Oberstar Testifies on Foreign Ownership of US Air Carriers
Tuesday, May 09, 2006
WASHINGTON--Today, Congressman James L. Oberstar offered the following testimony* in a hearing before the Senate Committee on Commerce, Science and Transportation regarding foreign investment in U.S. air carriers: "Chairman Burns, Ranking Member Rockefeller, you are holding this hearing because you recognize that our government is engaged in one of the most important aviation policy decisions since de-regulation was enacted in 1978: the DOT’s [Department of Transportation’s] proposal on foreign ownership. The NPRM [Notice of Proposed Rule Making] on foreign ownership in effect would trade away the crown jewel of American transportation -- our nation’s airlines – at their most vulnerable moment, to their foreign competitors. This would be done to conclude an Open Skies agreement with the European Union, an agreement which State and DOT describe as a major breakthrough, but which in reality, would provide only limited benefits for United States’ airlines, given the difficulty of getting slots to implement the new rights that our carriers will get at Heathrow.
For the past 65 years, U.S. commercial aviation has been guided by a statute, which provides that only an airline that qualifies as ‘a citizen of the United States’ may provide service between cities in the U.S., or on international routes obtained by the U.S. through international agreements. The law clearly says that an airline may qualify as a U.S. airline, only if the airline is ‘a corporation or association . . . which is under the actual control of U.S. citizens.’ Under DOT’s proposed new standard, foreign investors would be allowed to exercise control over all commercial aspects of U.S. airline operations, including fleet mix, routes, frequencies, classes of service, and pricing etc. U.S. citizens would be required to control only decisions affecting the Civil Reserve Air Fleet (CRAF), transportation security, safety and organizational documents.
It is clear to me that the Department does not have the legal authority to limit the requirement of "actual control," to a requirement of control over only safety, security and CRAF decisions (and not over other economic decisions). Our courts have held that although an executive branch agency has discretion to interpret a statute, an agency does not have discretion to make interpretations that conflict with the "plain meaning" of the law. If DOT’s new standard is allowed to be implemented, there could be serious consequences for our national aviation system, particularly since the most likely foreign investors would be foreign airlines or persons with interests in foreign airlines. Foreign interests could restructure the route system and fleet of a U.S. airline so that the U.S. airline would become, in effect, a "feeder" for the international operations of a foreign carrier. This could limit service and competition in markets served by the U.S. airlines, particularly service to small communities.
There could also be effects on national security: A foreign investor could decide to take an airline out of the CRAF program, or it could accomplish this indirectly by changing the fleet mix of a U.S. airline to reduce the number of large, wide-body civilian aircraft that the Department of Defense relies on to supplement its military fleet in times of national emergencies. In addition, U.S. airline employees could lose high-quality job opportunities, in favor of employees of the foreign carrier. There could be similar effects on other aviation industry employees. Foreign investors would be inclined to support the purchase of aircraft produced by foreign companies, and to have the airline use foreign repair stations. . . .
I have been deeply concerned, as have many of my House colleagues, that under the DOT’s proposal, the foreign interests that controlled an airline would also control safety, security, and the CRAF program. The SNPRM attempts to meet our concerns by claiming that under the proposal, foreign interests would not be allowed to supervise the managers responsible for safety, security or CRAF, or to control their budgets, and compensation. This seems unrealistic. Does this mean that a Vice President for Security would have unlimited budget authority and unfettered authority to set his or her compensation? In reality, when it comes to a specific case, a foreign investor is likely to insist on conditions that do not isolate it from all decisions affecting safety, security or CRAF.
Late last year, 189 of my colleagues, including Chairman Don Young, joined me to introduce H.R. 4542, which prohibits the DOT, for one year, from issuing any final decision or final rule on the NPRM that would change its interpretation of what constitutes "actual control" of a U.S. airline. I urge the Senate to preserve the language in the Defense supplemental appropriations that would prohibit the DOT from implementing this rule for the rest of the fiscal year. We must ensure that any changes in the law will come from Congress – not by administrative fiat."
* The testimony above is an abridged version of the actual testimony delivered by Congressman Oberstar.
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