Continental Airlines thinks foreign management of airlines "unlawful"

March 7, 2006

US airline attacks foreign move
Leading US airline has criticised government proposals to give foreign investors greater say in how carriers are run, calling the plan “unlawful”

Washington revealed last November that it was looking at ways of boosting foreign investment in the industry, which has suffered huge losses.

Foreign firms could be given input into route selection and marketing to encourage them to invest capital.

But Continental Airlines said the proposals were unworkable.

Legal threat

“We intend to challenge it in court,” Jeff Smisek, Continental’s president told aviation analysts on Thursday.

Current regulations limit the degree of influence which foreign investors can have over US airlines.

The 49% cap on foreign ownership of US carriers or the 25% limit on voting rights are not up for discussion.

However, the US government is seeking ways to allow foreign firms a more active role in the decision making of US airlines.

The proposed changes would only apply to investors in countries with existing aviation agreements with the US and which permit US investment in their own domestic airlines.

Mr Smisek said he was not opposed to US carriers being given greater scope to raise money from foreign investors.

However, he said the US government was trying to reinterpret legislation on control of airlines without reference to Congress as part of its efforts to negotiate an aviation agreement with Europe.

Talks on an “Open Skies” agreement between the US and Europe resumed late last year after stalling for several years.

Financial crisis

The US aviation industry has been in financial crisis since the 11 September terrorist attacks, its problems compounded by soaring oil prices, fluctuating demand and huge labour costs.

United Airlines, Delta Airlines, US Airways and Northwest have all been forced into bankruptcy protection as they try to sort out their finances.

Despite the industry’s financial problems, Washington has baulked at relaxing the ownership rules governing the industry, citing safety and national security concerns.

Unions have argued that foreign ownership could threaten jobs and employment rights.

Story from BBC NEWS:

Published: 2006/02/23 20:44:38 GMT


US pushes for more foreign investment in airlines
Tue Mar 7, 2006 6:26 PM ET
By John Crawley

WASHINGTON (Reuters) – The Bush administration will push ahead with a proposal to ease limits on foreign investment in U.S. airlines, despite some congressional pressure to slow down the plan or withdraw it, Transportation Secretary Norman Mineta said on Tuesday.

The proposed regulation was opposed earlier this year by mainly Democratic lawmakers concerned about the impact on U.S. jobs and airline service if global capital options for financially struggling domestic airlines were expanded.

But in recent weeks a few Republicans have begun to question whether the initiative is wise in light of the firestorm of controversy that has consumed plans by a Dubai-based company to manage six U.S. ports as part of its multibillion-dollar purchase of a rival British firm.

Many Republicans and Democrats in Congress, as well as state and local officials who lease port facilities, are worried that giving a company owned by the United Arab Emirates management control of key U.S. ports could undermine security.

The administration said any security concerns have been adequately addressed but pressure from Congress has forced a new review of the ports proposal.

While Mineta did not comment directly on the ports saga at a House of Representatives appropriations hearing on Tuesday, he did respond to concerns from two Republican lawmakers that the airline deal could pose similar security risks for the United States — especially since the 2001 attacks on New York and Washington involved hijacked jetliners.

He also angrily denounced a three-page anonymous document circulating on Capitol Hill — believed generated by an unnamed U.S. airline — that also questions the wisdom of allowing more foreign investment in the airline industry.

“They’re saying we’re going to hand over the keys of the cockpit,” Mineta said. “That’s not true. This paper is replete with inaccuracies.”

“There is nothing in the rule that would change the ownership law,” Mineta said of federal standards that limit control of an airline to U.S. citizens.

It would, however, allow overseas investors more input in key airline company operating decisions in return for a maximum investment of 25 percent of voting stock.

“We want Americans to own American airlines. We’re trying to split hairs,” said Rep. John Culberson, a Texas Republican. “This raises all kinds of red flags.”

Mineta resisted a suggestion by Culberson to pull the ownership proposal, or at least delay it. “I don’t believe we should postpone the rule,” Mineta said.

“We gave this a lot of thought. When it comes to safety and security — that’s walled off,” Mineta said.

There is little if any overseas capital in U.S. carriers. ACE Aviation Holdings, the parent of Air Canada, has an equity stake in US Airways.

In a separate interview, Rep. Frank LoBiondo of New Jersey, one of the first Republicans to openly question the administration’s handling of the ports deal and original opponent of the airline ownership proposal on economic grounds, said it is appropriate to link the two in the security debate.

“One is as critical as the other — these are critical infrastructure issues,” LoBiondo said.

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