Lift U.S. Airlines Via Foreign Ownership
Overseas carriers should be permitted to buy U.S. airlines in full. Pro or con?
Pro: Innovation, Not Nationality, Flies Best
Today’s rusting airline ownership rules—a tangled mess of archaic 19th century maritime law and unvarnished protectionism—should be scrapped, making way for a modern free market in the sky bounded only by a lightweight regulatory framework.
Foreign ownership of U.S. strategic assets is a debate-worthy topic, but our domestic airlines have long ceased to fall into the “strategic” category. Instead, they have degenerated into an embarrassment of tortured inefficiency. Greater overseas ownership—and the ebullience that relaxing of current rules would bring with it—would give the U.S. airline industry a second wind, full of market-based incentives to innovate.
There’s little evidence the impact on labor would prove more substantial than that of the current outsourcing craze, which already has carriers retooling planes in remote parts of the globe. And foreign-owned, U.S.-incorporated airlines would, of course, be subject to U.S. safety, security, and employment rules.
Take Southwest (LUV), a rare bright spot, which has managed to create value for passengers and shareholders by lowering its labor costs while putting a companywide emphasis on the value of its employees. Working within slightly more liberal rules than other carriers, the company has lowered fares without demoralizing or exploiting its labor. Greater foreign ownership is another step in that direction and would encourage similar ventures.
The current system of nearsighted protections shelters mediocrity—and does nothing to boost the national ego. Instead, let the pride of the U.S. be an exemplary free market where domestic airlines can truly compete and succeed.
Con: Foreign Owners Would Diminish the U.S.
Each time the U.S. airline industry hits a turbulent patch, the solutions flow for fixing its long-term stability and protecting shareholders. Inevitably, some industry players propose to loosen Uncle Sam’s restriction on how much of a U.S. carrier a foreign entity may own.
Virgin Group would probably be among the early strategic buyers, as would deep-pocketed flag carriers such as Air France-KLM (AFRAF), British Airways (BAIRY), and Singapore Airlines. Great, you say, all four are superior to U.S. carriers, so bring ‘em on. Well, not so fast.
For one thing, the rule limiting foreign control of a U.S. airline serves as a buffer against job loss. Aviation accounts for 6% of U.S. economic activity, according to Representative Jim Oberstar (D-Minn.), who has battled efforts for years to curb the ownership rules. A foreign-owned operation will not have the same incentives to support domestic aviation jobs in U.S.-owned maintenance services, flight crews, and airports, or at Boeing (BA).
And what if the big-time overseas behemoth saw no good business sense in daily flights to the hinterlands? Foreign-owned U.S. airlines would turn into vast regional players designed to route urban-dwelling Americans to other U.S. urban centers and to all points around the globe.
And the type of fine dining on which many Asian and European airlines have made their reputations would inflate costs, preventing the low fares that U.S. fliers demand. So your 8 a.m. flight to Phoenix is going to be every bit as delayed, crowded, foodless, and exhausting as you know it now.