Open Skies Plans Give US Cold Feet

By Martin Fluck of Dow Jones Newswires

Capitol Hill’s ingrained bipartisan aversion to foreign ownership of US airlines makes a British Airways takeover of American Airlines look improbable.

Only in December, the US Department of Transport rejected Virgin America’s application for a licence, because of the 1926 law banning foreigners from controlling US airlines.

If it had its own way, the Department of Transport would have given the go-ahead, though. It knows that opening America’s air transport industry would lead to

an injection of capital and investment into what has for years been a moribund industry and increase quality and service.

Virgin Atlantic is a threat to the incumbents because it would shame them with its frillier services, from leather seats and to personal video screens featuring live satellite TV, movies, and games.

Similarly, going west would give British Airways a huge new market, flying domestic US routes as well as routes from non-UK European airports to the US. And BA must fancy its chances competing with US incumbents too.

However, the legacy of 9/11 overshadows everything, politically.

Larger, better-capitalised transatlantic airlines might be able to absorb any future disruptions to global travel, but national security is now the overriding concern in the US as the blocking of Dubai Ports World’s attempt to acquire commercial operation rights at six US ports early in 2006 showed.

Congress even threatened to cut the Department of Transport’s funding last year, unless it withdrew its proposal to allow more involvement by foreign investors whose countries signed “open skies” agreements, giving American carriers better access to their own markets. Congress has also just passed a bipartisan bill tightening scrutiny of any transactions involving foreign governments.

So even if the open skies talks between the US and the EU, which begin on 26 February, were to allow EU airlines to increase their share of voting stocks in US airlines above the 25% threshold, the issue of control is likely to remain unresolved.

There is optimism that Brussels will now be able to enhance the open sky aviation agreement drafted in November 2005, with more freedom for European carriers on routeing.

But why would Virgin’s Richard Branson, or anyone else wanting to inject some vibrancy into the US airline industry, invest unless they have control?

Perhaps a consortium of American firms with BA as a partner thinks it can cleverly circumnavigate the foreign ownership issue.

But the backlash from Congress in the coming election year would likely be swift and unambiguous.

(c) 2007 Sunday Business; London (UK). Provided by ProQuest Information and Learning. All rights Reserved.