Is more foreign ownership the wave of the future for the U.S. airline industry?
Some troubled air carriers, which are finding it difficult to get loans from American banks, hope so. So does Secretary of Transportation Samuel K. Skinner.Recently, Skinner testified before Congress in an effort to get the lawmakers to go along with his plan to let foreign interests buy up to 49 percent of the voting stock of U.S. airlines, raising the current cap of 25 percent. And he made a strong case - at least up to a point.
The U.S. airline industry is now standing under the greatest financial pressure in its history. Under the impact of a sluggish economy, high fuel prices, and travel jitters caused by the war with Iraq, the industry suffered a $2 billion loss last year, its the biggest financial setback.
In recent months, Eastern Airlines stopped operations while Continental and Pan America filed for protection under the bankruptcy laws.
This situation points toward the growing likelihood of air travel becoming dominated by progressively fewer but bigger carriers. And less competition often means more problems or consumers.
Skinner's plan for more multinational ownership of U.S. airlines is hedged about by plenty of safeguards. Even if new laws permitted up to 49 percent foreign ownership of an airline company, present laws would still require that two-thirds of an airline's board of directors be U.S. citizens and that at least 75 percent of the voting stock be owned or controlled by U.S. citizens.
Fine. But various U.S. airlines got into trouble not just because of adverse conditions but because of inept management. With the same kind of management in place, what's to keep these airlines from wasting foreign investment funds the same way they wasted American investment funds?
Once that happens, it's hard to imagine a foreign airline being willing to obtain up to 49 percent of an American airline without getting the control needed to protect its investment.
Down that road loom a number of nasty possibilities. Foreign airlines, the most likely investors in U.S. airlines, are often owned or heavily subsidized by foreign governments. This situation raises the possibility of foreign subsidization going with foreign investment, giving some U.S. airlines an unfair advantage over their competitors without foreign funds. Moreover, it could be harder for Washington to commandeer U.S. airlines as it has done during the war in the Persian Gulf, since such action would risk antagonizing not just private investors but a foreign government.
Skinner should take his plan back to the drawing board. If the flaws can't be fixed, Congress should say thanks but no thanks to more foreign investment in U.S. airlines.