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MaartenV
Topic Author
Posts: 261
Joined: Wed Aug 10, 2005 6:16 am

The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 9:29 pm

In topics about Virgin America, Kingfisher and Varig, I have been reading about foreign ownerships laws in some countries which limit the amount of foreign ownership for airlines to a certain percentage.

Being a student in International Business, this doesn't make sense to me. I don't see why for example Branson should not be allowed to start Virgin America with his own capital, or why non-Brazilian companies are not allowed to take over Varig.

If you have to choose between a stable, well funded and efficient airline, which is owned started with foreign capital and a less efficient, unstable airline which is being started with American capital, the most beneficial thing for your economy is to do the former, but these laws, and many people on this forum, only allow the latter.

The Varig case puzzles me even more... Why shouldn't any foreing company or investor be allowed to save Varig and save thousands of jobs and benefit the economy?

Laws are there to protect and serve the people of a country. I can't see how a law like this serves a country, by locking out foreign investors and companies who are able to create profits in the airline industry and many jobs, which in their turn help improving a country's economy.

If it is to protect people, then can anybody explain me why people should be protected against an airline that is funded with foreign capital, if they follow the exact same set of laws and rules as airlines funded with domestic capital?

Are these laws general laws, or just for the airline industry?

I would like to hear more opinions about these kind of laws and why people think they could benefit a country and its economy.

Please note that this is not a topic about whether you think their is room on the (US) market for Virgin America.
Its all about supply and demand...
 
ANother
Posts: 1833
Joined: Thu Nov 03, 2005 2:47 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 9:43 pm

The Chicago Convention gives each nation the responsibility of safety oversight over airlines owned by their nationals. If RG, for example, was owned by citizens of Liberia the Brazilians would not have oversight. While this may be acceptable in a sea-shipping context, this is not acceptable in the context of aviation.
 
MaartenV
Topic Author
Posts: 261
Joined: Wed Aug 10, 2005 6:16 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 9:49 pm

Quoting ANother (Reply 1):
The Chicago Convention gives each nation the responsibility of safety oversight over airlines owned by their nationals. If RG, for example, was owned by citizens of Liberia the Brazilians would not have oversight.

So an airline started in the USA, by me, would fall under the responsibility of the Dutch government?

KLM (and for that Transavia) is being owned by KLM-Air France, which is being controlled by a majority of French shareholders, so can we say that they fall under French responsibility?

How about Martinair, which is owned for 50% by KLM-AF (French) and for the other 50% by AP Moller (Danish), does that mean that Martinair is the responsibility of both the Danish and the French?

If someone from nation A registers his company (an airline) at a chamber of commerce in nation B, registers with the airline authority of nation B and flies with a registration from nation B, it still falls under the responsibility of nation A, which is possibly not even served by the airline in question?
Its all about supply and demand...
 
ANother
Posts: 1833
Joined: Thu Nov 03, 2005 2:47 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 10:26 pm

Quoting MaartenV (Reply 2):
So an airline started in the USA, by me, would fall under the responsibility of the Dutch government?

According to Chicago yes, but US law prohibits this.

Quoting MaartenV (Reply 2):
KLM (and for that Transavia) is being owned by KLM-Air France, which is being controlled by a majority of French shareholders, so can we say that they fall under French responsibility?

The reason for the complex arrangement is to keep KL (and HV) Dutch. Technically KLM is a Dutch airline subject to Dutch Oversight.

Your other questions go beyond your original question which was 'What is the purpose' - which I think I explained. Following Chicago governments entered into bilatateral air services agreements (because at Chicago they couldn't reach a multilateral agreement) covering economic matters and route rights. These agreements give traffic rights to nationals of each of the parties. The US-NL open skies agreement gives traffic rights to airlines 'substantially owned' and 'effectively controlled' by US and NL interests. If KL became French owned they couldn't continue to fly NL-US under the terms of that agreement.
 
N353SK
Posts: 1019
Joined: Thu Jun 08, 2006 5:08 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 10:45 pm

Also, say RG had a controlling stake bought by Some Portuguese company. They would no longer be a brazilian company and therefore would not be able to fly domestically as it would be cabotage.
 
DLPMMM
Posts: 2279
Joined: Wed Apr 20, 2005 12:34 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 11:34 pm

In the USA, the primary reason for the prohibition on foreign control is that the US airlines are all a part of the Military Airlift Transport System (MATS) (i think I have the words for the acronym right).

The USA would have a real problem if we wanted to send a few hundred thousand troops to war against a country (let's say France for the sake of discussion) and a French company/person owns the largest airline in the USA. The French Government then directs it's citizen to ground his aircraft in the USA........Messy, messy.

The US government depends on the US commercial airlines for troop transport. They do not have the ability within the services for large scale operations.
 
HS748
Posts: 621
Joined: Tue Oct 11, 2005 3:01 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 11:40 pm

Quoting DLPMMM (Reply 5):
In the USA, the primary reason for the prohibition on foreign control is that the US airlines are all a part of the Military Airlift Transport System (MATS) (i think I have the words for the acronym right).

No, it's not about MATS it's about protectionism. All those major US loss-making airlines can't stand the thought of more effective and efficient forign operators coming along and showing them up for what they are. Yet another example of the USA's interpretation of the free market.
 
ChiGB1973
Posts: 1394
Joined: Mon Mar 22, 2004 6:39 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 11:50 pm

Quoting MaartenV (Thread starter):
Please note that this is not a topic about whether you think their is room on the (US) market for Virgin America.

Yes, there is always room for competition. Maybe they can work as competitors, maybe one goes out of business. It's capitalism at it's best. More competition, less expensive tickets. The consumer generally is the winner in this situation as far a price goes. B6 has proven that just because you have good service and live TV, it doesn't mean you can make a profit/keep making a profit. The main problem is customer service in the U.S. airline industry. There are a lot of complaints, for several reasons:
1. more people flying than ever
2. cuts in service to be able to keep an airline afloat.
3. cheap ticket prices, wage cuts, though it may not be right, you get what you pay for, unless you are traveling last minute and pay a lot of money for a ticket. You don't get what you pay for, you get the shaft.

Quoting DLPMMM (Reply 5):
In the USA, the primary reason for the prohibition on foreign control is that the US airlines are all a part of the Military Airlift Transport System (MATS) (i think I have the words for the acronym right).

CRAF - Civilian Reserve Air Fleet.

http://www.fas.org/man/dod-101/sys/ac/craf.htm

I am sure there are variations and it's called different things, but I am familiar with this one.

M
 
ANother
Posts: 1833
Joined: Thu Nov 03, 2005 2:47 am

RE: The Purpose Of Foreign Ownership Laws

Fri Jun 09, 2006 11:56 pm

Quoting DLPMMM (Reply 5):
In the USA, the primary reason for the prohibition on foreign control is that the US airlines are all a part of the Military Airlift Transport System (MATS) (i think I have the words for the acronym right).

I think you mean CRAF - Civil Reserve Air Fleet and yes National Security is a factor - but not the only one.

If you are interested in the EU's views on this, have a look at today's press release regarding EU - Singapore, the background notes give an extensive explanation of what their thinking is, including on the US-EU open skies proposals. See http://europa.eu/rapid/pressReleases...&aged=0&language=EN&guiLanguage=en
 
MaartenV
Topic Author
Posts: 261
Joined: Wed Aug 10, 2005 6:16 am

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 1:40 am

Thanks for all the reactions.

So we can say that the main reasons are the Chicago Convention and and the availability of aircraft for military purposes.

Wouldn't it be possible to rewrite the Chicago convention to the point that it states that the country in which the airline itself (and not its owners or investors) is registered has the responsibility for the airline and that the airline, although owned by someone from country A, is still considered as a company/airline from country B, operating under the laws and regulation of country B.
This would also solve the problem with a possible refusal from someone from country A, to let it's aircraft being used by country B to attack country A, since the law, which they accepted when incorporating and registering in country B, states they have to give the aircraft and if they refuse the aircraft will be repossessed.

Would these points solve the mentioned problems abandoning this law could cause>
Its all about supply and demand...
 
SeeTheWorld
Posts: 1090
Joined: Sat Dec 31, 2005 2:46 am

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 1:46 am

Quoting DLPMMM (Reply 5):
In the USA, the primary reason for the prohibition on foreign control is that the US airlines are all a part of the Military Airlift Transport System (MATS) (i think I have the words for the acronym right).

The USA would have a real problem if we wanted to send a few hundred thousand troops to war against a country (let's say France for the sake of discussion) and a French company/person owns the largest airline in the USA. The French Government then directs it's citizen to ground his aircraft in the USA........Messy, messy.

The US government depends on the US commercial airlines for troop transport. They do not have the ability within the services for large scale operations.

That was the original intent .. now it's just a "red herring." There are plenty of aircraft available to move as many troops as needed, regardless of ownership. Jeez, the way the government throws around money, those flights are some of the most profitable.
 
ANother
Posts: 1833
Joined: Thu Nov 03, 2005 2:47 am

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 2:15 am

Quoting MaartenV (Reply 9):
Wouldn't it be possible to rewrite the Chicago convention

... I don't think so, and I don't think it is necessary. What the industry proposed to ICAO at their last major Conference ATConf 5 is for governments to accept another governments interpretation of ownership. For example Canada would accept it if Germany designated any airline owned and controled by EU citizens as a 'German' airline, for the purposes of the Canada - Germany Air Services Agreement.

Let's face it, some governments do not want to change their rules - fine. But let the rest of the world get on with it!
 
N353SK
Posts: 1019
Joined: Thu Jun 08, 2006 5:08 am

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 9:08 am

Quoting HS748 (Reply 6):
No, it's not about MATS it's about protectionism. All those major US loss-making airlines can't stand the thought of more effective and efficient forign operators coming along and showing them up for what they are. Yet another example of the USA's interpretation of the free market.

I would suppose that Bermuda II is the UK's interpretation of the free market then?
 
PolymerPlane
Posts: 832
Joined: Thu May 11, 2006 1:12 am

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 9:34 am

Well, all laws are formed from politics. Those politicians have to answer to their respective voters. You can be sure that the American public will probably want the American airline industry stays with American ownership. There will be no added benefit for US to open its sky to foreign ownership, as the ticket price is already low enough for most people, and the frequency is high enough.

In general it boils down to this, a country is entitled to its sky, and it can do whatever it wants with it. Most countries in the world has this kind of protectionism, just like they don't allow free labor and people movement around the world.

For instance, let say I can work work in the US much more efficient and effective for the same amount of money from much of the US population. Does that mean I can work in the US? Not necessarily, politician will not allow it. They want to defend their own people.

As for RG, You cannot make exception for each and every case there is. If you can, there will not need any law anymore. The politicians probably see that they will not need foreign investment for RG, because they think that the domestic investment is enough to keep RG alive, or let domestic competition decides what is best for its domestic market.

Quoting HS748 (Reply 6):
No, it's not about MATS it's about protectionism. All those major US loss-making airlines can't stand the thought of more effective and efficient forign operators coming along and showing them up for what they are. Yet another example of the USA's interpretation of the free market.

Are you an American? If not, you can bitch whatever you want about the policy, but you are not entitled to tell what is good or bad about US. It is on American people to say what is good for them. If they do not want more competition from other country what are you gonna say?

If you are, then tell your senator and/or representative to repeal that law.. as simple as that...

Cheers,
PP
One day there will be 100% polymer plane
 
scotron11
Posts: 1432
Joined: Tue Feb 10, 2004 4:54 pm

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 11:29 am

Quoting PolymerPlane (Reply 13):

Are you an American?

I didn't think there was a "nationality" rule here on A.net for someone to post comments on topics. Am I wrong?

A Spanish company has just won control of BAA PLC, owner of 7 UK airports, including LHR, LGW, EDI & GLA. Do I care? SQ owns 49% of VS. So what? P&O Ports, which caused so much consternation in "America", was recently taken over by a Dubai company.

There is no valid reason for restrictive foreign ownership laws in aviation. Period!
 
PolymerPlane
Posts: 832
Joined: Thu May 11, 2006 1:12 am

RE: The Purpose Of Foreign Ownership Laws

Sat Jun 10, 2006 12:06 pm

I am not American, and it is not about requirement of nationality to post on A.net. Did you even read my entire post?

It is about the foreign ownership law. Read carefully about my post. I said you can do whatever you want about this law, but it is up to the people of the US to decide what they want to do.

Quoting Scotron11 (Reply 14):
A Spanish company has just won control of BAA PLC, owner of 7 UK airports, including LHR, LGW, EDI & GLA. Do I care? SQ owns 49% of VS. So what? P&O Ports, which caused so much consternation in "America", was recently taken over by a Dubai company.

Good for you. If the UK people and government say that it is ok for foreign ownership on its airlines and infrastructure, that is their rights. But you cannot say what best for other country about this matter. It is going to be up to the people and government of its country to do it.

Quoting Scotron11 (Reply 14):
There is no valid reason for restrictive foreign ownership laws in aviation. Period!

A law does not have to have a reason that you would consider valid. If a society thinks that it is better for them to have the law, it is a law. Like I said before, US can do whatever it wants to its airspace, and it does not need approval from other country to do so.

But if you must have it, here is some of the reason prohibiting foreign ownership in aviation. If you think about it, aviation is like a public transportation that is very vital to the economy of a country.

Look how badly the US's economy will be impacted if airline is at a ground stop. With domestic ownership, it is more likely for the government to "control" these airlines compared to foreign ownership. That is why, one of the sticking point on granting Virgin America, the influence of SRB on Virgin America, and its shareholders.

If you think about it, it is just like the law that states public employee cannot unionize, and they cannot go on strike. Look at the impact of MTA strike on New York City.

Cheers,
PP
One day there will be 100% polymer plane

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