Investment Needed for U.S. Airlines To Survive, According To Study Conducted By DePaul Law Professor

Sep 10, 2003

Investment Needed for U.S. Airlines To Survive, According To Study Conducted By DePaul Law Professor

Existing aviation regulations have done little to assure the viability of cash-starved domestic airlines, and, in fact, are contributing to the ailing industry’s current crisis, according to a study released by DePaul University Professor of Law Brian Havel.

Havel’s study “A New Approach to Foreign Ownership of National Airlines” indicates that outdated regulations regarding foreign ownership and control of U.S. airlines are acting as a barrier to efficiency and competition. Even many U.S. airlines, once concerned about the implications of global competition, have abandoned their protectionist stance in recent years and recognized that laws restricting ownership and control to U.S. citizens are preventing access to sorely needed foreign capital, Havel noted.

“The world’s most global service industry lacks even a single global competitor,” Havel said. “The nationality rule prevents airlines and investors alike from making the kind of reasonable, practical business decisions that are taken for granted in every other industry operating in today’s global business environment.”

Havel, who holds three graduate law degrees, has been focusing on the law and policy of the global airline industry for several years. His book, “In Search of Open Skies: Law and Policy for a New Era in International Aviation,” was published in 1997 and is regarded as the leading treatise on worldwide airline liberalization. A new edition will appear in the spring of 2004.

As a result of Havel’s long-held position that the citizenship purity test is outdated and harmful to the U.S. airline industry, ASTAR Air Cargo commissioned him to conduct his most recent research. The U.S. Department of Transportation (DOT) is currently conducting a proceeding involving ASTAR, a U.S. cargo carrier whose citizenship is being challenged by competitors of a major foreign-owned company that is one of ASTAR’s clients.

According to Havel, the ASTAR case illustrates how companies can use unclear and outdated U.S. airline citizenship laws to gain a competitive advantage. Under current law, airline mergers or acquisitions are possible only if both airlines have owners with U.S. citizenship. Following the U.S. lead, almost all other countries have laws against foreign investment in national airlines.

Although the federal government is proposing an increase in allowable foreign investment to 49 percent from 25 percent, Havel maintains that extensive reforms will be needed for the airline industry to evolve as a viable part of the global economy.

As a first step, the U.S. government should use its air cargo sector as a laboratory for later adopting more comprehensive reforms in the larger and more complex passenger sector, Havel concludes in his study. He noted that several nations already have granted air cargo operations more liberal traffic rights than those allowed in the air passenger sector.

For more information about the study, contact Brian Havel at 312/362-5222, or to view his study in full, visit the site: http://www.law.depaul.edu/bhavel and click on white paper.