International Affairs:

Issues Relating to Foreign Investment and Control of U.S. Airlines

GAO-04-34R: Published: Oct 30, 2003. Publicly Released: Dec 1, 2003.

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In May 2003, the Bush Administration proposed amending the legislation that currently restricts foreign ownership of U.S. airlines, raising the allowable percentage of total foreign ownership of voting stock in U.S. airlines from 25 to 49 percent. The Department of Transportation (DOT) suggested that implementing this amendment could provide significant benefits to U.S. consumers and airlines, particularly by providing access to additional capital, which would help the financial health of the industry. DOT and the Department of State also maintain that these new limitations would bring the United States in line with current foreign ownership laws of the European Union (EU). Concerned about the effect that changes in foreign ownership and control requirements might have on the aviation industry, national interests, and consumers--and recognizing that we examined this issue in 1992 when DOT earlier proposed increasing the level of foreign ownership--the Subcommittee on Aviation, Senate Committee on Commerce, Science, and Transportation asked us to discuss two related topics: (1) current proposals to revise U.S. limits on foreign ownership and control, including information on current shareholders and past examples of efforts by foreign interests to purchase significant equity in U.S. air carriers and (2) whether key analytic issues raised in our 1992 report on foreign ownership and control remain relevant.

Foreign airlines have attempted to invest in and influence the operations of U.S. airlines several times since the late 1980s. These foreign airlines have on occasion invested significant amounts of capital into U.S. airlines, only to later disinvest due in part to U.S. policies concerning airline control. The Administration's proposal does not seek to change U.S. law regarding control of air carriers. Our 1992 report identified five key issues relating to raising the limit on foreign investment in U.S. airlines. In general, those issues covered the potential impact of foreign investment on domestic competition, national security, employment, safety, and international competition. Because the current economic environment and the state of the aviation industry are similar to that in existence at the time of the prior report, we believe that most of these issues remain relevant today.

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