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MCCAIN STATEMENT ON FOREIGN INVESTMENT IN U.S. AIR CARRIERS
May 9, 2006
Washington D.C. – Today, U.S. Senator John McCain (R-AZ) spoke before the Senate Commerce Committee Aviation Subcommittee and submitted for the record the following statement:In 1926, Congress enacted the Air Commerce Act, which restricted foreign ownership of any U.S. airline to 49 percent. The government’s goal at the time was, in part, to protect a fledgling industry. Twelve years later, protectionist leanings prevailed again, and foreign investors were limited to owning 25 percent of the voting stock of domestic air carriers. Forty years after that, our airline industry was generally deregulated.
But 80 years after Calvin Coolidge signed the Air Commerce Act into law and nearly 30 years after deregulation, we have yet to eliminate several regulatory restrictions on the airline industry including the perimeter rule, the Wright Amendment, and – the topic of today’s hearing – legislation that severely restricts foreign ownership of domestic airlines.
In 2003, the President proposed loosening the ownership restrictions to lower the foreign ownership threshold back to 49 percent. Congressional opposition scuttled that effort. More recently, the Department of Transportation has proposed clarifying the definition of “actual control” of a domestic airline to promote greater ownership interests by foreign investors.
A review of the DOT’s proposed rule shows that it is a modest proposal at best. Nevertheless, the emergency supplemental for Iraq and Katrina that is now in conference contains a provision that would delay the rulemaking until the end of this fiscal year. This provision has no place in the emergency supplemental. I would submit as well that this provision has no place in Federal law.
Over the past four years, we have seen some of our nation’s largest airlines falter into bankruptcy. In the months after 9/11, US Airways filed for bankruptcy. Then it was United. Then Northwest and Delta. At one point last year, four out of the nation’s seven largest airlines were in bankruptcy.
To recover from these bankruptcies and to sustain their operations, our nation’s airlines need sources of funding and a broader ability to enter into cooperative agreements with foreign carriers. Yet some appear to believe that the best way to help our airlines is by cutting them off from investors and effectively making our airline industry’s cost of capital higher by restricting the number of potential investors.
This is not a theoretical problem. According to a 2003 Government Accountability Office report, foreign airlines have attempted to invest in and influence the operations of U.S. airlines several times since the late 1980s. The report notes that “foreign airlines have on occasion invested significant amounts of capital into U.S. airlines, only to later disinvest due in part to U.S. policies concerning airline control.” Rather than limiting the sources of funding for our nation’s airlines, we should be making sure that they have all the capital they need to manage and expand their operations domestically and abroad.
The provision delaying the DOT’s rulemaking would also detrimentally impact our Open Skies negotiations with the European Union. Reportedly, no decision to sign a comprehensive air transport agreement will be made by the EU unless the DOT finalizes its rulemaking on the definition of “actual control” of U.S. airlines. But instead of applauding freer and more robust commercial relations with our neighbors across the Atlantic, some would rather turn inwards.
Much is at stake here, and I trust that principles of free competition and consumer choice will overtake the growing desire in this Congress to embrace protectionism and rebuff the world.
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