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Transportation Department official explains effect of plan on EU open skies pact

WASHINGTON, DC - 05/11/06 - A top US Department of Transportation (DOT) official tried to defend before a Senate subcommittee a proposal for giving foreign investors some opportunity to influence commercial decisions at US-owned airlines.

Deputy Transportation Secretary Jeffrey Shane told a Senate Commerce subcommittee earlier this week that the Bush Administration proposal, revised just days earlier, would not remove actual control of any US airline from US investors.

He added that the European Union (EU) decision on approving an open-skies aviation agreement with the US depends on the outcome of the rule-making. 

The EU reportedly has pushed back its decision on the pact from June to October.

"That agreement has the potential to fundamentally transform the framework for transatlantic air services, dramatically increasing the quality of competition in the market," Shane said.

"It would benefit US airlines, consumers and communities on both sides of the Atlantic, transcending anything we have yet achieved through our existing open-skies accords," he said.

The revised proposal, published May 3, now has entered a period for public comments. 

Shane emphasized that the department has issued no final rule.

No change is under consideration for amending an existing 1940 law, which restricts foreign ownership of voting shares in US airlines to 25%, he said.

The proposal would, however, change how the regulations implement the law.

Under the existing regulations, foreign investors can have no influence on any operations of a US airline in which they invest. 

Under the proposed rule, the majority US investors could delegate to foreign investors control over some commercial decisions, such as what routes to fly and what aircraft to buy and sell, said Shane.

He said that the struggling US airline industry needs to attract more foreign investment and that foreign investors need to have some incentive to invest capital.

The proposed changes also would allow foreign investors to hold up to 49% of the equity in a US airline even though they could control no more than 25% of the voting shares.

Those changes would apply only to foreign investors from countries that have open-skies agreements with the US and allow reciprocal investment rights to US investors in their airlines - not to countries with state-owned airlines, Shane said.

Democratic senators are criticizing the proposa with some Republican senators expressed concerns about it.

"Foreign ownership and control of US airlines is a concern to me," said Sen. Byron Dorgan (D-North Dakota). 

Senators were concerned most about whether the influence of foreign investors might compromise US national security.  The federal government has authority to commandeer US civil airlines' aircraft for defense, such as troop movements.

Shane indicated the proposal would enhance US airlines' defense capability by assuring their continued existence. 

Foreign investors would have no influence on management issues related to safety, security or national defense, he said.

Senators also expressed concern about whether foreign investors might decide to halt low-profit service to rural areas of the US, such as Montana, home state of Sen. Conrad Burns, Republican chairman of the subcommittee.

Shane said foreign investors in US airlines would have the same attitude toward setting routes that US investors do.

"It is the incentive to make money in the airline business," Shane said. "To the extent that an investment is attractive to a foreign citizen, it will be because there is the possibility of earning a return on that investment."

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