=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/2006/12/29/BUG1QN99RB= 1.DTL --------------------------------------------------------------------- Friday, December 29, 2006 (SF Chronicle) Rule change could have helped airline get off ground/Proposal easing limits= on foreign ownership withdrawn before Virgin America denial issued David Armstrong, Chronicle Staff Writer A government rule keeping Burlingame startup airline Virgin America in a holding pattern due to the carrier's alleged domination by foreign interests was forged decades ago in an era of government-owned carriers and Cold War worries about the role of aviation in national security. These days it's held in place by similar security worries and concerns about sending jobs overseas and the perceived threat of globalization. To keep U.S. airlines American, aviation law requires that at least 75 percent of airlines based in this country be owned by U.S. citizens and that they exercise "actual control" of such airlines. Wednesday's tentative decision by the Department of Transportation to de= ny Virgin America permission to begin flying was rooted in the department's belief that the airline is in fact controlled by British billionaire Richard Branson and his London company, Virgin Group. Virgin America -- in which Branson has a 25 percent stake -- denies it is foreign-controlled and said it will respond Jan. 10 to the ruling. Ironically, the Transportation Department tried to relax rules governing foreign participation in U.S. aviation only three weeks before invoking those rules to deny Virgin America permission to fly. While holding foreign ownership at 25 percent, the proposed rules change would have allowed foreign investors more day-to-day say over operations: drawing up schedules, opening or closing routes, and so on. However, in the face of determined opposition by organized labor and what regulators believe will be a more protectionist Congress under Democratic leadership next year, the Transportation Department -- which is to say the generally pro-globalization and pro-free-trade Bush administration -- withdrew the proposed changes. Bush's retreat was praised by the AFL-CIO. In a Dec. 5 statement, the labor group said, "We are pleased that Transportation Secretary Mary Peters has withdrawn a controversial federal rule change that would have permitted for the first time in U.S. aviation history a foreign interest to control a U.S. air carrier. ... It is our intention now to work with members of Congress and Secretary Peters to promote a strong aviation industry while protecting the jobs and long-term economic interests of U.S. aviation employees." The Air Line Pilots Association, which represents 60,000 airline pilots = in the United States and Canada, also praised the decision to withdraw the new rules, saying that it "will continue to remain vigilant in protecting the safety and security of the U.S. airline industry, as well as in safeguarding U.S. jobs." In another irony, Virgin America, in establishing its headquarters in the Bay Area, brought with it the prospect of creating 3,000 U.S. jobs, from flight attendants to mechanics. The Transportation Department's ruling has frustrated Virgin America, at least for now. In the longer term, government regulators in the United States and elsewhere are similarly frustrating international airline executives, who argue that economies of scale and the fluidity of capital and talent in a globalized economy make such rules anachronistic. United Airlines Chief Executive Officer Glenn Tilton, for example, argues that airlines should be able to invest in each other or merge outright, regardless of what countries they are in. Moreover, most of the nation's airline executives favor a long-hoped-for "open-skies" agreement between the United States and the European Union that would open each other's restricted markets to more airline competition. Giovanni Bisignani, head of the International Air Transport Association, condemned the protectionist regulatory mind-set that could ground Virgin America and scuttle an open-skies pact. "Once again, a business decision has been taken hostage by short-sighted politics," he said. "And we are stuck with a 60-year-old bilateral system designed for another age." E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx --------------= -------------------------------------------------------- Copyright 2006 SF Chronicle