[Congressional Record Volume 141, Number 31 (Thursday, February 16, 1995)]
[Extensions of Remarks]
[Pages E363-E364]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


             OPEN FOREIGN CAPITAL MARKETS TO U.S. AIRLINES

                                 ______


                      HON. WILLIAM F. CLINGER, JR.

                            of pennsylvania

                    in the house of representatives

                      Wednesday, February 15, 1995

  Mr. CLINGER. Mr. Speaker, during the three previous Congresses I 
served as the ranking member of the Aviation Subcommittee. While in 
that role it became very clear to me that U.S. carriers had tremendous 
difficulty raising capital to sustain their operations as well as 
meeting the high cost of acquiring expensive new equipment. Over the 
past 5 years the commercial air carrier industry has lost $12.5 
billion. That number far exceeds all profits earned by the industry 
since the Wright Brothers first flew.
  High taxes, fare wars, burdensome regulations have all taken their 
toll. A lingering after-effect of this bloodletting has been an 
inability on the part of most carriers to attract new capital. One of 
the biggest problems now facing the airlines is the dearth of available 
capital. This is a capital intensive industry. One step we can take to 
help assure their future is to address this capital crisis.
  Under current law, foreign investors cannot hold more than a 25 
percent stake in the voting stock of a U.S. carrier. The bill I am 
introducing today would be more favorable to foreign investment while 
retaining enough discretion with the Secretary of Transportation so 
that deals that were clearly not in the public interest could still be 
blocked.
  Under my bill, foreign investments below the current 25 percent 
threshold could continue as before without restriction. Investments 
above 25 percent would be permitted as long as: first, the key officers 
and two-thirds of the airline's board of directors would still be U.S. 
citizens; second, U.S. citizens would still control at least 51 percent 
of the airline's stock; and third, the Secretary found that the 
investment would be in the public interest.
  The first two requirements are objective standards that should be 
easy to apply in specific cases and would give some assurance of 
continued U.S. control. The third requirement, the public interest 
test, is intended to give continued discretion to the DOT Secretary.
  In applying the public interest test, the Secretary is directed to 
consider seven factors. No one factor is meant to be an absolute bar to 
the transaction. Rather, the Secretary is to give the proper weight to 
each factor in each individual case in deciding whether the deal should 
be consummated.
  Under the bill, the Secretary would be expected to look favorably 
upon an investment that would help a weak carrier survive and 
effectively compete, that would help preserve U.S. jobs, or that would 
enhance domestic or international competition.
  [[Page E364]] In addition, the Secretary would consider whether the 
foreign country would allow a similar investment in one of its 
airlines. If so, that would be a plus. On the other hand, if the 
foreign investor was controlled or subsidized by a foreign government, 
that would be a minus as it could tend to distort competition.
  Another factor the Secretary must consider is the issue of foreign 
control. I share the desire of many of my colleagues to prevent our 
airlines from falling under the control of foreign nationals. But I am 
also mindful that a recent GAO report indicated that continuing the 
current control restrictions would discourage foreign investment and 
limit the benefits that might otherwise be achieved by this 
legislation. The issue of foreign control would be one factor among the 
others mentioned for the Secretary to consider.
  The final factor for DOT to consider would be whether the foreign 
investor's home country has a procompetitive bilateral with the United 
States. While this is clearly important, it should not be the 
controlling factor as it seems to have been in recent transactions. 
Proponents of open skies should keep in mind that more liberal foreign 
investment rules may be the best way to achieve their goal. Only when 
the nationality lines of carriers are blurred so that it is not clear 
which nation is benefiting from a negotiation will some of the 
protectionist countries be willing to remove their aviation trade 
barriers and allow free competition on international routes.
  In evaluating these factors, the bill gives the Secretary 90 days. A 
time limit is important so that investors do not have to deal with the 
uncertainties of Government approved for an unreasonable length of 
time.
  The issue of national security has also been raised with respect to 
foreign investment. Clearly we do not want an enemy of the United 
States taking control of one of our airlines. Moreover, our experience 
with Operation Desert Shield and Desert Storm demonstrated that U.S. 
carriers play an important role by ferrying troops and supplies to a 
war zone under the Civil Reserve Air Fleet (CRAF) program. It is 
important that the viability of this program be preserved.
  My bill would address the national security issue by giving the 
President 30 days to review a DOT-approved foreign investment. The 
President could disapprove an investment only on national security 
grounds such as a transaction that would undermine the CRAF program. 
Limiting the President's authority in this way is similar to his role 
in the awarding of international routes under section 801 of the 
Federal Aviation Act. This portion of my bill is patterned after that 
provision.
  Mr. Speaker, I am aware that there are airlines who would like to 
close the door on foreign investment. Some have already themselves 
taken advantage of that source of capital and would now deny it to 
others. Others can still access the U.S. capital markets and would 
probably be just as happy to see their competitors wither and die.
  But I believe they are being short-sighted. The airline industry is 
becoming increasingly global. I do not think an arbitrary 25 percent 
limit on foreign investment in U.S. carriers any longer makes sense in 
a worldwide economy where capital flows freely across borders.
  Moreover, it should be noted that foreign investment is nothing new 
in the airline industry. Several foreign airlines now have substantial 
financial stakes in U.S. airlines. In addition, there are foreign 
banks, leasing companies, and other entities that hold debt obligations 
or other financial interests in our airlines. In some cases, these 
interests may be substantial. So we have already crossed the bridge on 
the foreign investment issue. Now it is time to raise the artificial 
limit on foreign investments in U.S. airline voting stock so that 
capital can more freely flow to U.S. airlines.
  Accordingly, I am pleased to introduce this bill that would allow 
foreign investment in airlines up to 49 percent. Perhaps some day we 
can go further. For now I invite my colleagues to join me in supporting 
this measure.


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