Should The US Relax Foreign Ownership Rules For Domestic Airlines?

Transcript

Anita Mosner:Our panel is titled, Should the U.S. Relax Foreign Ownership Rules for Domestic Airlines? Our group has actually taken some poetic license, and we have actually changed the focus a little bit to discuss not only domestic ownership, but policy towards cross-border border ownership generally. We also have commandeered an extra bit of time for our panel, given that we have 6 incredibly distinguished speakers in the group, and we wanted to have everybody to have a chance to participate. So we're here for— to discuss the fact that, you know, aviation is a network business, and we talk about, you know, carriers expanding into, into markets, trying to develop presence. But the fact is, is that traffic rights and ownership and control rules really have affected and limited the ability of carriers to really develop global networks. And what we have seen over time is that the market has moved and driven change in ways in which legislation and regulations have not. So we're going to chat a little bit today. We originally talked about the BRAT bill in our proposal, and this is a bill that we're going to talk about now, but probably not much further, which is a member of Congress proposed to allow foreign interests to basically create domestic U.S. airlines. Subject to various restrictions. It was proposed in February. It was referred to committee. There are no co-sponsors. We can talk about it, but essentially it created a splash because there has been such a vacuum over the past several years in the United States in terms of discussion about changes of ownership and control. The issues come up— it came up in the Northwest bankruptcy where there were some changes and some relaxation of policy. It has come up when Virgin America, of course, was being licensed. It's come up in a number of circumstances, but it's cyclical. But we're gonna talk today a little bit about the factors that are driving our market and what, you know, essentially may actually influence and change policy in the coming years. It's important to know that essentially, although the US has, you know, quite tight standards on ownership and control, there are certain countries that have in fact eliminated their restrictions on national participation in their airlines. And we were going over this at lunch. New Zealand, Australia, Chile, Guatemala, Costa Rica, and Colombia all permit up to 100% non-domestic participation in their airlines. And we can talk a little bit during the panel about the factors and the reasons why we're seeing this group of countries on the leading edge of this. What we have here, though, is an incredibly varied panel. We have a representative, a CEO of a very distinguished foreign carrier. We have a representative of a U.S. cargo carrier, 2 labor organizations, a party— a gentleman who does consumer work and travel for business travel, and of course, our beloved regulator. So to my immediate left, we have Enrique Beltranena, CEO of Volaris, Nancy Sparks, Managing Director, Regulatory for FedEx Express. Sara Nelson, the president of the Association of Flight Attendants. Rick Dominguez, the executive administrator for ALPA. Neil Hammond, partner of—

Neil Hammond:GoldSpring Consulting.

Anita Mosner:Oh, yes, okay. GoldSpring Consulting. And Brian Hedberg, who is the head of the Office of International Aviation at the Department of Transportation. And I think Brian needs no introduction because he's been on panels before, and also everyone in this room, everyone in this room knows him for his participation and distinctions. Brian, we're going to let you lead off and talk a little bit about what the standards are that the U.S. applies on ownership and control.

Brian Hedberg:Sure, I'm happy to. And I think just as a brief bit of background, in the United States, in order to be a U.S. air carrier, you must be a citizen of the United States. And by that definition, you can't have more than 25% voting stock controlled by foreign interests. Your president must be a U.S. citizen, as well as 2/3 of your board. And to some extent, that's a very inflexible standard. It's tied to a number of historical regulatory developments. To some extent, it has its basis also in the Chicago Convention, which says, you know, airlines of a party shall be of that party. As we've negotiated air service agreements, the concept has been exported, not just by the United States, but by much of the world, in that an airline of a party must be owned and controlled by nationals of that other country. So we have a very clear domestic standard, a relatively clear international standard in the sense of an agreement. But in some of the cases that Anita mentions, if you have ownership and control that is diffuse, it's among many partners, perhaps not of the country serving the United States, the department has the ability to consider all of these factors. in a regulatory citizenship, or as a citizenship element of its licensing procedure. And we have the ability to waive that. When we waive that, we— the standard of ownership and control, we have to look very, very closely at all of the interests, how they affect the United States' interests. Particularly, my favorite bit is that in our aviation policy, we consider whether or not those investments are inimical to U.S. aviation interests, which gives us a really broad swath of factors which we can consider.

Anita Mosner:So to recap, the U.S. has hard statutory standards, which are basically 75% of the voting interest has to be in U.S. hands, and actual control has to be in U.S. hands. And then we can perhaps talk about the liberalized policy that allows to go up to 49% Oh, just briefly, yes.

Brian Hedberg:You can have— we again consider in citizenship cases if there is foreign investment, provided that it is not voting interest that would skew the control of the airline.

Sara Nelson:It—

Brian Hedberg:you can have interest that goes up to a total of 49%, generally in passive voting or passive stock rather than voting stock.

Rick Dominguez:Thank you.

Anita Mosner:Okay, so I think what we'll do is start off, you know, the question posed is should there be changes to the U.S. ownership rules and what are the, you know, the pressures and standards there? And Nancy, I'd like to have you sort of step out and talk a little bit about your perspective on the current legislation and policy.

Nancy Sparks:Okay, thank you very much, Anita. FedEx has long been an advocate for a change in the ownership and control rules in the United States, and in fact not just in the United States but everywhere, because one of our very important caveats to that position has been that there has to be reciprocal benefit. So it's very hard to pull the ownership and control issue out and have it just be a change in the statute. It also has to be a change that is negotiated in the aviation bilateral agreements so that U.S. carriers would receive similar treatment at the other end— at the other end of the bilateral relationship. So, for example, the BRAT bill just has the idea that non-U.S. citizens could come, they could establish in the United States under certain circumstances. And when I read the bill, my reaction was, and what do I get out of this? So it's not always just about us, but in this case, it really needs to be a mutual benefit. But once that mutual benefit is established, we believe that liberalization of the ownership and control rules is a very important thing, and we would like to see it move forward.

Anita Mosner:Okay, and certainly FedEx has, you know, basically invested in carriers overseas as well, or at least in businesses overseas?

Nancy Sparks:No, well, we don't— we have not invested in any carrier outside the United States. We believe that we essentially operate a global airline, which we operate under the U.S. flag with ALPA pilots, with Boeing aircraft, with American flags on their tails. But the way we do this is we utilize the freedoms of the air, in particular the 5th and 7th freedoms, to knit together a network around the world. Now, not all airlines want to do that. Some prefer to remain in their home country and just sort of fly back and forth from that home country and put together an alliance where other carriers and other pilots fly their passengers elsewhere or their packages. But that model, the alliance model, seems to be more of a passenger thing. So we— while we've not invested in other carriers. That doesn't mean that we like the law the way it is.

Anita Mosner:Okay. And so we have here Enrique Beltranena, who is CEO of a Mexican carrier that has an interesting ownership composition and also has launched a new airline. Enrique, you want to tell the audience a bit about Volaris and its capital structure and also a little bit about the recent creation of Volaris Costa Rica?

Enrique Beltranena Mejicano:Okay. Yeah. I think Volaris is something that's been evolving in its capital structure very fast in the last 12 years. I mean, since basically inception of the airline.

Nancy Sparks:Okay.

Enrique Beltranena Mejicano:We originally started with 4 funds. I mean, in those funds we had participation of foreign investment to a certain extent in in all of them. And we had a voting structure which was since basically the creation of the airline that had voting rights for the domestic part well designed. Later on in 2013, we became a public company, okay? And we became a public company both listed in the Mexico Bolsa and in the New York Stock Exchange.

Sara Nelson:Okay.

Enrique Beltranena Mejicano:And we are a fully registered airline, which is something really important. It's not— we are not 144. This creates a structure under which we do have a participation of a floating capital, which is about 68%. And from that 68%, I would say probably 80% is from the U.S. There's about 12% which is in London and the rest is in Mexico. So it's interesting because to a certain extent, again, we had to design a voting structure for that participation where we had neutral voting rights in some cases, okay? But what I've seen What we've seen in reality, Anita, is an evolution in Latin America which is basically changing dramatically. I remember when I— in 1995 when I came to your predecessor, Brian, and with Bob Papkin and I asked him, I mean, we wanted to have free open skies agreements with the U.S. in the Central American countries. I negotiated that back in '95, '96.

Neil Hammond:Right.

Enrique Beltranena Mejicano:Airlines were airline by airline, country by country. Okay? And we had, for example, in Central America, Aviateca in Guatemala, TACA in El Salvador, SASA in Honduras, and so on. Okay? So it was basically like that. Things have changed since then. I mean, we see, for example, LAN Chile changing in its participation and having operations basically in every country in South America. We saw Avianca creating operations in Colombia, in Costa Rica, in El Salvador, in Guatemala. And when now we had the need to go down and create an affiliate in Costa Rica, which is a fully owned subsidiary because we don't want to create a problem with our investors which are already invested in the company and they basically have the right to claim for whatever we invest and whatever we develop since we basically went out to the stock market. Okay. So that's the second thing that's changed, Anita. Okay. I mean, when you look at the capital in Latin America, investment in LAN Chile, for example, in LATAM, it's in Brazil, it's in Chile, it's in the New York Stock Exchange. Copa, it's in the New York Stock Exchange. Avianca Holdings has in Panama and has in Bahamas. Okay, so in reality what we're seeing is an evolution which is not only following the certificates of operations in the different countries, but it's also following where the capital is and where the interest of the capital is.

Anita Mosner:Thank you for that. So we have like something for 2 very diametrically different models, you know. FedEx, which is red, white, and blue inside and out, and an airline which is, you know, basically draws capital globally. The question that we were posed is, you know, do we need to change our rules right now? Are we finding that U.S. carriers are having— attracting difficulty getting capital? Are carriers having trouble with that? I know our labor representatives have their concerns, and I think what I'll do is, you know, Sara, if you wanted to chat a little bit about the tension between drawing capital into businesses that need it, and in certain cases draw it from any number of sources, versus, you know, your concerns about ownership and control.

Sara Nelson:Sure. So we went through a whole series of bankruptcies where the labor— The labor at all of the airlines took incredible cuts, but in every single case, those bankruptcies were able to move forward. Funding was found through U.S. sources. So I think in those dark, dark days of the U.S. bankruptcies, we have our answer.

Anita Mosner:But let me, let me jump in. What about, but what about Northwest KLM, where essentially the U.S. adjusted its policy in order to allow the knight, the white knight KLM to invest in Northwest?

Nancy Sparks:Okay.

Sara Nelson:We maintain control here with the U.S. airlines, which is a key component of this, okay? And so we are very concerned about ownership and control together, because we want to make sure that those who are running these airlines are responsive to the labor laws in the U.S., because around the world they have not kept up with the labor standards in the U.S. And we have an example of this, actually, that we're dealing with right now, because we do represent flight attendants who are based in the U.S. working for Norwegian. They are the flight attendants who are flying under the Norwegian certificate. And the way that Norwegian has set up their business model is to use a hiring company to hire all of the labor in all of its different subsidiaries. So their position was when those flight attendants attempted to use their labor rights in the U.S., their position was that they had no relationship with those flight attendants, that in fact flight attendants had no further relationship to the airline than the airline cleaners, and they were hired by this hiring company and therefore didn't have the right to organize under U.S. law. So we did get a ruling from the National Mediation Board. Board that said that they— that Norwegian does in fact have a relationship to its flight attendants and that those flight attendants do have the rights that are afforded to them under U.S. law. But to this day, we're having a hard time getting Norwegian to respond to the U.S. government ruling on that. So we have a huge concern about controlling interest in U.S. airlines not being responsive to those labor laws.

Anita Mosner:So, but the thing is, though, Norwegian is not a U.S. carrier.

Sara Nelson:No, but this is a good example of, in our view, of what could happen if U.S. carriers were not controlled by U.S. interests.

Anita Mosner:Okay. Rick.

Rick Dominguez:So there's 3 things that cause us concern about changing foreign ownership and control laws, and I'll touch, amplify on I have 2 comments on what my colleague here said. The first one is that we should be able to deal directly with the decision maker, and under current U.S. law, we can, because the Railway Labor Act provides for it. If the decision maker is in another country, we can't compel them to the bargaining table. That further gives you another problem. The decision maker can then decide to whipsaw, create some labor arbitrage between the different pilot groups, especially if it's just international flying, and threaten one side or the other with less flying if they don't do it his way. And how do we get him to the negotiating table if he's a foreigner already? Beyond that, we still have unresolved and, we believe, serious national security concerns about participation in the craft and how do you— ensure that airplanes, no matter who flies them or who the managers are in the United States, perhaps they're citizens, if they're owned by a foreign carrier, those airplanes could be removed before the craft can use them. So we believe that national security is also an issue here. So in the case of Norwegian, while they are not a U.S. carrier, imagine Imagine if you had an airline who bought a U.S. carrier under this ability to do so because foreign control was ceded and then decided not to show up at the bargaining table, which is exactly what Norwegian is doing.

Anita Mosner:Okay. So that is a point. Now, Neil, you have a very different perspective. We've looked at consolidating market. And some, you know, essentially some fundamental changes in the domestic market. You are, as I understand it, a purchaser of business air travel. So why don't you share your perspective?

Neil Hammond:Yes, so as a— and again, I consult now for companies, but I was formerly a buyer for Schlumberger. You know, we commanded about $350 million worth of air spend globally. So, you know, So I see a little bit of a different picture. If you ask me the question as a consumer, even a business consumer or a leisure consumer, I would say yes, I would want to open up for more foreign investment and here's why. If I look even at the U.S., the U.S., you've got a fairly fragmented market compared to most markets when you've got 4 carriers who probably share equally almost equally without quibbling, 80% of the market, so about 20% each. Most countries don't have that luxury. Most countries, the lead carriers are taking 60%, 70%, 80% sometimes market share. But at the same time, you have pockets of non-competition. You can find routes and areas in the market, in the U.S. market, where there is very limited competition. Competition between hubs. We know about market dominance. And you even look globally in this industry that we have, the top carrier probably commands 5% of the global revenue. So it's a very fragmented industry and yet we don't have the competition everywhere that I would like to see as a consumer. So just to drive home one point, so when I was at Schlumberger, our top market was between Houston and Paris. At the time, we had 2 carriers in the same alliance. A JV between that carrier kills my leverage, right, kills my buying leverage. So lots of airlines out there, fragmented marketplace, but I don't get the competition everywhere I want to see it.

Anita Mosner:Okay. So we have, I think, a very, very broad spectrum of views between this is key to national security and that essentially there ought to be very, very strict limits. There's FedEx, which is your philosophical, I'd say, free trader, but actually is quite principled about it. And we have somebody from a market which is actually, you know, just does invest in a market that's quite small. And one thing that we think it's really quite interesting is the fact that we are seeing a great deal of, at this point, of cross-border investment. You know, I guess the news today is that IAG has decided to invest in Norwegian, and that may actually bring about a change in, you know, in perhaps behavior, personnel, and others that may be different for you. But essentially what we're looking at is a market that's evolving very quickly. And so the question is, is Do we think that there's any need for change from an economic standpoint? I think the consensus is you are a no, you're a maybe. Enrique is agnostic on the domestic point, and Nancy thinks it's important from an investment standpoint. Brian, do you want to chat a little bit about when the department many years ago took a look at trying to change its policy policy a bit in terms of looking at control, operational control, and commercial control?

Brian Hedberg:Okay. I'd happily talk about that. I would say that those in Congress who control the purse strings reacted very, very strongly and very, very quickly. And you'll notice we didn't have any change in our policies and how we evaluate those type of applications. One thing that I I would highlight, just to build on what Rick was saying, on the issue of the craft program, and I don't know if folks are familiar with the Civil Reserve Air Fleet, but it's essentially a, I guess, quid pro quo deal between U.S. carriers and DOD, where the Department of Defense, that if we need lift for emergency military situations, They— the DOD can basically commandeer parts of the fleet. In exchange for that, there is access to government-funded travel, which, you know, I don't— I won't get into the economics of that, but it has been a significant national security interest in U.S. military actions consistently, going actually, I think, back to World War II. Okay. War II, we have in some at some level activated CRAF. So it it has been an important the the the domestic policy and the defense aspect certainly has been a significant part of how the government looks at at ownership and control issues, and any kind of change to that one would assume that that that if you have a change in ownership and control, you'd have to look at that, which means bringing in the Department of Defense. And when you're talking about government agencies, there's a lot of heft that comes with Department of Defense involvement in discussions. So you asked very specifically about, you know, what happened decades— it's got to be 9 years ago now.

Nancy Sparks:Yes.

Brian Hedberg:I can't even remember. That shows how bad my memory is. But, you know, the point is we looked at taking nearly 70 years of judicial and quasi-judicial decisions and trying to consolidate them into more or less a rubric. And that was not well received on Capitol Hill, and the department chose not to go forward given the, the kind of messaging we were receiving at the time. And things change, and I would never divine what it is Congress is looking at doing because the crystal ball is very, very foggy right now, to say the least. And you know, you open the discussion with the point on the Brat Amendment. So you know, I think we can't really guess where Congress is going, but certainly, you know, we are a regulatory agency, and if a change is mandated, certainly that's how we work.

Anita Mosner:Okay, that's actually, I think, an important bit of perspective. One thing that, if I recall though, is I believe that with sealift, that non-U.S. carriers can actually participate in the U.S. military sealift. Is that right?

Brian Hedberg:With a caveat that I don't work at MARAD, and I am not trying to be difficult. Yes, I think the answer is yes. But you have an issue where you have DOD, Transcom, which is the Transportation Command, and the Maritime Administration, as well as, if I'm not mistaken, the Federal Maritime Commission, all working together to determine how best to address that. And beyond that, with the Jones Act, which has a lot of restrictions on access to U.S. ships. They have a much more restrictive— or not restrictive, I shouldn't say that— more clearly laid out statutory mandate on how to address those issues. So I think they're just working in a different framework than we do. They don't have 70 years of judicial precedent and telling us what to, what to think about.

Nancy Sparks:Nancy, going back to the ANPRM, which was— I think I got all those letters in the right order.

Anita Mosner:Yes, you do.

Brian Hedberg:Advanced notice of rulemaking, yeah.

Nancy Sparks:It was in the context of U.S.-EU negotiations, and the EU was very adamant that the United States needed to do something to allow more investment and more participation in the U.S. market. And I thought the ANPRM was very— insightful because one of the things that it tried to do was to define control in a way that identified the national, the governmental interests in having carriers controlled by U.S. citizens. And so it said essentially safety and security, really important. Those decisions need to be in the hands of U.S. citizens. The size of the fleet, the routes that are flown, the color of the logos, not very important. That could be decided by non-U.S. citizens. So rather than looking at this as an all-or-nothing decision, they— the decision about control, in other words, oh, you got a U.S. passport, you must be in the national interest to be running this airline. You don't, you're obviously against U.S. interests. Then they said, let's look at what the governmental interest is in— excuse me— having these carriers be controlled by U.S. citizens. And I thought that that did a very good job of differentiating what makes aviation different, because whenever we talk about ownership, control, we end up at the end of the day with why should airlines be any different? Why should investment in an airline be any different than an investment in— excuse me— a coal mine? But there is a reason. There are some fundamental factors that have some governmental interest, but they shouldn't control the marketplace and they shouldn't allow American carriers to be as protectionist as they are today.

Anita Mosner:Okay, so we've tossed down the gauntlet.

Rick Dominguez:So a coal mine's not a mobile worker.

Anita Mosner:I'm sorry?

Rick Dominguez:A coal mine is not a mobile worker, and if you— where does labor end up in that spectrum between—

Nancy Sparks:It's a very popular worker these days. That's why I picked— it's a very popular worker these days.

Rick Dominguez:These days, yes.

Nancy Sparks:They get their way.

Rick Dominguez:Yeah, yeah.

Sara Nelson:They still have to get their pensions, but yes.

Rick Dominguez:So where does, on the spectrum of safety and security and livery, where does labor fall? And that's where airlines and owners would like to reduce costs, and they do it on the backs of labor. Now, if you tell me I'm going to be able to be owned by a foreign airline, but yet I'll be able to organize across the Atlantic, I'll be able to negotiate with the common pilot group, agree to a common contract, and enforce such contract across the Atlantic under one labor law, I might be in.

Anita Mosner:Okay. That's interesting to hear. Now, Enrique, of course, you know, we see in Latin America, you know, essentially unionized labor forces, but also a real need for air service. and a real need for airlines establishing. To what extent has national security and labor interests played into establishment in airlines in Latin America?

Enrique Beltranena Mejicano:I think it's always had a play, but I think they, in general, the discussions now are much more concerned with the drug problem and how the drug problem is evolving and the operations regulated and how to control the drug problem. And that's what we think in terms of security and national security, especially, I mean, when the U.S. is putting so much push in trying to control the problem down from here, okay? But in general, when you sit down, the other part is much more important, especially in those little countries that really need the lift, that really need competitive lift, and that are in need of tourism and in need of money coming into the country. Okay. So in reality, we end up with a discussion which is on one side basically the U.S. pulling the strings for this drug control and all that kind of stuff. And then on the other side, most of the economical interests trying to push as much as they can to open, liberate, and try to get lift in a vast quantity that solves the problem of tourism and investment and development of the economies.

Anita Mosner:So, Brian, I know that Ownership control has played a large role in a lot of your air negotiations, and particularly with consolidation among foreign airlines, you know, where essentially you are looking at one airline buying another in its entirety and how you deal with these issues. How has that played— how has the need for air service and others played into the department's thinking about ownership and control?

Brian Hedberg:Well, I think I think part of it is what Enrique was just touching on, and I'd couch it back into the idea of rational self-interest that Professor Havel was raising earlier. You know, when the United States negotiates an agreement with a foreign country, it's with that foreign country, and it is a bilateral relationship, and generally speaking, the United States is the bigger partner in that relationship. And, you know, in the situation You know, I think that's a very interesting situation of Central America, as you raised, '95 to '99, or LATAM consolidation and issues like that. You know, our deal, our air service agreement is with that bilateral partner, and we certainly have interest in determining who gets to play in our sandbox. And, you know, you have generally seen, you know, when we have that kind of situation, we make a determination on whether or not that investment is inimical to U.S. interests. And one of the, again, fascinating things about being a regulator is everybody gets to rat each other out. It's, you know, everybody, the entire situation plays out in a public docket, and I get to see who's mad about what, and then, you know, and who is supporting what position. And really, it is very nice to be in a position where I can recommend to the folks up my chain You know, here is not only where our obligations are, but you know where where the industry is is sitting on any particular issue. So you know it certainly has evolved. We certainly are very interested in knowing where capital is coming from, who is controlling an airline, how they are competing against U.S. carriers in the market, and and that all feeds into. To our decisions, as well as the positions of labor, because I have— I would never say that either of our labor colleagues on the panel here are shy about making their views known, both on the record and with input elsewise. So again, I would just say it's like I was commenting earlier, we have the opportunity to take a broad view and see how the experiments work out. So, yeah, I think I would just leave it at that. It's been— it's constantly under evaluation every time we get a new application.

Anita Mosner:Okay. It looks like you want to say something, Sara.

Sara Nelson:Yeah, I do. I think there's been a few things said about the competitive nature of this discussion and just not necessarily directly related foreign ownership and control, but the U.S. market has incredible competition, and I think that the Spirit and the Frontiers in the room would agree with that, as well as everyone else. But there's more people traveling in the U.S. than ever before. Ticket prices are 40% below what they were at the point of deregulation, if you adjust for inflation. And so there is more access to everyone, and in fact, I don't want to be misunderstood about my comments about I'll talk about Norwegian. To Rick's point, we're very happy to see Norwegian succeed, and we are supportive of, for example, open skies agreements, which opens up competition across the world. But what we want to make sure is that we have a fair chance at making sure that the good labor jobs within aviation are maintained and that we have the right to bargain fairly. And that's what we don't want to lose sight of in changing any of these rules.

Neil Hammond:Thank you.

Sara Nelson:regulations.

Anita Mosner:So actually, Sarah, you raised an important point, and I think this is a point where I'm going to start to look at— I can't see the audience, but I'm going to pose a question to the audience, which is, do we think that the industry is competitive enough, and do we think if you're a startup or looking for a startup that your access to capital is adequate? Does anyone want to jump in and venture an opinion? Okay, I can't see hands, so I would assume that the answer is we're agnostic or shy. Okay.

Rick Dominguez:Rick. Something that Sara brought up is about Norwegian and the Flight Attendants Union is that transnational airlines are with us now, and Norwegian is a transnational airline, so is Ryanair, so is EasyJet, So is LATAM. So is Avianca. And so is Cathay Pacific. And that's something that us as labor unions have to get our heads around about how to best represent the workers in our country that are part of a transnational airline, without going into the ownership and control, but it can be mixed in with it. The other thing I was going to mention to you is that joint ventures have been basically the proxy for a merger since they started back in Air France— KLM and Northwest. And it seems that it's worked out pretty well, but in your case, you said—

Neil Hammond:For the airlines.

Rick Dominguez:Yeah, for the airlines. You said for the consumer it's a joint venture, but they're actually— if they're— if the air control was relaxed, there would just be one One airline because that joint venture would have merged. So it's the same thing. You're still looking for another competitor in that room.

Anita Mosner:OK. So Neil.

Neil Hammond:So what I would advocate for, I mean, in my ideal utopia, is not only a relaxation on the ownership rules, but a relaxation on all the freedom rights as well. Because I would want to see Lufthansa come in and say, provide a flight between Dallas and London, and have the freedoms to do that. to do that as well. So that's how you would—

Anita Mosner:I believe Lufthansa can do that right now.

Rick Dominguez:At least right now, up until Brexit.

Anita Mosner:Between Dallas and London. And wouldn't that be— if they're a European— if they're a community carrier?

Rick Dominguez:They can do it right now.

Anita Mosner:They can do it right now. Exactly.

Neil Hammond:But we're not going to be.

Anita Mosner:And we have seen a little bit of that with British Airways and Air France, I think, each launching services in each other's home markets.

Neil Hammond:I'm not sure that British Airways really dominated the French market. You know, we still have our national flag carriers, don't we?

Anita Mosner:Oh, okay. So we have a hand now. Is that Mr. Shi? If we can get a mic to Mr. Shi, or he can speak very loudly. I'm going to come downstairs.

Rick Dominguez:Must be just one mic.

Brian Hedberg:So, Anita, I, I, um, when you talk about foreign ownership, are you talking about foreign airlines owning or buying U.S. airlines, or you're talking about foreign investors owning a majority share of U.S. carriers?

Nancy Sparks:Yes.

Brian Hedberg:I personally don't think any carrier I don't think any foreign carrier has an appetite of picking up— of buying a U.S. carrier. My personal view is merging 2 airlines is impossible. And we've seen that in the U.S. already. And to take— to have a foreign carrier buying— to have British Airways buying United or buying American, I just don't see how that happens, how that's going to happen.

Rick Dominguez:Thank you. So when you—

Brian Hedberg:I just wonder, I was out of the room for a while, but when you talk about foreign ownership, I think Neil was probably implying it was— it's a JV will become a merger. I just don't think that's going to happen.

Nancy Sparks:Anita, can I talk to that?

Anita Mosner:Yeah, but then I'll jump in.

Nancy Sparks:But sure, Nancy.

Sara Nelson:Okay.

Nancy Sparks:We didn't— you're right, we didn't really say set the terminology at the beginning. And I'm part of the problem because I was talking about how the ownership and control issue fits into the aviation air services agreements issue. But you have the concept of— you have the concept of one airline. We're just going to keep merging and merging and merging and merging until you have one giant airline, or you have 3 giant airlines, which is probably where we would all end up. Okay, then you have the concept of the right of establishment. The right of establishment says, okay, if you are not a national of that country, you can still own and control an airline in that country, but that airline is subject to the tax laws, the labor laws, the environment laws, the whatever laws, okay? Okay. And then you have, of course, that third concept of cabotage, which is I don't need to be subject to anything, I'm just going to go in this country and fly around, okay? And that's where, in my opinion, things get really, really hard to understand, and that if you talk about an unlevel playing field, To me, that's your ultimate unlevel playing field, because then you don't have this— you don't have carriers in the same geographic area or the same political area that are subject, for example, to the same tax laws. One has their operations exempt because it is international aviation, because cabotage is defined as international aviation. While the other, it's domestic aviation, and so they're taxed differently. So I think what we're talking about here, at least I think what we're talking about, is the right of establishment.

Anita Mosner:And I think we have 2 other points we need to raise with this, the first of which is when the U.S. considers a foreign investment in an airline, I think they look at an Airline investment in a foreign airline investment in a U.S. airline somewhat differently than a purely economic investment like a hedge fund. And I think what we've heard from Enrique is that smart money all over the world is investing in Volaris, and it's not necessarily an airline, but it's investors that wish to basically make a profit and do this. There are airlines that do this for for, you know, invest in other airlines for strategic reasons. Sometimes it's to cement an alliance, or sometimes it is for, you know, for support. In other words, certainly Northwest KLM, where there was a white knight wanting to keep a partner, you know, sustainable. So I think there is an issue there. But do I see— I think I see Lee Moak back there. Can somebody bring a mic to Lee?

Nancy Sparks:Hi.

Brian Hedberg:Anita, great panel, a lot of thoughts. Just one question, if your panel could address, or you and the panel could address. How would foreign ownership play out in relation to state-owned enterprise money? Could you comment on that?

Anita Mosner:I'm going to defer to the panel. Anyone want to do that?

Nancy Sparks:Well, I guess I'd like a better idea of what you mean by state-owned enterprise money.

Brian Hedberg:Excuse me.

Nancy Sparks:Great job.

Brian Hedberg:But when you start talking about— we recently saw one state-owned enterprise trying to I know that China tried to invest in a U.S. carrier in Dallas, and that didn't work out so well for whatever reason. But on a broader sense, on a broader sense, should there be different rules? How would you look at state-owned enterprise money coming into U.S. domestic foreign ownership?

Nancy Sparks:Well, right now I would assume, and Brian, correct me if I'm wrong, that a state-owned enterprise could invest up to 25% in a U.S. carrier without triggering any alarm bells?

Brian Hedberg:Alarm bells or—

Nancy Sparks:Okay, let's try it this way. Any legal restrictions?

Brian Hedberg:Yeah, no, and I think that's how I would couch it, and that, you know, to get to Lee's point. One thing I would point out, state ownership is, I think, over more than one-third of the world's airlines. are state-owned, period. And then when you start talking about some significant element of state ownership in an airline, you're talking about nearly 2/3 of the world's airlines. So it's, you know, there's a wide gamut there. On the issue of that, the question of that Texas-based carrier, you know, it wasn't a governmental I'm not sure that there's a legal restriction that was triggered there. It's, you know, my understanding that that has to do with the internal governance of that own airline— of that airline, because— and I'm not sure whether it is really triggered by a state ownership issue as much as Enrique has pointed out. There is so much diffuse ownership in many carriers that in some cases, even a minority shareholder can exert control, which goes back significantly to the points that, that Sara and Rick are making about looking at ownership and control as a unit. And very much so, at least in my world, in the international, you know, something's crossing our border world, I look at ownership and control as a unit because there are a lot of shades of gray, and that's why you need regulatory review. view in that manner. So, you know, I think you've asked a very, very broad question, but I think it has an answer in that everything has to be looked at now, whether that is being done by internal governance of an airline or by federal statute. That's 2 very different things.

Nancy Sparks:Anita, don't you practice in the world of CFIUS?

Anita Mosner:We do practice in the world of CFIUS, and CFIUS is the Committee for foreign investment in the United States. And there are times in which you have a transaction in which a non-U.S. person is investing in a U.S. strategic asset, and that has to go to review by a committee that's formed by the Departments of Commerce, Defense, Transportation, and—

Rick Dominguez:Treasury.

Anita Mosner:The president, I mean, and a host of others that are, you know, in there, and they have to make a determination about whether an investment is inimical to the U.S. sort of safety, you know, security. And when you look at that, you know, that is arguably— I have not seen many situations in which investments have triggered CFIUS because normally in a U.S. carrier with a 25% 5% investment, the presumption is, and a statutory barrier on control, it really doesn't play in very much into basically equity participation in U.S. carriers. So, yeah.

Rick Dominguez:I wanted to go back to Dr. Zhi's question about whether we're talking about an airline investment or just a regular investment. From a labor perspective, it's all in one— all in the same, because what's to prevent that purchaser from then selling to a foreign airline? And from a— for labor, how do I deal with the foreigner that is not subject to U.S. laws and doesn't have to show up and bargain with me? I can't even talk to the decision maker. So whether it's an airline that's buying it or a hedge fund that's buying a majority because the laws have changed, it impacts us quite severely.

Anita Mosner:All right. So we have about 3 minutes left, and I think what I'd like for everyone to do is if we were to look at this discussion, have this discussion in 20— let's say 2021, will we be talking about the same issues, or do you think we'll see some change or evolution over time? Enrique?

Enrique Beltranena Mejicano:I think we will see a lot of evolution on it, especially in countries that need transportation and that need it so badly. I mean, I strongly think that we will see a much more open kind of mentality in Latin America, at least.

Anita Mosner:OK. Nancy?

Nancy Sparks:I think I agree with you completely. Outside the United States, I think things are going to change quickly. And you just need— all you really need to do is look at what the airlines are doing right now in terms of investing in each other. In the United States, we're going to still be talking about this.

Enrique Beltranena Mejicano:With one caveat. I think the United States airlines will be investing in Latin America.

Nancy Sparks:That's probably right.

Rick Dominguez:They already are.

Brian Hedberg:They already are. They already are.

Nancy Sparks:We've got a goose and a gander problem.

Enrique Beltranena Mejicano:So that may balance.

Anita Mosner:Sara?

Sara Nelson:I think that we'll generally be in the same place on this particular discussion if you just look at the makeup and what Congress is saying today.

Anita Mosner:Okay. Rick?

Rick Dominguez:One thing is to be investing in Latin American airlines, another one is to be controlling them. This was about relaxation of ownership and control to the point where a foreigner owns a U.S. airline, and I don't think that's going to happen in Latin America. the US airline is going to own a Latin American airline. Perhaps I'm wrong. In the US, no changes. But 2021, we'll be talking more and more in the US about transnational airlines.

Nancy Sparks:Yes.

Sara Nelson:OK.

Enrique Beltranena Mejicano:We saw a move like that with the joint venture from Delta and Aeroméxico. And they moved participation of foreign investment in Mexico from 25% to 49%. It didn't go up because we didn't allow it.

Rick Dominguez:Right.

Enrique Beltranena Mejicano:But they pushed for it.

Rick Dominguez:Right, and Delta could go up to 49% in Virgin Atlantic because those shares came from elsewhere. There is reciprocity on 25% between the EU and the U.S.

Anita Mosner:Okay, Neil?

Neil Hammond:So I think, well, I'll start by describing my utopia. I don't hold out much hope for that being achieved within the next 3 years, as you say, and basically because whilst you said we may look in a transnational airline for other countries. The US doesn't need it. I think some of the US carriers would actually welcome more foreign investment and potentially you could talk about 49%, but they don't need it. Brian talked about the sandbox. What a beautiful sandbox you have here in the US, right? Everybody wants to play in it, but nobody can give you a reciprocal sandbox to play in. So we might be talking about this in maybe 20 years' time when China and Asia Have a bit of sandbox to play in now.

Anita Mosner:Okay, Brian.

Brian Hedberg:Oh, I have a notoriously bad crystal ball, but if past is prologue, we've got how long have we been talking about this? 56 years. So do I think anything's changing in the next 24 months? Eh, I'm not so sure.

Anita Mosner:All right. So I'm going to say thank you very much to our panel.

Sara Nelson:Thank you.

Enrique Beltranena Mejicano:Thank you, Anita.

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