Information on DOT's Oversight of and Stakeholders' Perspectives on Foreign Ownership
GAO-19-540R: Published: Jun 25, 2019. Publicly Released: Jun 25, 2019.
Federal laws limit foreign ownership of U.S. airlines to 25% and require U.S.-citizen control of airlines. What would happen if the limit were 49%? Representatives of airlines, unions, and banks and others we spoke with told us the answer is likely not much.
Foreign investment could affect competition by bringing new airlines to the market or expanding current airlines. Changing the ownership limit, however, probably won't affect investmentâ€”profitable U.S. airlines arenâ€™t actively seeking more capital, and foreign investors haven't been interested.
Photo of an airplane taking off and airliners on the ground at an airport.
What GAO Found
Department of Transportation (DOT) is responsible for overseeing U.S. airlinesâ€™ compliance with foreign ownership and control laws, which limit foreign ownership to 25 percent of the voting stock of U.S. airlines, among other control requirements. DOT guidance states that it is to examine new airline applicantâ€™s ownership structure to ensure that it meets statutory requirements for ownership and control, and is under the actual control of U.S. citizens. DOT officials determine actual control on a case-by-case basis, considering factors such as a shareholderâ€™s influence and business relationships. According to DOT officials, this determination sometimes may involve a review of complex airline documentation to fully understand the layers of ownership and types of investors. DOT officials said they assess continued compliance with ownership and control requirements about every 5 years, as required by Federal Aviation Administration regulation, and when notified of substantial changes.
Selected stakeholders GAO interviewedâ€”including representatives of U.S. and foreign airlines, aviation industry associations, aviation labor unions, consumer groups, travel industry groups, and investment banksâ€”generally stated that increasing allowable foreign ownership of U.S. airlines to 49 percent, while retaining actual control by U.S. citizens, would likely result in minimal effects on competition, employment, and national security. In particular, several stakeholders told GAO that such a change would likely have little effect on levels of foreign investment, and therefore competition. These stakeholders cited several reasons why levels of foreign investment would be unlikely to change, including a perceived lack of U.S. airline interest in seeking additional capital, ready access to domestic capital, and likely limited foreign interest, particularly if a foreign investor cannot exert control over the airline. According to DOT officials, no U.S. airline has foreign investment that approaches the current limit. However, assuming that a change in foreign investment did occur, several stakeholders said that airport infrastructure limitations can limit entry of any new airlines or expansion of existing airlines into large airports. Similarly, several stakeholders stated that increasing allowable foreign ownership, without changes to effective control of the airline, would likely have no effects on airline employment, although representatives from a labor union expressed concern over foreign entitiesâ€™ control of U.S. airlines, with respect to their willingness to negotiate on labor issues. Finally, Department of Defense officials stated that with a foreign ownership change at this level without any change in control, any resulting effects to national security would be manageable.
Why GAO Did This Study
Federal laws on foreign investment in U.S. airlines date back to the 1920s and establish the limits of allowable foreign ownership and control. Periodically, there is renewed interest in increasing the limits of allowable foreign ownership in U.S. airlines. In 1992 and 2003, GAO reported on, among other things, the potential effects an increase in allowable foreign ownership to 49 percent of voting shares could have on domestic competition, international competition, employment, safety, and national security.
Given the time since its last report and changes in the aviation industry, GAO was asked to review U.S. airlinesâ€™ foreign ownership and control laws. This report presents information (1) on how DOT oversees U.S. airlinesâ€™ compliance with foreign ownership and control laws and (2) on selected stakeholdersâ€™ perspectives regarding how increasing allowable foreign ownership of U.S. airlines to 49 percent of voting shares might affect competition, employment, and national security. GAO reviewed DOT documents and interviewed DOT officials on how they oversee foreign ownership and control requirements; interviewed a non-generalizable selection of 20 aviation stakeholders on how increasing allowable foreign ownership of U.S. airlines to 49 percent of voting shares might affect competition and employment; and interviewed DOD officials on how such an increase might affect national security.
For more information, contact Andrew Von Ah at (202) 512-2834 or email@example.com.