Trade groups battle over foreign investment in US airlines
Diana Stancy Correll, Washington Examiner on February 27, 2018
Foreign carriers may be able to invest more in U.S. airlines in the future thanks to a new piece of legislation that would lift such restrictions. But opponents say security and safety could be at risk.
The legislation, introduced in the House this month by Rep. Dave Brat, R-Va., would eliminate the Depression-era restriction that caps foreign ownership in U.S. airlines at 25 percent.
Additionally, the law change would allow foreign carriers to build U.S.-based subsidiaries that can fly domestic routes and operate under U.S. laws. The U.S.-based subsidiaries must also hire American citizens.
While travel groups have pushed back on lifting the cap entirely as the legislation proposes, backers say the measure will promote greater competition and enhance the travel and tourism industry.
Brat called the measure, known as the Free to Fly Act, a “win for America’s consumers, workers, and airlines,” and said repealing the cap on foreign investment is “overdue.”
“The elimination of this outdated restriction is long overdue,” Brat said in a statement. “As an economist, I understand that hindering investment hurts American businesses, workers, and consumers. The Free to Fly Act would stimulate and expand the travel and tourism industry, creating more choices and reducing prices for consumers, while at the same time increasing financial stability for U.S. airlines and creating jobs for American workers.”
The Free to Fly Act has also attracted the support of groups including The Travel Technology Association and Travelers United, among others.
“Over the past several years, American consumers have seen a steady erosion in flight options and choices in many cities across the country due to the consolidated market where four airlines control over 80-percent of the seat capacity,” Steve Shur, president of The Travel Technology Association, said in a statement.
“Increased choice and more competition in air travel will benefit consumers and the travel and tourism economy overall,” he added. “Representative Brat’s bill is an innovative approach to promoting more competition among U.S. air carriers.”
Groups such as the American Society of Travel Agents claim they recognize the need for greater competition among U.S. airlines, but are not in favor of eliminating the foreign ownership cap.
“In response to outreach from Rep. Brat’s office prior to the bill’s introduction, we did several rounds of consultations with our members on the topic,” Eben Peck, executive vice president of advocacy at the American Society of Travel Agents, said in a statement. “In the end, while we agree that the U.S. airline industry suffers from a lack of competition, ASTA’s position, long-held, remains in support of lifting the foreign ownership cap to 49 percent, which would match Canada and the European Union, but not doing away with it altogether.”
Additionally, other organizations such as the National Air Transportation Association are hesitant to support the measure, noting aviation security and safety reasons.
But Brat’s office pushed back on any unease regarding security, and pointed out that the president can seek advice from the departments of Defense and State and oppose a decision from the Department of Transportation to “grant or modify an air carrier certificate based on foreign relations or national security concerns.”
Additionally, the office noted that the U.S. government would have the same oversight authority of the foreign-owned U.S. subsidiaries as it does carriers owned by a U.S. citizen.
The National Air Transportation Association is reviewing the bill and did not provide further comment to the Washington Examiner about security concerns.
Meanwhile, Airlines for America, an organization that represents airlines including American, United, and Southwest, told the Washington Examiner that the group has not weighed in on the bill yet.
But Charles Leocha, president and cofounder of Travelers United, anticipates that the measure will be controversial and expects that airlines will buck the legislation due to the foreign ownership aspects.
“I can tell you that the airlines are not going to be thrilled with it,” Leocha said.
Brat’s office said it is aiming for the House Transportation and Infrastructure Subcommittee on Aviation to hold a hearing concerning airline foreign ownership restriction and, or alternatively, the Free to Fly Act. Additionally, the office said full committee Chairman Bill Shuster, R-Pa., and aviation subcommittee Chairman Frank LoBiondo, R-NJ, are expected to oppose alterations to restrictions on foreign ownership of U.S. airlines.
The office is also weighing introducing the bill as an amendment to the Federal Aviation Administration reauthorization bill, which is set to expire the end of March.
At a minimum, the office said it would like the Government Accountability Office to study issues related to foreign investment and management of U.S. airlines. The last time GAO studied this topic was in 2003, and Brat’s office argues the airline industry has changed dramatically since then.
Additionally, Leocha said Travelers United will be meeting with lawmakers to explain why the group is backing the measure.
Although Leocha believes it’s unlikely the legislation will pass, he said the legislation requires members of Congress to address questions that consumer groups have raised for years.
“Having the discussion about ways to improve competition and ways to bring competition back into the aviation marketplace is worth having,” Leocha said. “And that is one of the main reasons why I’m supporting the bill and Travelers United is supporting the bill.”