First it was Open Skies. Now the U.S. is surprising everyone by proposing to ease the “spider’s web of airline ownership rules” in a move that would allow Europeans to own more of a U.S. airline.
Federal laws caps foreign control of a U.S. airline at 25 percent of voting stock, a rule that essentially forced Virgin America’s first chairman, Fred Reid, to resign.
John Byerly, the chief U.S. negotiator for the Open Skies Agreement, promised the European ownership rule changes would just be a start. “Washington would seek a far wider deal by pledging to forgo access restrictions on airlines from more than 60 nations, based on the nationality of their owners, a deal which could be expanded to other countries in the future,” he said.
The European Union wants to do away with the ownership cap, too. The U.K. would like the E.U. to have the right to own or control U.S. airlines. If they don’t get it, they reserve the right to tear up the agreement, which forced Britain to open up routes from Heathrow to more competition.
Many U.S. lawmakers oppose scrapping the ownership limit. Although they feel that letting the European carriers could boost investment — possibly infusing more money into airlines that are in or near bankruptcy — and competition, the E.U. would have to be hard-pressed to convince the lawmakers and trade unions of the benefits.
So if the cap is lifted, what does this mean to the average consumer?
It could save the domestic airline industry. It could even save a European carrier or two (Alitalia comes to mind).
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How about the shares that a foreign company owns in an American company is non-voting shares? And how interested would the foreign company be in owning shares then?
Randy, I think that’s the entire point. By lifting that restriction, they can, arguably, own 100% voting, although that won’t go very well at all. If the foreign airlines owns, say, 65%, they can decide what routes to eliminate as well, probably, decide who stays and who goes.
By having the cap at 25%, their vote can be overridden by those that own 75%.