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US Eases Foreign Ownership Restrictions on Airlines

January 24, 1991

WASHINGTON (AP) _ The Transportation Department on Wednesday eased restrictions on foreign ownership of U.S. airlines, hoping to help struggling air carriers with an infusion of foreign capital.

The decision was good news to Northwest Airlines, whose almost-half ownership by KLM Royal Dutch Airlines had been in jeopardy.

Transportation Secretary Samuel Skinner said that KLM would be allowed to continue to maintain its $400 million equity share in Northwest under the revised foreign ownership guidelines as long as U.S. control of the airline is retained.

Federal law continues to restrict foreign ownership of voting stock in airlines to 25 percent, limits the number of foreigners on airline boards, and prohibits control of an airline transferring to foreigners.

But under the administrative policy shift, a foreign investor may purchase as much as 49 percent of the total equity in a U.S. carrier. The government no longer will consider such ownership in itself an indicator of foreign control, said Skinner.

″We have concluded that one of the important steps we can take ... is to create an environment more receptive to foreign investment in the U.S. airline industry,″ Skinner said in a speech to the National Press Club.

The more liberal foreign investment policy comes as an increasing number of U.S. airlines fight for survival. Major carriers lost about $2 billion last year. Eastern Airlines recently shut down and two other air carriers - Continental Airlines and Pan American World Airways - are flying under the protection of the bankruptcy courts.

″Today’s announcement provides airlines with increased flexibility to respond to the severe financial challenges facing them and to be effective global competitors in the years ahead,″ said the Air Transport Association in a statement.

Skinner said the airlines’ problems stem from a variety of factors including declining ridership because of the economic downturn, soaring fuel costs and continuing high labor costs.

He said he hoped the less stringent restrictions will allow U.S. airlines ″to stay ahead of the pack in the move toward globalization.″

″These changes will allow U.S. airlines to attract additional foreign capital,″ said Skinner.

The department also no longer will consider foreign debt as an indicator of foreign control unless the loan agreements provide special rights to the debt holder that imply control, officials said. Foreigners may serve on corporate airline boards, but only to the extent of their ownership in voting stock.

As part of the policy shift, Skinner announced the department’s support for KLM’s equity ownership in Northwest, a deal that grew out of the $3.65 billion buyout of Northwest by a group led by Los Angeles investor Alfred Checchi in 1989.

As part of the buyout, the Dutch airline took a 49 percent equity share in Northwest’s new parent company Wings Holding Inc. Although KLM’s purchase amounted to only 4.9 percent of the voting power, federal officials objected because of concern that KLM might exert too much influence on the U.S. carrier.

Under the new policy, Skinner said KLM would be allowed to maintain its current equity share.

Northwest spokesman Bob Gibbons said of the DOT decision: ″It’s good for Northwest because it relieves us of the obligation to redeem (KLM’s) preferred shares. That improves our financial situation. Bankers don’t see it as a liability anymore.″

Northwest does not have to come up with $250 million to buy enough of KLM’s shares to reduce its ownership interest to 20 percent.

In a related development, the department announced it also would approve a request by KLM to provide the only nonstop service between Minneapolis-St. Paul and continental Europe. ″That’s good news for Minneapolis and for the ever-expanding world of international aviation,″ said Skinner.

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