“Stupid” Law Prevents Foreign Investors From “Owning” US Airlines

Slate magazine’s Daniel Gross makes the case that the law prohibiting foreigners from owning more than 25 percent of an American airline, is not only “stupid” but rooted in “misplaced hostility to foreigners, national-security paranoia, and plain-old protectionism.” He claims the law is obsolete * (the Federal Aviation Act was created in 1938 1958 (the Civil Aeronautics Act was created in 1938) and damaging to consumers.

Most recently, the law prevented British billionaire Richard Branson from obtaining an operating certificate for Virgin America.

In a world where we have the Transportation Safety Administration, do we need to restrict ownership of airlines for national security reasons? What do you think? Would foreign investors make you think twice about flying “American” Airlines?—MEGHANN MARCO

Air Heads [Slate]

UPDATE: * Gross is right. The Federal Aviation Act is obsolete. It was repealed during the codification of United States law and is now Title 49, Subtitle VII of the US code. For further niggling, see the statute’s definition for “Citizen of the United States.” (Thanks to Bill!)

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  1. MeOhMy says:

    Maybe foreign investment is what US airlines need. How comfortable I was depends on who the foreigners are. Richard Branson wouldn’t bother me at all. Vladimir Putin would.

  2. I don’t have a problem with foreign ownership of airlines. I do still think, though, that ownership of utilities [i.e. electric, phone, natural gas] should stay limited to American ownership.

  3. Frank Grimes says:

    This is similar to the idiotic debate that erupted when Dubai Ports World tried to purchase P&O Ports holdings in the US. We have no problem letting foreign owned airlines, cruise ships, and even toll way authorities operate, why not let them own a US Airline. Remember, these are the same people that until 2006 forbade SWA in Dallas from flying direct to any airport that wasn’t in a state that bordered Texas. There are plenty of dumb rules in place that worked against “American” companies as well.

  4. ediebeale says:

    I’m more likely to not fly American Airlines because they uneccessarily canceled my flight, lost my luggage, and then told me I could “maybe” get a refund.

    Sorry, is that off topic?

  5. Paul D says:

    Would foreign investors make you think twice about flying “American” Airlines?

    Hell no.
    Most foreign airlines, especially European ones, are run way better than any American airline.

    If they can bring us some of their efficiency and customer service, I’m all for it.

  6. XopherMV says:

    The Dubai Ports world fiasco highlighted the fact that many of these foreign companies are merely fronts for foreign governments. Dubai Ports world is a company owned by the government of the United Arab Emirates. The selling of our port facilities to this company put control of our port in the hands of a foreign government. You do not have to be “paranoid” to realize there are national security concerns there, especially since the “misplaced hostility to foreigners” comes from Arab nations and citizens regarding the US.

    If you allow foreign ownership of airlines, then the Saudi government could come in with a Saudi airline and buy a struggling US carrier. Considering that 15/19 of the 911 hijackers were from Saudi Arabia, then we’ve just made it that much easier for 911 to happen all over again.

    As for the protectionism argument, that’s just a load of free trade crap. These people want to sell to the highest bidder the American companies we’ve built for decades and their assets we collected for decades – without regard to the long term economic consequences for America. Free trade doesn’t exist, never has, and never will. Just look at our protectionist policies regarding copyright, patents, and intellectual property.

    If having these laws protects Americans and their jobs, then I’m all for them.

  7. I’m guessing this has less to do with “security” of passengers, and more to do with “protecting” the American airline industry and aircraft manufacturers.

    I can’t think of a good reason to prevent foreign ownership of an airline. If anything, I’d guess that US investors would be happy to pass off a loser like an airline to an interested buyer.

  8. Gabriel says:

    It depends on what you consider a “national security” matter. I guess most people think of terrorist threat and things like that, but in this case the matter is: will a foreign owner be as attentive to US transportation needs as much as a US owned company. There are similar rules regarding media such as newspapers, radios and TV stations in Brazil (maybe in the US too, I’m not sure) and they are there because some services are essential and most of these are public concessions (again, in Brazil), so, if this is a matter important enough to be regulated by the government, it must be important enough to ask if it is wise to let a foreign group control them. I think most americans wouldn’t want to read a newspaper controlled by a german, japanese or english company, for obvious reasons. The same can be translated to airlines. Say, for example, that a german company decides that the NY-Washington flight is not worth it anymore and shuts it down. If that company ran 50% of these flights that would be a a big problem. Maybe US companies would be more attentive to the matter than a foreign one. I guess thats what the law is there for anyway, but I may be wrong, theres a lot of stupid people in governments.

  9. sillyamerican says:

    aww heck. as long as the roots of the “foreign” investors happen to be from any NATO ally, then it’s all good.

    aside from that, damn all the foreigners. ain’t that right Georgie?
    Georgie, d’ya hear me boy?

  10. Sudonum says:

    “These people want to sell to the highest bidder the American companies we’ve built for decades and their assets we collected for decades – without regard to the long term economic consequences for America.”

    Isn’t that Wall Streets job?

  11. Papa K says:

    Wall Streets job is to make you think businesses are worth something.

    *cough*enron*cough*

    The problem is trying to make it seem like the US is single-handedly responsible for the world economy. C’mon, join the global trade, America! Let’s make some cash! I hear they’ve got hungry people in Africa! Get some McD’s there and give them jobs *and* obesity!

  12. Ben Popken says:

    Jamin writes:

    “The technical term for a foreign airline transporting domestic passengers from place to place is called Cabotage. I believe some precedent has been set with DHL’s purchase of Airborne Express. DHL is of course, the German Post Office. Now they fly cargo into Airborne’s cargo hub, Airborne Airpark, in wilmington, OH.”