This weeks source article is How Can We Complete? by Molly Martin, Air Line Pilot, August 2012
Out of the seven recommendations to ALPA pilots, the author wants to prevent changes to foreign ownership control and foreign cabotage restrictions.
The main reason I can come up with is that American Airlines is in the process of reorganizing its business. Oneworld partner British Airways is looking to invest in American to strengthen their alliance. Yahoo! News BA to invest in AA. Other recent foreign ownership transactions include Lufthansa's purchase of 20% of Jetblue Lufthansa and JetBlue and the questions surrounding the Virgin America ownership. Virgin America Second Approval.
Why is this an issue? Foreign ownership of US airlines is limited to 25%. 49 USC § 40102 Definitions. The reason for this strict requirement can be traced back to beginning, with aviation being a source of national pride. More practical explanations lay with the US air carrier fleet being available for military transport. Civil Reserve Fleet. The hypothetical question is how would a US air carrier, controlled by a foreign corporation or holding company, transport troops in a conflict with that country?
There are numerous foreign ownership concerns for the air carriers and their unions. Foreign companies play by the financial rules of their country. The control of capital, taxes and insurance must remain in balance for a fair and competitive environment. This control is cannot be maintained if carriers get to play by a different rule book because of their base country.
Foreign ownership controls dovetail with cabotage. Cabotage is air traffic within a country being flown by an air carrier of another county. US DOT definition. In 1944 at the Chicago Convention, the international community set up the Freedoms of the Air to help define commerce rules. There are nine freedoms that countries use. Boeing put together an easy to understand description of the freedoms.
Most nations accept First and Second Freedoms which are the right to overfly another's airspace and the ability to make a technical stop. An example of this was in June, 2005 a Northwest DC-10 diverted to Tehran, Iran after the crew was alerted to a possible cargo fire. They were the first US carrier to land in Iran in 26 years. They landed, resolved the alarm and continued to Amsterdam.
Third and Fourth Freedoms are traditional international travel arrangement. An example is Air Canada carrying revenue passengers between Toronto and New York.
The Freedoms get more liberal as they continue. The main concerns for the air carriers and unions is with the Eighth and Ninth Freedoms. This allows foreign air carriers to carry revenue passengers within the US. This is presently not allowed because it could give foreign air carriers an unfair advantage.
There is pressure from foreign air carriers for the US to liberalize both foreign ownership rules and Freedom rights. As the world and its markets become more global expect this pressure to increase.
Which do you believe would be beneficial for the US: allowing foreign air carriers to transport within US territory or continue to restrict interior transports to US airlines only? It seems to me that the US would have first pick of transports within its own borders.
ReplyDeleteGood description of the current situation and expansion on the topic, however, I really don't get a strong sense of where you stand. Should foreign ownership rules remain as they are or become more liberal?
ReplyDeleteShould foreign ownership rules change? As an aviation professional, I would have to advocate for keeping the ownership and freedom rules alone. There is not a shortage of capital for US air carriers. All of the majors have been through bankruptcy over the last ten years and all found the funding to recapitalize under the current rules. Additionally, there is not a lack of air service within the US that a foreign carrier could fill.
ReplyDeleteIf I take my aviation hat off I can see the arguments for relaxing the rules. Other countries have relaxed their ownership rules to at least 49%. US air carriers have taken advantage of these rules. An example is Delta, they have ownership stakes in Aeromexico and GOL. American has a stake in JAL. This, in addition to a more global exchange of securities makes, the strict 25% rule somewhat archaic.
The same can be said for the freedom rights. US carriers have more freedom to operate outside of the US compared to foreign carriers inside of the US. An example of this is United between the US to Japan. United flies from the US to Japan and from there they can pick up new passengers and carry them within Japan and to other countries. Through open sky agreements, Delta is able to carry passengers from the US to the Netherlands. Once in the Netherlands, they can pick up fresh passengers and take them to other countries. They currently serve India this way. Hypothetically, why should Air Canada be exempt from opening a hub in Phoenix?
In the end, I am a proponent of maintaining the current system. I do not see a problem large enough to advocate a change. The real question that would have to be answered is how do we create a level playing field for the industry to make both rules obsolete.