June 30, 2008
US airlines want foreign money after all
This morning’s Wall Street Journal story on Martin Broughton, chairman of British Airways, predicting that US airlines will soon start lobbying for the relaxation of foreign ownership rules has the ring of truth to me.
The reason is that one senior executive of a US airline said precisely that to me recently (off the record). He said that he could no longer see the point of the US law barring a foreign airline from owning more than 25 per cent of a US one and would not object to it being abolished.
The reason he gave for this was that the industry was largely financed by debt anyway and it did not make much difference who held the equity. This seemed fair enough but underlying it is financial pragmatism - US airlines need capital from wherever they can get it these days.
Of course, from the consumer’s perspective, allowing foreign ownership would be a boon. The US airlines - like those in some other countries - have existed in a protectionist world for too long and it has not helped either standards of customer service or the industry’s solvency.
The long-running battle over the ownership and control of Virgin America showed how protectionist the US market remains. Even my executive was too wary of a backlash to make his views known openly.
But there is nothing like self-interest to batter down longstanding traditions and I suspect Mr Broughton’s prediction may prove true.
I’m surprised the US Airline Exec wanted to be off the record. Most US airlines have come out in support of removing the restriction.
I find that the UK press always looks for the protectionist story in regards to Virgin America, while the facts don’t necessarily support. The certification process takes longer in the US than the UK and the airline got caught in waiting too long to begin. Look at MaxJet who was in the certificaiton process at the same moment. It took them about the same time and were sent back for more information numerous times as well. Additionally, the Bush adminstration stretched the Regulatory regime very far in trying to seperate Control and Ownership to please the Europeans. Lastly, the Bushies facilitated DHL entering the US market (finding it a US airline), even though the German market was less open, and against the wishes of the US industry. Hardly the actions of a protectionist regime.
What you have is a Labor lobby on the left and Military lobby on the right who oppose this (rare in our polarized politics). If the UK and Europeans want this liberty, they need the carrot more than the stick to overcome this lobby.
Posted by: AndrewW | July 1st, 2008 at 1:15 am | Report this commentthe US mainline aviation industry is going through a massive transition, thanks to the rise of competitive low-cost US carriers (whose EU counterparts aren’t really allowed to compete for lucrative business travel in Europe — “Frankfurt/Hahn” anyone?) and the rise in the $ oil price (which affects Euro-based carriers less). meanwhile, Europe’s Big Three are fairly flush with the monopoly rents they enjoy from their state-sponsored dominance of the main intl airports in the EU (spare us the sanctimony about BA — it wouldn’t exist today if it hadn’t enjoyed decades of Bermuda II protection from US carriers at Heathrow). so it’s no surprise that those EU Big Three would like to make some opportunistic acquisitions in the US, and lock in dominance of global aviation. But we all know if the US-EU competitive positions were reversed (as was the case just a decade ago), it would be a cold day in hell before France, Germany or even the UK would allow US carriers or investors to purchase controlling stakes in Air France, Lufthansa or BA. And for that reason US policymakers are going to think long and hard before allowing EU carriers to buy up a dominant role in the US aviation industry on the cheap until this transition in US aviation has played itself out. The whining of the transatlantic business-class set notwithstanding ….
Posted by: drew | July 1st, 2008 at 1:27 am | Report this commentProtectionism is always anti-competitive, and the customers are the ones who ultimately suffer. So I agree: I am all for lifting the foreign ownership restrictions–and even for giving full cabotage to foreign carriers.
However, this has to go BOTH WAYS. This can only apply to private (that is, non-state-subsidized) airlines, and the countries they’re based in must allow overseas carriers to come in and buy their airlines and operate with cabotage also.
Posted by: TC in DC | July 1st, 2008 at 1:05 pm | Report this commentWhen about to go down the gurgler, all principles are abandoned. Die or embrace the devil, one or the other.
Posted by: brianoh | July 3rd, 2008 at 2:52 am | Report this comment