Foreign affairs, delayed

Manoeuvring to avoid a collapse in US/EU Open Skies efforts, Bush administration officials ‘revised’ their proposal to encourage foreign investment in US carriers – a change that the Europeans have insisted on before agreeing to any larger liberalisation of the regime for transatlantic flights. Saying it was “mindful of the strong interest in the proposal expressed by members of Congress,” the Transportation Department said it was “clarifying” the ways in which it would determine the actual control of a US carrier – the nub of the issue and the focus of congressional and industry opposition. Opponents, both Republicans and Democrats, and some carriers, most notably Continental Airlines, argued strenuously that encouraging foreign investment in US-flag carriers would threaten national security. Most US-flag carriers can be nationalised or drafted into airlift duties in event of a national emergency.

The new rule, explained a DoT official, would “specifically prevent international investors from having the ability to hire, fire, or control the budgets of senior airline managers with direct responsibility for safety, security, and national-defense airlift commitments” and make clear that US citizens who are members of a domestic airline’s “board or the voting shareholders must retain the authority to revoke decision-making authority that international investors may acquire”. The official offered this as an example: “The domestic board members might decide to revoke international investors’ decision-making authority over scheduling and fleet composition if they felt that those decisions were not in their airlines’ best interests.” You can find the text of docket here.

The Transportation Department relied on a relatively little-used regulatory process called a supplemental notice of proposed rulemaking, which gives the agency a 60-day window in which to solicit public comments; the agency can act after that or can draw out its consultations further. In any event, the DoT action, or inaction, likely makes it impossible for the EC’s Council of Ministers to consider and approve the larger issue of open skies in time for the airlines’ winter schedules of 2006-2007, as was originally envisioned. But the move certainly gives the DoT time to assuage continued congressional opposition and to seek to placate Continental and other opponents.

Although an EC official in Washington said he remained “hopeful” that an agreement could be reached this year, Continental attacked the DoT revisions and clarifications within minutes, saying the supplemental proposed rule “is a bad rule designed to clench a bad deal between the European Union and the US”. The Houston-based carrier said: “The DOT has abdicated its responsibility to ensure actual control by US citizens, relying instead on the unreasonable hope that US shareholders and directors might reassert the very control DOT is unwilling to require.”

Continental and other opponents insist that a change of this magnitude can only be made by Congress, where members of the powerful appropriations committees have already moved to block any such changes. And that is not likely, to judge by continued congressional scepticism about foreign investment in the US, as evidenced by the xenophobia that erupted during the Dubai ports attempt to buy a UK based firm that owned parts of several US ports stevedoring firms and continued suspicion of the motives of investors in high-profile US properties and companies. Or, as one Republican congressman from the Houston area put it, “we can’t have a US airline being bought by some people from Nigeria”.

Leave a Reply