Bush Administration Withdraws Plan for More Foreign Control of U.S. Airlines

WASHINGTON – Already rebuffed by a Republican-controlled Congress, the Bush administration withdrew its plan to give foreign investors more management control of U.S. airlines.

The decision was announced Tuesday by Transportation Secretary Mary E. Peters after the department reviewed public comments about the proposal, including votes by both the Senate and House this year to prevent the plan from going forward.

"It was clear from reviewing the comments that the department needs to do more to inform the public, labor groups and Congress about the benefits of allowing more international investment," Peters said in a written statement.

On Capitol Hill, Sen. Frank Lautenberg, D-N.J., who introduced the measure to block the plan in the Senate, said, "The Bush Administration saw that the Democratic Congress will not put up with this bad idea and backed off." Lautenberg serves on the Commerce and Appropriations committees where the issue has arisen.

The decision may impact U.S. negotiations with the European Union on a so-called "Open Skies" aviation treaty that would allow European and U.S. airlines to fly wherever they want between European cities and the U.S., and charge whatever they want.

Advocates hope such a deal would increase air travel, lower air fares, create jobs and boost investment in U.S. carriers. Labor unions, some airlines and their allies in Congress fear it would cost U.S. jobs and allow foreign investors, even foreign governments, control over an industry critical to national security.

Peters' decision was greeted with disappointment by Jacques Barrot, vice president of the European Union's Commission in charge of Transport. In a written statement, Barrot called the scrapped proposal "an essential element" to concluding a new aviation agreement. He did, however, accept Peters's proposal to send U.S. representatives to Brussels in early 2007 for talks on how to proceed.

Peters renewed the U.S. commitment to seeking an Open Skies agreement with Europe. She asserted the investment proposal was not directly linked to the treaty but acknowledged that some in the European negotiations had aligned the two.

"I commend Transportation Secretary Mary Peters for choosing to do the right thing, in the face of strong pressure within the administration and from the European Union," said Rep. James Oberstar, D-Minn., who is expected to chair the House Transportation Committee in the Democratic-controlled Congress next year.

Joining Oberstar in praising the decision were three other Transportation Committee members: Reps. Jerry F. Costello, D-Ill., Frank A. LoBiondo, R-N.J., and Ted Poe, R-Texas. They also had been vocal opponents of the proposal. The four renewed their objections in a letter to the White House last month when they thought the Transportation Department was about to go ahead with the proposal.

The administration first proposed giving foreign investors in U.S. airlines more control over marketing, routing and fleet structure in November 2005. It amended the plan last May to limit the ability of foreign investors to make decisions about safety, security and national defense obligations.

A 65-year-old law limits foreign ownership of U.S. airlines to 25 percent. The administration argued that its plan would not have lifted that limit, but opponents claimed it was trying to use regulations to circumvent the statute at the request of Europeans who viewed that as a prerequisite for an Open Skies treaty.