- Sir Richard Branson, Virgin founder.
"The United States (U.S.) airline industry is unique among industries in being governed by federal statutes requiring air carriers seeking to be certified in the U.S. to be “owned or controlled” by a “citizen” of the U.S.1 This requirement is enforced by the Department of Transportation (DOT) performing “fitness reviews” on applicant airlines to ensure they meet the “citizenship” definition.2 Historically, the U.S. has limited ownership and control to U.S. citizens for four primary reasons: the protection of a fledgling U.S. airline industry, the regulation of international air service through bilateral agreements, concern about allowing foreign aircraft access to U.S. airspace, and military reliance on civilian airlines to supplement airlift capacity.3"
Of Particular interest to this Virgin America deal:
Voting equity up to 25 percent and nonvoting equity up to 49 percent by a foreign entity is allowed, and any equity above these levels must be held in trust or converted to debt. Foreign holdings will be counted cumulatively towards these totals. (page 24)
First the way international flight agreements are negotiated between countries. Changing this would essentially require all nations with airlines to agree to these changes at the same time. A difficult task. Maybe this is occurring within European Union context?
Second, most nations see their airlines as a source of transportation in times of national emergency. The government can demand that the commercial air fleet be used for the military (or other agencies). I believe that this has only occurred once in the USA, during the first Gulf War. In the USA, the government officially "contracts" with the airlines to provide their fleet on demand. Some have argued that these contracts are a hidden form of subsidy. In any case it is hard to see how any government will allow foreign ownership of airlines due to this military use.
More on Civil Reserve Air Fleet (CRAF) the US military use of airliners : http://fas.org/man/dod-101/sys/ac/craf.htm
Participation in CRAF program has been voluntary (& fairly profitable) for the airlines. CRAF was activated twice, as part of Gulf War (1991) & Iraqi Freedom (2003). If the USAF was concerned about airlines "foreign control" during wartime, they'd go to the boneyard and grab extra C-5s and standard 747/767 passenger and freighter aircraft.
There are dozens of large aircraft in the boneyard that could be made serviceable in less 48-72 hours if rushed back to service. The aircraft may require heavy maintenance to stay in service long term, but still safe for short term operations. The downside is the USAF would have to pay for for the aircraft maintenance, whereas CRAF maintenance is paid by the operator.
Which two do you think are hard to overcome when considering a British national as a controlling owner? Looking at the list, the military reliance issue is the only one that seems concerning.
These foreign-ownership rules do strike me as counter-productive protectionism.
Because evidently if any competition comes to the domestic aviation industry, US airlines are doomed.
Allowing international carriers transiting the US to do intra-city flights soaks up demand and lowers route profitability for busy routes.
Past practices were to balance demand across city pairs so as to avoid local monopolies (ie. Minneapolis and Delta/Northwest) and ensure universal service. Deregulation broke all of that, so we have price competitions at the cost of a race to the bottom in service and industry cycles of bankruptcy and consolidation. Long term, that means monopoly levels of service and pricing.
See, for example, Etihad's 49% stake in Alitalia, Delta's 49% stake in Virgin Atlantic, etc. -- significant investment happens, but controlling share is a lot less frequent.
Government does not care about outcome it cares about the show they need to put up to convince people they are doing something good.
Surely you can recognize the merit in keeping domestic control of transportation, which is the reason these regulations exist.
No, I really don't.
In times of true national crisis, emergency powers allow the US government to commandeer the civil air fleet for military uses.
The rest of the time, these foreign ownership restrictions prevent better operators from taking ownership stakes and fixing the efficiency problems that plague uncompetitive mainline US airlines.
I for one would LOVE to see what an ME3 carrier could do with, say, American Airlines.
Depends. Is that an ME3 carrier on its own, or an ME3 carrier with an unlimited government subsidy to keep it afloat no matter how much money it loses? Because the latter is what really exists -- those airlines aren't run as for-profit businesses, they're run as vanity projects by the backing governments.
If some Emirati government wants to subsidize my domestic travel within the US, they should feel very free to do so! I'll take the better service and cheaper prices in a heartbeat.
That doesn't seem entirely self-evident, and that's part of the subject of this discussion thread.
There are already extensive regulations on the operation and safety of airlines, most of them likely for good reason. Why, above and beyond those regulations, do we additionally need to limit ownership?
If the answer is "handwave handwave safety handwave security", then I'd point out that there are dozens of other industries even more ingrained into the US where someone looking to do damage could do far more harm than they ever could with an airline, and none of those industries have prohibitions on foreign ownership.
i.e. the stuff the US does.
Just how magical is the the extra 2% that takes one from an "OK/freiendly" 49% foreign shareholder to a 51% (or 50% +1?) "oh no, intel stealer!". I sort-of understand the control argument, but not the secrecy argument you are making doesn't hold up.
Glad we got it nailed down.
The law's intent (not saying that I agree with it) is to ensure that the air transit infrastructure in the United States is controlled by U.S. citizens, not that every piece of transportation equipment worldwide is manufactured and controlled by the U.S.
Not OP, and not trying to be glib, but I think you're skirting the major objection by assuming agreement here.
Differential privilege due to happenstance of birth location seems a pretty arbitrary line to me, in need of justification.
We also have programs that will give you citizenship if you commit to investing money long term and taking an allegiance to the United States.
And yet we're almost completely dependent on foreign countries for oil, without which most of our transportation methods would crumble.
Full Definition of discourage
dis·cour·aged dis·cour·ag·ing
transitive verb 1 : to deprive of courage or confidence : dishearten <was discouraged by repeated failure> 2 a : to hinder by disfavoring <trying to discourage absenteeism> b : to dissuade or attempt to dissuade from doing something <tried to discourage her from going>
To hinder by disfavoring. Foreign investors are disfavored -- they can invest, but under different (and less favorable, hence disfavored) terms. They are hindered in the process. You can make a case that this hindrance is a good thing, if you want to, I guess. But you're trying to do so while at the same time claiming it doesn't exist.
Hence, the problem with the equities market, and why you should never go public if you can afford it.