finances drive them toward bankruptcy.
The idea of changing the foreign-ownership restrictions has the support of major U.S. airlines.
"It's time to lift the restrictions on all investments," said Donald Carty, president and chief executive officer of AMR Corp., parent of American Airlines, the world's largest airline. "International alliances are better than nothing."
The "nothing" he mentioned at a conference of airport executives in Dallas last month referred to the possible financial collapse of airlines such as U.S. Airways. The Arlington airline is seeking federal loan guarantees to avoid bankruptcy.
"Our situation is that we have unsustainable losses," U.S. Airways spokesman Dave Castelveter said. "The company has to put a very viable restructuring plan in place to cut these kinds of losses. Right now, we have to look at all of our options."
If Congress agrees, foreign ownership could be an option.
"The industry will be evaluating the subject, but in the short term we have no choice but to pursue a program of budget cuts and a federal loan guarantee," Mr. Castelveter said.
Although no legislation is pending, the idea of more foreign ownership of airlines as a source of capital has supporters in the federal government.
"That's something [Sen. John McCain] would be open to," said Pia Pialorsi, spokeswoman for the Senate Commerce, Science and Transportation Committee, where the Arizonan is the ranking Republican. "He believes very strongly in free trade and taking down barriers."
However, foreigners should win the right for more control over U.S. airlines only if American investors have the same rights in other countries, she said.
"There are some members of Congress who brought the issue up," said Bill Mosley, Transportation Department spokesman. "There has been informal discussion of the issue."
The May 1 meeting in Washington between Mr. Jackson and European Commission Vice President Loyola De Placio focused on aviation security and other issues in European countries, each of which negotiates separately for access to U.S. airspace. A European Court of Justice decision next fall is expected to pave the way for EU members to negotiate as one entity with the United States for international aviation agreements. The European Commission is the governing body of the 15-nation European Union.
At that point, European officials say they are likely to put more emphasis on the possibility of agreements granting Americans and Europeans greater ownership of each other's airlines.
"We're open to review the issue," Mr. Mosley said.
Commission officials expressed similar sentiments.
"We are in favor of these new rules, but it's not up to us to decide," said Gilles Gantelet, spokesman for Miss De Placio. "It gives Americans the possibility to invest in Europe and gives Europeans the possibility to invest in America."
Any changes in the rules also would apply to non-European countries.
Some congressional insiders warned that it is premature to seriously discuss the idea of more foreign ownership.
"This rumbling happens whenever there is financial trouble," said Andy Davis, spokesman for Sen. Ernest F. Hollings, chairman of the Senate Commerce, Science and Transportation Committee and a South Carolina Democrat. "It doesn't generally get a lot of support."

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