Transnational Airlines in Latin America Facing the Fear of Nationality

Abstract

Latin America has been the recent scenery of cross-border mergers and acquisitions of airlines in countries in which their domestic law allows important foreign investment in air carriers. However, the still present architecture of bilateral exchange of traffic rights between countries, encouraged by the 1944 Chicago Convention, is a serious threat for the development of these transnational airlines, operating through a complex network of corporations incorporated in different countries. Typically, this bilateral architecture includes 'ownership and effective control' clauses that require an airline designated by a country party to a bilateral air services agreement (ASA) to be majority owned and effectively controlled by its nationals. Such nationality clauses were founded, back in the 1930s for security (including military) and economic reasons. Recently, some Latin American countries are liberalizing nationality requirements for designated airlines under bilateral ASAs in conformity with their locally relaxed posture pertaining to foreign investment in air carriers. Regional initiatives have also been taking place, slowly waiving the traditional restrictive attitude towards the previously mentioned nationality requirements. Hence, it is argued that airline's designation under a bilateral ASA in Latin America should be focused on criteria that are linked with the corporative structure rather than on the nationality of the final ownership of the airline. This position will be coherent with today's reality in regard to the airline industry of the region.