=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2006/03/17/BUG6VHOTKP= 1.DTL --------------------------------------------------------------------- Friday, March 17, 2006 (SF Chronicle) Stuck in a holding pattern/Plan to attract foreign capital to U.S. airlines= under attack David Armstrong, Chronicle Staff Writer The apparently scuttled deal to sell terminal operations at U.S. seaports to a company owned by the government of Dubai, in the United Arab Emirates, may also end up swamping a Bush administration plan to allow foreign investors more say in the management of this country's airlines. Bush would like to grant foreign investors expanded authority to help set airfares and schedules, select routes and draw up airline marketing plans. The administration says giving foreigners greater input is designed to encourage cash-rich foreign investors to pour funds into America's ailing passenger airlines, thus providing the airlines with badly needed liquidity to buy new planes, pay down debt, pay high fuel bills and restore in-flight amenities. Money is badly needed. U.S. carriers have lost $40 billion since 2000, a= nd big names such as United Airlines, Continental Airlines, US Airways and Delta Air Lines have turned to federal Bankruptcy Court for protection. Bush's idea, set out in November in a proposed rule change by Transportation Secretary Norm Mineta, attracted little attention at the time. But rising fears over national security, given new urgency by the Dubai ports debacle, have Democratic and some Republican lawmakers lining up to ground the administration's airline proposal by pushing restrictive legislation through Congress. On its face, Mineta's proposal is modest. It would keep airline ownership and top management in the hands of U.S. citizens, retain the present caps on foreign ownership of airline stock at 49 percent and voting stock at 25 percent, and in Mineta's words wall off security from foreigners. His proposal would simply require U.S. airlines to consult more closely with their foreign investors, assuming they attract any. Present foreign investment in U.S. carriers is small. ACE Aviation Holdings Inc., the parent company of Air Canada, took a $75 million stake in US Airways when it emerged from Chapter 11 bankruptcy protection last year, and Hawaiian Airlines, another recent veteran of Chapter 11, has foreign minority shareholders in its new ownership, according to the airline. Virgin America, a startup low fare-carrier based at San Francisco International Airport that hopes to begin flights late this year, is partly backed by British entrepreneur Richard Branson. Branson is a minority investor who holds 49 percent of Virgin America's stock and 25 percent of its voting stock, in line with present U.S. regulations and Mineta's proposal. The airline, a U.S. corporation, licenses the Virgin brand from Branson's Virgin Group. Mineta told a congressional committee last week that he would like to put his plan to give foreign investors a greater say in U.S. carriers into effect as soon as possible. However, this country's renewed security fears -- coupled with memories = of Sept. 11, 2001, when hijacked airliners were used to attack the United States -- have sparked significant political opposition from lawmakers who fear Mineta's plan could provide the slippery slope that eventually leads to foreign control over a crucial part of the nation's transportation infrastructure. A bill to delay the plan for a year and give Congress a veto over it has attracted more than 150 co-sponsors in the House. Rep. Peter DeFazio, D-Ore., a supporter of the bill, said, "I'm pleased there's been so much attention on the ports issue recently, but people need to be aware that the administration is attempting to allow foreign governments and interests to control other important industries like the airlines, as well." A similar bill has been introduced in the Senate by Daniel Inouye, D-Hawaii, and Frank Lautenberg, D-N.J. "First our ports, now our airlines. President Bush is holding a fire sale of vital parts of our U.S. economy," Lautenberg fumed. Some want to go further The administration's proposal has supporters, too, but many say it doesn= 't go nearly far enough to be effective in healing America's ailing airline industry, despite all the concern it is stirring on national security grounds. Among the plan's supporters are investment-hungry U.S. carriers, foreign airlines eager to crack the American aviation market -- the world's largest -- foreign governments and airline trade organizations. These entities characterize the proposal as a mere baby step. They say Washington should simply scrap rules that forbid outright foreign ownership of U.S. carriers and also allow international carriers to fly between American cities, completing the 1978 deregulation of the aviation business and allowing it to operate according to free-market principles. So far, Washington's embattled plan to loosen the rules a little has attracted scant interest among those it is intended to attract: prosperous foreign carriers with walking-around money, such as Middle Eastern carriers Emirates and Gulf Air and European carriers Lufthansa Airlines and British Airways, which have not been badly hurt by the industry downturn that hammered U.S. carriers. British Airways Chairman Martin Broughton, speaking to an industry group in New York two months ago, dismissed the administration's plan as "a recipe for confusion," saying it was more a new interpretation of old rules than a fully realized new rule. Washington should simply scrap its ban on foreign ownership, said Broughton, whose company carries more international travelers than any world carrier except Lufthansa. British Airways has been thwarted in several attempts to initiate joint ticketing and marketing with American Airlines on its lucrative transatlantic routes, and has long favored aviation liberalization. Seeking global companies Some U.S. carriers also support dropping the ban on foreign ownership. Cross-border airline mergers should be encouraged, they say, so that airlines can consolidate and create truly global companies in a globalized world. Glenn Tilton, chairman, president and chief executive of United Airlines, told the Chicago Council on Foreign Relations in a 2004 speech that U.S. regulations not only block "the capital investment this industry so desperately needs, it excludes U.S. airlines from participating in the supercarrier evolution." "No matter how well United or any U.S. carrier transforms its business," Tilton said, "none of us will be an integral part of the future of global aviation unless there is real change in the U.S. regulatory environment and the creation of a coherent national policy on aviation." That position is shared by the Air Transport Association, a Washington industry group, and its global counterpart, Montreal's International Air Transport Association, which has long called for world aviation to be deregulated and run according to market principles. If the administration's proposal to lure foreign investors to the struggling U.S. aviation industry takes wing, it could be the first phase of a movement in that direction. But first, Mineta's plan will have to fly through political headwinds in Congress and perhaps survive court challenges. E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx --------------= -------------------------------------------------------- Copyright 2006 SF Chronicle