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Critics Challenge US Plan to Boost Foreign Investor Say in US Airlines

The U.S. Congress is considering a proposal by the Bush administration to give foreign investors in U.S. airlines more say in how those businesses are run. But some lawmakers, and airline companies, oppose the plan, which is a key step toward concluding an open skies agreement between the United States and the European Union.

At issue is a rule proposed by the Department of Transportation that would allow foreign investors in U.S. airlines to have more say in the company's operational decisions - including the routes a carrier serves.

The proposed rule would only apply to foreign investors from countries that have open-skies agreements with the United States, which currently has such pacts with more than 70 countries and territories. The rule would allow similar investments by U.S. citizens in other countries' domestic airlines.

Transportation Undersecretary for Policy, Jeffrey Shane, presented the proposal to a Senate Aviation subcommittee Tuesday. "We think the proposal would have a long-term positive effect on the industry by expanding the pool of investors, introducing new competition among investors, providing U.S. airlines with better investment terms, and enhancing strategic partnerships between U.S. and foreign airlines. These changes could lower the cost of capital for U.S. airlines and enhance asset values," he said.

Some U.S. airlines are skeptical of the plan. Jeffery Smisek, president of Continental, argues that the Department of Transportation "ignored the U.S. Constitution" by taking an action through administrative order that should be done by Congress:

"First, it is unlawful; second, it is unworkable; and third, it will not result in increased access to foreign capital," he said.

Some members of Congress agree. They also fear that increasing foreign investors' influence in U.S. airlines' managerial decisions could threaten national security, even though the proposal precludes foreign control over security and defense issues related to airlines. "It appears to me this is an illusion of some type. Frankly, I am very interested in aggressive, robust good airline service across this country. [But] I am very worried about this proposal," said Senator Byron Dorgan, a North Dakota Democrat.

Lawmakers are considering the plan just months after a congressional uproar prompted a United Arab Emirates-based company to relinquish control of key operations at six U.S. ports immediately after it had acquired them.

Senator John McCain, an Arizona Republican who supports the Department of Transportation proposal on the airlines, expressed frustration about what he sees as a tendency in Congress to be too inward-looking.

"We will probably continue these protectionist policies to the detriment of the American economy, to the detriment of the American airlines, and certainly to the detriment of the airline passengers," he said.

Amendments to the recently-passed House and Senate bills funding U.S. military operations in Iraq and Afghanistan call for delaying or blocking the Department of Transportation from implementing its proposal. The two versions must be reconciled before a final bill is sent the president for his signature.

That legislation is threatening to delay an open skies agreement between the United States and the European Union. The EU has withheld its approval of the pact until the United States acts on the issue of whether European carriers can take an active role in the management of U.S. airlines.

U.S. officials believe they can ease congressional concern over that issue in the coming months to allow for final approval of the open skies accord this year.