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With Congress back in Washington and the summer travel season in full throttle, lawmakers will have two opportunities to do something for the flying and taxpaying public. A conference committee is hashing out the details of a pension reform bill that will have a significant impact on the viability of America’s ailing legacy carriers. Meantime, the Senate might consider a provision already passed by the House to block the Department of Transportation from proceeding with its attempt to ease restrictions on foreign ownership of United States airlines. The two, we submit, are related, but Congress is in danger of erring on each.
The pension bill is of particular interest to airlines because at the moment they’re caught in the pension vise that has trapped other old-economy titans like automakers and the steel industry. Years spent appeasing powerful unions with generous pension promises are catching up with the airlines now that a proliferation of low-cost carriers are giving the legacy carriers more competition than ever before while fuel prices hover at unusually high levels. Legacy carriers have been declaring bankruptcy left and right. United and US Airways have shed all their pension plans and Delta has ditched its pilots’ plan, while Northwest tries to save its pensions and Delta contemplates the fate of its other employees.
Congress enters because when airlines, or other companies, shed those plans, taxpayers end up on the hook via the Pension Benefit Guaranty Corporation. On the current pension-reform bill, lawmakers appear to be making some progress on forcing companies with defined-benefit plans fully fund their liabilities. Sticking points remain in the negotiations, however, and one of the biggest is airlines. Senators want to give airlines an extra 20 years to bring their plans up to snuff, while the House has taken a less forgiving stance, passing a bill that would allow only seven years. Some airlines say that in exchange for the extra time they’ll freeze their current defined-benefit plans and move to more stable defined-contribution plans. Perhaps. Then again, airline labor negotiations are fickle and, although there’s no reason to doubt the airlines’ sincerity today, there’s no telling what their unions could goad them into promising tomorrow.
One easy glimmer of hope for taxpayers would be the Bush administration’s efforts to ease the 60-year-old restrictions on foreign ownership of airlines. The Department of Transportation has been weighing a proposal that would make it easier for American carriers to tap into foreign capital from cash-flush overseas airlines. Currently, Americans must own 75% of the voting stock and occupy a majority of the board seats as well as the top management slots, thus exercising “actual control” over the airline. The rule was intended to keep a national security resource — the commercial air fleet — in American hands, but lately it’s nothing but a block on much-needed foreign investment.
While keeping the basics of the rule intact, the administration proposes merely redefining “actual control” to allow foreigners to exercise greater control over an American carrier’s marketing, route structure, and fleet composition. American citizens would still be responsible for safety and security, as well as any contracts with the Pentagon. The hope is that even this minimal loosening might encourage foreign investors. It has met stiff resistance from interests, like organized labor, which fear any new management. This is why the House voted to force the department to hold off for at least a year on any changes. Senators now have to decide whether to follow the House’s lead.
So while senators are busy pushing for a pension reform bill that risks leaving taxpayers on the hook one day for huge under-funded airline pension plans, members of the House have opted to support a proposal that would make it harder for those airlines to seek capital from the global private market as an alternative to the American taxpayer. Some American carriers are trying to use the current restrictions on foreign control to block the creation of new low-cost carriers, particularly an American franchise of the British Virgin brand. As a result, Americans are losing out not once, not twice, but three times.