Air Heads
The stupid law that prevents foreigners from buying U.S. airlines.
By Daniel Gross
Posted Tuesday, Jan. 2, 2007 (entire article on Slate.com)

The Federal Aviation Act prohibits foreigners from owning more than 25 percent of an American airline. Last week, Virgin America, a U.S.-based start-up launched by British billionaire Richard Branson, was told that it had to change ownership before it could get an operating certificate.

A law that may have made sense when it was enacted in 1938 is clearly obsolete today. What could possibly justify maintaining a law under which an airline's certificate of operation can be revoked if foreign ownership rises above the prohibited threshold?

The law does succeed in protecting incumbent airlines from potential competition. But that's not a good thing. When the universe of majority owners is limited to the world's 300 million American citizens, that shuts out a lot of really smart people. Recent history should have refuted the presumption that the sum total of knowledge on how best to run airlines resides in the 50 states. (Anyone who has flown one of the great foreign air carriers knows just how much U.S. airlines need to learn.) And in the commercial aviation industry, much of the ferment, and hence innovation, is coming from overseas. Richard Branson has started several airlines from scratch and seems to be doing well with them. FL Group has made hundreds of millions of dollars on its investments in Icelandair and EasyJet. Among its investments are a chunk of Finnair and Sterlin, a Denmark-based low-cost airline.

For many years, the lot of the commercial-aviation passenger has been an unhappy one: overcrowding and widespread delays in the boom years of the late 1990s; bankruptcies and security concerns in the wake of 9/11; and rising prices (a result of the mergers and post-bankruptcy capacity reductions) today. America's road warriors and leisure travelers would welcome Branson's new airline—and any new entrant, really—because the competition would bring down prices and perhaps spur service improvements. A study by consulting firm Campbell-Hill Aviation Group argued that Virgin America would save travelers $786 million per year.

Relentless, even excessive, competition has been a defining characteristic of American business culture—and one of our great gifts to the world. Another defining trait is the ability of the United States to attract and assimilate immigrants from all corners of the world, especially Europe. How ironic that when European investors, yearning to breathe free, show up at our ticket counters with fat wads of cash in their pocket, the government tells them there are no seats available at any price.

And with the amount of money that the US airline industry makes, it isn't changing anytime soon.