Christine Negroni, blogger and journalist, has written that foreign ownership restrictions of US airlines is due for a change that would permit cross border mergers.  She points out that the five biggest airlines by market capitalization are *not* US based airlines but rather airlines such as China Airlines, Singapore, Cathay Pacific, China Southern and LATAM. 

The problem with her argument about market capitalization and how foreign ownership could drive that for US airlines is that it ignores a critical element in why those airlines have such high market caps.  They’re well run airlines in areas of the world where money have very few places to invest in well run businesses. 

The problem with US based airlines and their market caps is that they’re not well run airlines.  Foreign ownership doesn’t change that.  Trans-border mergers don’t change that either.  If you think a foreign airline is going to buy a legacy US airline and run it better, you’re kidding yourself.  Those same named airlines are interesting in that they also have access to a far lower set of costs in operating as airlines than US based airlines enjoy.  In addition, they enjoy density on their routes that few airlines do get to enjoy and they also enjoy a certain “protected status” in their respective regions that airlines in the United States don’t get. 

Furthermore, if you think that a merger between parties like American Airlines and BA/Iberia means that the BA/Iberia leadership runs the show, think again.   While BA/Iberia knows how to run a smallish network with a global long haul business, they don’t know how to run an airline in the very unique competitive environment that the US is.  American Airlines knows how to do both and they have something that very few other airlines have and that is the cash management know how for a theoretical combined unit enjoying $48Billion plus in revenues. 

Here’s the thing:  The US market is literally unlike any other airline market in the world.  Some markets see one or two LCC carriers and 1 or 2 legacy airlines whereas the US has 4 enormous legacy airlines that would compete on a revenue basis with any other airline in the world.  In addition, the US market has the largest LCC style carrier in the world with several other major LCC carriers in its market too. 

Furthermore, there is no other place with the kind of network flying going on that we see in the United States.  And the competitive market that represents is unyielding and brutal when compared to any other region in the world. 

The ability for foreigners to own a US airline or for a US airline to merge with a foreign carrier or carriers is not going necessarily improve the financial health of a US airline.

That said, I, too, think the rules should be amended as long as we preserve our strategic interests in having the airline system that we have.  The US airline system is a strategic asset worthy of preservation for both economic and defense reasons.  It’s a global marketplace but it’s not a globally ruled marketplace and that’s important to remember.  There are just a tiny handful of countries that enjoy that kind of transparent marketplace that we provide for ourselves and preserving our interests is not counterproductive to the airline industry nor US interests.

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