Ownership and Control Restrictions in US Aviation Law

Abstract

This article compares US ownership and control laws in the aviation and maritime sectors and argues that US aviation ownership and control laws should be modified to more closely resemble those used in the US maritime sector in order to permit greater foreign investment in US airlines. US airlines have faced decades of financial instability and will continue to be hobbled by US ownership and control laws that greatly restrict the amount of foreign capital they can access. In contrast to the financial difficulties facing US airlines, many major foreign airlines have thrived in the increasingly global marketplace by taking advantage of more flexible foreign investment laws and engaging in cross-border mergers. These foreign airlines – as well as the US maritime industry and nearly all other US industries – engage in cross-border mergers and acquisitions and utilize significant amounts of foreign capital. Current ownership and control laws require that carriers wishing to operate aircraft in the United States hold a certificate of public convenience, which will only be issued to individuals who are US citizens;partnerships whose partners are all US citizens; and US corporations of which the president and at least two-thirds of the board of directors and other managing officers are US citizens, which is under the actual control of US citizens, and in which at least 75% of the voting interest is owned or controlled by US citizens. In contrast, many US flag vessels are permitted to be up to 100% owned by foreign stockholders. The liberalization of US aviation ownership and control laws would likely result in increased access to foreign capital for US airlines, more efficiency due to consolidation in the airline industry, and increased cross-border investment, which would help stabilize the volatile US airline industry. Opponents to the liberalization of US aviation ownership and control restrictions argue that such liberalization would result in flags of convenience, national security problems, the loss of American jobs, and the risk that other countries may not follow suit in liberalizing their ownership and control laws. The Department of Transportation (DOT) has attempted to adopt rules that would liberalize the US aviation ownership and control laws, but it has been unsuccessful in its attempts, in part due to significant opposition in Congress. The United States has, however, signed several international agreements that indicate a shift towards the acceptance of less stringent ownership and control laws in the aviation sector. US airlines would likely enjoy greater financial stability, which would also benefit US consumers, if US aviation ownership and control laws were revised to more closely resemble those used in the maritime sector.