Friday, December 8, 2006

US Withdraws Proposed Rule On Foreign Investment In US Airlines

On Tuesday, December 5, the US Department of Transportation (DOT) withdrew its proposed rule that "would have allowed international investors more input in the marketing, routing and fleet structures of US airlines while retaining current domestic ownership and labor protections."  Although this rulemaking proceeding was conducted separately from the US-EU open skies aviation agreement negotiations, the EU viewed a final rule as a condition precedent to the signing of the tentative US-EU agreement.  When the EU transport ministers meet in Brussels next week, they reportedly may request that Commission make new proposals "to attempt to restore the balance" in the current agreement, or they may decide to scrap the agreement altogether.

The International Aviation Law Institute was a strong supporter of the proposed rule, and filed comments with the DOT on the rule in December 2005 and July 2006. While the DOT explained that "[Tuesday’s] announcement in no way deters us from our goal of giving US airlines complete access to the world’s capital markets," any changes that would allow more international investment in US airlines will be difficult to achieve if a "national consensus" (between the public, labor and Congress) must be sought.  Given the current opposition in Congress to this type of reform, any near-term efforts to allow more international investment in US airlines will likely be as unsuccessful as the DOT’s 1991 and 2003 efforts to persuade Congress to allow foreign investors to own up to 49% of a US airline’s voting stock.  To have any chance of significant reform in this area, the DOT, along with the US airlines which support loosening of the foreign investment restrictions, must be far more aggressive in promoting the benefits to US carriers as well as their employees and shareholders.

The collapse of proposed rule will also likely hinder the signing of the tentative US-EU open skies agreement.  If the EU transport ministers refuse to approve the agreement at their December meeting, the most likely option for US negotiators would be to try to replace the proposed rule with another change that the EU favors in an effort to salvage the current deal.  If the current deal collapses entirely, both parties might agree to work towards a smaller deal that would be centered around US recognition of the EU "Community carrier" concept or perhaps all-cargo liberalizations. Should the current deal not be signed, the EU has stated that it would move forward with legal action that would force EU Member States to denounce their existing bilateral agreements with the US.  If this were to occur, there would be significant ramifications for the current airline alliance structure as antitrust immunity for transatlantic alliances would disappear.  For the aforementioned reasons, the US and EU negotiators should work towards salvaging the current US-EU open skies agreement when they meet in early January.

Full text of DOT's withdrawal of proposed rule

December 7th Reuters article discussing EU transport ministers meeting next week

December 6th FT article discussing implications of the EU-US open skies deal potentially collapsing

December 8, 2006 | Permalink | Comments (1) | TrackBack (0)