Legal Developments in International Civil Aviation
CRS Report for Congress
Legal Developments in International Civil Aviation
Updated August 25, 2006
Todd B. Tatelman
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress
Legal Developments in International Civil Aviation
Summary
Much of the law regarding civil aviation has been developed through a
combination of domestic laws and international agreements between the United
States and other nations. In 1992, the United States Department of Transportation
(DOT) introduced the “Open Skies” initiative and began negotiating and entering into
modern civil aviation agreements with foreign countries, as well as individual
members of the European Union (EU). As a result of a 2002 European Court of
Justice ruling that several portions of these “Open Skies” Agreements violated EU
law, the United States and the EU have been negotiating a new Open Skies
Agreement. A tentative agreement appears to exist between the parties that if
enacted would, among other things, allow every EU and U.S. airline to fly between
every city in the European Union and every city in the United States and would
permit U.S. and EU airlines to determine the number of flights, their routes, and fares
according to market demand.
Despite this development, there appears to remain several areas of international
civil aviation law that the tentative agreement does not address. Among them are the
issues of foreign ownership and control, participation in the Civil Reserve Air Fleet
Program, and cabotage. Presently, U.S. law requires that to operate as an air carrier
in the United States, an entity must be a citizen of the United States. To be
considered a citizen for civil aviation purposes, an entity must be owned either by an
individual U.S. citizen, a partnership of persons who are each U.S. citizens, or a
corporation (1) whose president and at least two-thirds of the board of directors and
other managing officers are U.S. citizens, (2) that is under the actual control of U.S.
citizens, and (3) has at least 75 percent of its stock owned or controlled by U.S.
citizens. Recently, however, the DOT released a Notice of Proposed Rulemaking
(NPRM) that would change its interpretation of what constitutes “actual control.”
If adopted, this new interpretation could have major implications for U.S. and
international civil aviation. Several issues relating to this NPRM are currently being
debated, including the consistency with the operative statutes and the viability of the
Civil Reserve Air Fleet Program (CRAF), should more extensive foreign ownership
be permitted. In addition, Members of Congress have taken a significant interest in
this DOT rulemaking, both through direct participation in the rulemaking process and
by introducing legislation (H.R. 4542 and S. 2135) that would prohibit the adoption
of a final rule for one year and require the DOT to submit reports and analysis on the
impact of the new interpretation on the domestic industry and national security
concerns. Furthermore, both the House and Senate have adopted amendments to the
proposed Transportation, Treasury, Housing and Urban Development, the Judiciary,
the District of Columbia and Independent Agencies Appropriations Act of 2007
(H.R. 5576) that would effectively forestall the DOT from adopting a final rule.
U.S. law also contains a general restriction on cabotage, defined as the
transportation of passengers or cargo by foreign air carriers from one point in the
United States to another. This report provides background on U.S. civil aviation
agreements, updates the current status of U.S. “Open Skies” negotiations with the
EU, and addresses the legal debate concerning both the foreign ownership and
control rules and the cabotage laws. It will be updated as events warrant.
Contents
Background ..................................................1
“Open Skies” Agreements.......................................3
Air Carrier Citizenship..........................................6
Current Law and Legal Precedent.............................6
The Department of Transportation’s Proposed “Actual Control” Rule....11
Recent Developments.....................................15
Legislative Responses.....................................18
Cabotage ...................................................19
Legal Developments in International
Civil Aviation
Background
The legal framework for international civil aviation rights dates back to the 1919
Convention for the Regulation of Aerial Navigation (Paris Convention), which was
a part of the Paris Peace Conference.1 The hallmark aviation principle recognized by
the Paris Convention is that every nation has absolute and exclusive sovereignty over
the airspace above its defined territory.2 This principle was reaffirmed in 1944 at the
Chicago International Civil Aviation Conference, which produced the Chicago
Convention.3 The Chicago Convention resulted in an international framework based
largely on national interests, favoring bilateral air transport agreements over
multilateral accords with respect to issues such as routes, frequency and capacity.4
The Chicago Convention’s accomplishments included an agreement by the
signatories to grant each other two of the so-called “five freedoms” of air transport,5
specifically, the right to fly across other states without landing and the right to land
for nontraffic purposes. In addition, the Chicago Convention established the
International Civil Aviation Organization (ICAO) to regulate the safety,
communications, and technological aspects of international civil aviation.6
Since the Chicago Convention, international civil aviation rights have developed
primarily through a series of bilateral agreements between the United States and
1 Convention for the Regulation of Aerial Navigation, Oct. 13, 1919, Art. 1, 11 L.N.T.S.
2 Id.
3 Convention on International Civil Aviation, Dec. 7, 1944, Art. 44, 61 Stat. 1180, 15
U.N.T.S. 295, 296 [hereinafter Chicago Convention].
4 See Andras Vamos-Goldman, The Stagnation of Economic Regulation under Public
International Air Law: Examining its Contribution to the Woeful State of the Airline
Industry, 23 TRANSP. L.J. 425, 431 (1996); see also Paul S. Dempsey, Turbulence in the
“Open Skies:” The Deregulation of International Air Transport, 15 TRANSP. L.J. 305, 362
(1987) [hereinafter Dempsey].
5 The remaining “five freedoms” of air transport consist of the right to put down passengers,
mail, and cargo taken on in the territory of the state whose nationality the aircraft possesses;
take on passengers, mail, and cargo destined for the territory of the state whose nationality
the aircraft possesses; and take on passengers, mail, and cargo destined for the territory of
any other state and the privilege to put down passengers, mail, and cargo coming from such
territory. See Daniel C. Hellund, Toward Open Skies: Liberalizing Trade in International
Airline Services, 3 MINN. J. GLOBAL TRADE 259, 265 (1994).
6 See Chicago Convention, supra note 3, at Art. 44, 61 Stat. 1192-93, 15 U.N.T.S. 326.
foreign countries. Most of these agreements have been “executive agreements”
rather than treaties, thereby avoiding the advice and consent requirement of the
Constitution,7 and typically have contained language favorable to the United States.
For example, prior agreements permitted the United States to designate both an
unlimited number of gateway cities and an unlimited numbers of carriers.8 In
addition, the agreements provided the air carriers the right to determine capacity with
only the vaguest of guidelines.9 As the United States began to deregulate its domestic
airline industry, administrations began to seek more liberal, free-market-based
international agreements as well.10
Domestically, however, even as the United States began to adopt more liberal
regulations for its aviation industry, several existing laws continue to have a strong
impact on international civil aviation. Currently, air transportation and air commerce
are governed by the Federal Aviation Act of 1958.11 Section 401(a)(1) of the Act
states that “an air carrier may provide air transportation only if the air carrier holds
a certificate issued under this chapter authorizing the air transportation.”12 The
statute authorizes the Secretary of Transportation to “issue a certificate of public
convenience and necessity to a citizen of the United States ....”13 Before issuing a
certificate, however, the Secretary “must find that the citizen is fit, willing, and able
to provide the transportation to be authorized by the certificate and to comply with
this part and the regulations of the Secretary.”14 Stated another way, to operate in the
United States as an air carrier, an entity must be a U.S. citizen and must be judged
by the Secretary to comply with the statute and any other applicable regulations.
In addition to the citizenship requirements, U.S. law also contains a general
prohibition against cabotage activity. Generally speaking, the term cabotage is
defined as “the right of a foreign airline to carry passengers and/or cargo between
airports of the same country.”15 The prohibition states that “aircraft may take on for
compensation, at a place in the United States, passengers or cargo destined for
another place in the United States only if — (1) specifically authorized under section
40109(g) of this title; or (2) under regulations the Secretary prescribes authorizing air
carriers to provide otherwise authorized air transportation with foreign registered
7 See Dempsey, supra note 4, at 316-17; see also LOUIS HENKIN, FOREIGN AFFAIRS AND THE
U.S. CONSTITUTION 215 (2nd ed. 1996).
8 Id. (citing United States Standard Form Bilateral Air Transport Agreement, Art. 3 (1953)).
9 Id.
10 See Adam L. Schless, Open Skies: Loosening the Protectionist Grip on International Civil
Aviation, 8 EMORY INT’L L. REV. 435, 441-42 (1994).
11 Federal Aviation Act of 1958, P.L. 85-726, 72 Stat. 740 (Aug. 23, 1958) (codified as
amended at 49 U.S.C. § 40101 et seq.) [hereinafter Federal Aviation Act of 1958].
12 49 U.S.C. § 41101(a)(3) (2003).
13 Id. at § 41102(a) (emphasis added).
14 Id. at § 41102(b)(1).
15 See BLACK’S LAW DICTIONARY 194 (7th Ed. 1999).
aircraft under lease or charter to them without crew.”16 If neither of those situations
exists, foreign aircraft are not permitted to perform cabotage within the United States.
In addition, the Secretary of Transportation has general discretionary authority to
waive other economic-related statutory provisions listed in section 40109(c) “when
the Secretary decides that the exemption is consistent with the public interest.”17 The
cabotage prohibition, however, is not among the regulations listed in section
Finally, U.S. law has created an incentive program exclusively available to
domestic air carriers; namely, the Civil Reserve Air Fleet Program (CRAF).19 Under
this program, domestic air carriers supply aircraft on a voluntary basis to increase the
military’s airlift capacity. The CRAF allows the U.S. military, in times of need, to
demand access to a selected percentage of the civil aircraft fleet to deliver troops and
equipment to the battlefield.20
“Open Skies” Agreements
In August of 1992, the Department of Transportation (DOT) announced its
“Open Skies” initiative, which was intended to continue the trend of liberalizing
international civil aviation. As defined by the DOT, “Open Skies” consists of the
following 11 principles:
3) The right to operate between any point in the U.S. and any point in the
European Community without restriction, including service to intermediate and
beyond points, and the right to transfer passengers to an unlimited number of
smaller aircraft at the international gateway; 4) Flexibility in setting fares; 5)
Liberal charter arrangements; 6) Liberal cargo arrangements; 7) The ability of
carriers to convert earnings into hard currency and return those earnings to their
homelands promptly and without restriction; 8) Open code-sharing opportunities;
10) The ability of carriers to freely enter into commercial transactions related to
their flight operations; [and] 11) A commitment for nondiscriminatory operation21
of and access to computer reservation systems.
The “Open Skies” initiative incorporated many elements of the previous bilateral
agreements and was designed to be entered into with any country “willing to permit
16 49 U.S.C. § 41703(c)(1)-(2) (2003). Section 40109(g) gives the Secretary of
Transportation the authority to grant limited 30 day exemptions if it is determined that either
there is an emergency, or it is necessary to avoid unreasonable hardship and no unreasonable
advantage will be given to any party involved in a labor dispute. 49 U.S.C. § 40109(g)
(2003).
17 49 U.S.C. § 40109(c) (2003).
18 Id.
19 See 10 U.S.C. § 9511 et seq. (2004).
20 See 10 U.S.C. § 9512 (2004).
21 Defining “Open Skies,” D.O.T. Order No. 92-8-13, at App. 1 [hereinafter DOT Order].
U.S. carriers essentially free access to their markets.”22 However, because “Open
Skies” is an executive branch initiative, policies that require legislative changes to
U.S. law, such as foreign ownership and control, and cabotage23 are not included
within its principles.24 Currently, the United States is a party to 74 “Open Skies”
Agreements worldwide.25
In Europe, the first “Open Skies” Agreement was reached in October of 1992
with the Netherlands, and over the next several years, similar agreements were
reached with other European countries, including Austria, Czech Republic, Belgium,
Denmark, Finland, Germany, Luxembourg, Norway, Sweden, Switzerland, and
Iceland.26 As a result of these agreements, the United States enjoys what can be
characterized as quasi-cabotage rights within the European Union (EU). In other
words, although U.S. carriers still cannot operate truly domestic routes (e.g., Paris to
Marseille), they have created so-called “hub and spoke networks” within Europe; for
example, a hub in Frankfurt, Germany, with spokes to Paris and Marseille. On the
other hand, it should be noted that U.S. law currently prevents European carriers
from enjoying any type of cabotage rights within the U.S. domestic market.27
The combination of the number of “Open Skies” Agreements between the
United States and individual EU Members, and the growing dominance of U.S. air
carriers throughout Europe, led the European Commission to seek a mandate to
negotiate a bilateral aviation agreement between the United States and the EU. The
Commission, however, was unable to obtain such a broad mandate and, in 2002,
decided to bring legal action against those Member states that had independently
negotiated and entered into “Open Skies” Agreements with the United States. While
the European Court of Justice appeared to stop well short of invalidating the existing
“Open Skies” Agreements, it did hold that certain specific provisions were
discriminatory and therefore contrary to EU law. These included provisions relating
to the allocation of airport slots and those governing pricing, fares, and rates of intra-
European air services; agreements on computer reservation systems; and the
“nationality clauses,” which permit the United States to deny access to carriers whose
home state has not signed an agreement.28 As a result of this decision, the legal status
22 See 57 Fed. Reg. 19,323 (May 5, 1992).
23 Cabotage is defined as “the right of a foreign airline to carry passengers and/or cargo
between airports of the same country” See BLACK’S LAW DICTIONARY 194 (7th Ed. 1999).
24 See DOT Order, supra note 21, at 6 (specifically noting the absence of cabotage and
foreign ownership and control policies).
25 See Open Skies Partners, U.S. Department of State, Bureau of Economic and Business
Affairs, available at [http://www.state.gov/e/eb/rls/othr/2005/22281.htm] (providing a list
of the “Open Skies” Agreements currently in effect).
26 See Benoit M.J. Swinnen, An Opportunity for Trans-Atlantic Civil Aviation: From Open
Skies to Open Markets, 63 J. AIR L. & COM. 249, 270 (1997).
27 Federal Aviation Act of 1958, supra note 11.
28 See, e.g.,Case C-469/98 Commission of the European Communities v. Republic of
Finland, § 118-132. There were, eight independent cases in all, each with a separate
(continued...)
of the existing “Open Skies” Agreements has been questioned,29 and the EU
Members have granted the Commission a mandate to negotiate a civil aviation
agreement with the United States.
Since the European Court of Justice ruling, the United States and the EU have
committed to negotiations with respect to a comprehensive air transportation
agreement often referred to as an “Open Aviation Area,” or the “Transatlantic
Common Aviation Area” (TCAA).30 Until recently, negotiations appeared to stall
as the countries’ differences on key issues prevented them from moving forward.31
In November 2005, however, the parties announced a negotiations breakthrough and
the completion of text for a preliminary agreement. According to U.S. Transportation
Secretary Norman Y. Mineta, the agreement “provides new opportunities for U.S.
and European airlines, healthier competition for a growing travel market and greater
connections between cities and towns on both sides of the Atlantic.”32 Although a
draft agreement is not yet publicly available, according to the State Department, the
agreement, if implemented, would, inter alia, allow every EU and U.S. airline to fly
between every city in the European Union and every city in the United States and
would permit U.S. and EU airlines to determine the number of flights, their routes,
and fares according to market demand.33 In addition, the agreement would allow
carriers to freely enter into cooperative arrangements with other airlines, such as
code-sharing and leasing.34
28 (...continued)
opinion that for the purposes of this discussion can be considered substantively identical.
29 The United States has publically asserted that “the current agreements would remain in
force as the legal basis for air services between the United States and individual Member
States.” See “U.S. Says “Open Skies” Pact with E.U. Nations in Force,” Agence France
Presse, Nov. 5, 2002 (quoting DOT spokesman Leonardo Alcivar). However, EU Vice
President Loyola de Palacio subsequently reminded EU nations that “they should start
procedures to terminate those agreements in order to ensure that they comply with their
obligations under Community law.” See EU Press Release No. 116/04, “EU Commission
Takes Action To Enforce ‘Open Skies’ Court Rulings,” July 20, 2004, available at
[ h t t p : / / www.eur uni on.or g/ news/ p r e ss/ 2004/ 200400116.ht m] .
30 See Press Release, “European Union and The United States of America Agree on Opening
Negotiations on Open Aviation Area,” June 25, 2003, available at
[http://www.eurunion.org/partner/summit/Summit0306/OAANeg.htm]; see also The White
House, “Aviation Agreement Fact Sheet,” June 25, 2003, available at
[ ht t p: / / www.whi t e house.gov/ news/ r el eases/ 2003/ 06/ 20030625-3.ht ml ] .
31 See Department of State, International Information Programs Press Release, “U.S.
Remains Committed to Opening Transatlantic Aviation Markets,” June 14, 2004, available
at [http://usinfo.state.gov/xarchives/].
32 See U.S., EU On Track to Change Air Rules, U.S.A. TODAY, Nov. 21, 2005, available at
[http://www.usatoday.com/travel/news/2005-11-21-us-e u-open-skies_x.htm? csp=N009].
33 See U.S. Department of State, Office of the Spokesman, Fact Sheet: U.S., E.U. Air
Transport Agreement, November 18, 2005, available at [http://usinfo.state.gov/
eur/Archive/2005/Nov/ 21-680403.html ].
34 See id.
According to some commentators who appear to have seen a version of the text,
as comprehensive as the draft agreement appears to be, there cannot be meaningful
reform in the international aviation market until Congress repeals the so-called
“citizenship test,” which limits foreign ownership and control of U.S. air carriers.35
Based on the information currently available regarding the draft agreement, it does
not appear that the proposed agreement addresses foreign ownership or control, thus
it appears to be left to each party to determine its own rules and regulations
independently.
Air Carrier Citizenship
Current Law and Legal Precedent. As previously mentioned, U.S. law
requires that all air carriers be “citizens of the United States” before they are granted
certificates to operate between domestic locations. The Federal Aviation Act
specifically defines the phrase “Citizen of the United States” as the following:
(A) an individual who is a citizen of the United States; (B) a partnership each of
whose partners is an individual who is a citizen of the United States; or (C) a
corporation or association organized under the laws of the United States or a
State, the District of Columbia, or a territory or possession of the United States,
of which the president and at least two-thirds of the board of directors and other
managing officers are citizens of the United States, which is under the actual
control of citizens of the United States and in which at least 75 percent of the
voting interest is owned or controlled by persons that are citizens of the United36
States.
This statutory language has existed in various forms since the Civil Aeronautics37
Act of 1938. In 2003, Congress amended the statute so as to codify the Department
of Transportation’s (DOT’s) long-standing precedent with respect to requiring actual38
control of an air carrier for citizenship purposes. Developed primarily through its
administrative decisions, the DOT and its predecessor, the Civil Aeronautics Board
(CAB), have long interpreted the air carrier citizenship definition to include a
requirement of “actual control” by U.S. citizens, even though the specific statutory39
language has only recently been added.
35 See Professor Brian F. Havel, Commentary at the Institute of Economic Affairs’ 13th
Annual Conference “The Future of Air Transport,” (Nov. 29, 2005) (transcript available at
[http://dms es.dot.gov/docimages/pdf95/378128_web.pdf]).
36 See 49 U.S.C. § 40102(a)(15)(A)-(C) (2004).
37 Civil Aeronautics Act of 1938, P.L. 706 § 1(13)(c), 52 Stat. 973 (1938).
38 See Vision 100 — Century of Aviation Re-authorization Act § 807, P.L. 108-176, 117
Stat. 2490 (2003) (codified as amended at 49 U.S.C. § 40102(a)(15)(A)-(C) (2005))
(inserting the phrase “which is under the actual control of the United States”).
39 See Urbana, Medellin and Central Airways, Inc. - Certificate of Public Convenience and
Necessity, 2 C.A.B. 334 (1940); Wille Peter Daetwyler, D.B.A. Interamerican Airfreight
Co., Foreign Permit, 58 C.A.B. 118 (1971); In re the Acquisition of Northwest Airlines by
Wings Holdings, Inc., 1989 WL 256026 (D.O.T.) (1989).
One of the oldest and most frequently cited citizenship determinations occurred
in 1940 when the CAB was asked to review Urbana, Medellin and Central Airways’
application for a certificate of public convenience and necessity. This review was
conducted pursuant to the Civil Aeronautics Act of 1938, which contained a
citizenship requirement that was nearly identical in legislative language to the current
statute.40 After reviewing the corporate structure of the airlines, who the various
stock holders were, and the citizenship of the corporate officers, the CAB turned its
attention to the phrase “two thirds or more of the Board of Directors and other
managing officers” contained in the statutory requirement for citizenship.41 In its
interpretation of this phrase, the CAB concluded that
[t]he apparent general intent of the statute is to insure that air carriers receiving
economic support from the United States and seeking certificates of public
convenience and necessity, under section 401 of the Act shall be citizens of the
United States in fact, in purpose, and in management. The shadow of substantial42
foreign influence may not exist.
The CAB further stated that “... it may be permissible to look behind the form to the
substance of the management to determine whether in fact, as well as in law, it is
under the control of citizens of the United States. ...”43 This interpretation expanded
the scope of the CAB’s inquiry beyond an entity’s apparent compliance with the
language of the statute, and the agency announced its intention to conduct a close
examination of the internal structure and operation of an airline seeking certification
of U.S. citizenship to determine where actual control is vested. The CAB’s holding
and reading of the citizenship definition established a framework for future Board
decisions.
With respect to the concept of control by a foreign citizen, in 1971, the CAB
was asked to determine whether Interamerican Airfreight qualified as a citizen of the
United States pursuant to the Federal Aviation Act. Although Interamerican met the
formal requirements of the statute,44 at issue in the proceeding was whether Wille
Peter Daetwyler, a Swiss citizen, exercised sufficient control over the operations of
40 Specifically, §1(13)(c) of the Civil Aeronautics Act of 1938 stated that “a corporation or
association created or organized under the laws of the United States or of any State,
Territory, or possession of the United States, of which the president and two-thirds or more
of the board of directors an other managing officers thereof are such individuals and which
at least 75 per centum of the voting interest is owned or controlled by persons who are
citizens of the United States or one of its possessions.” Civil Aeronautics Act of 1938, P.L.
41 Urbana, Medellin and Central Airways, Inc. — Certificate of Public Convenience and
Necessity, 2 C.A.B. 334, 336-37 (1940).
42 Id. at 337.
43 Id.
44 Wille Peter Daetwyler, D.B.A. Interamerican Airfreight Co., Foreign Permit, 58 C.A.B.
118, 119 (1971) (“There is no dispute that 75 percent of the stock of Interamerican is
nominally owned by U.S. citizens and that two-thirds of the board of directors and other
managing officers of Interamerican are U.S. citizens.”).
the airline such that it would not qualify for U.S. citizenship.45 The CAB expanded
on the statutory interpretation in Uraba, Medellin and Central Airways and, despite
a close examination of the transaction, remained concerned that future corporations
would attempt to mask foreign control by arranging corporate structures simply to
meet the statutory requirements.46 In response, the CAB stated that in cases where
an
applicant has arranged its affairs so as to meet the bare minimum requirements
set forth in the Act, it is the Board’s view that the transaction must be closely
scrutinized and that the applicant bears the burden of establishing that the
substance of the transaction is such as to be in accordance with the policy, as47
well as the literal terms of the specific statutory requirements.
In this case, the CAB determined that Mr. Daetwyler was in a position to exert a
significant amount of control over the operations of Interamerican.48 The CAB found
significant the fact that the company was created wholly at Mr. Daetwyler’s
insistence and that Mr. Daetwyler retained “25 percent stock ownership and
represents one-third of the board of directors,” the maximum amount of control
allowed under the statute.49 In addition, the CAB concluded that foreign control
existed because Interamerican was to continue to do business under the Daetwyler
system of companies and there was evidence of close personal relationships between
Mr. Daetwyler and the Interamerican stock holders.50
In 1989, the DOT was asked to review the merger between Northwest Airlines
and Wings Holdings, Inc.51 Although both companies were U.S. controlled and
operated, a citizenship issue existed because the merger’s largest equity holder, with
approximately $400 million or 56.74 percent, was KLM, Inc., a Dutch company and
foreign air carrier.52 In addition, KLM’s interest provided it with substantial power
with respect to numerous stock-related decisions.53
45 Id. While the CAB’s decision does not fully explain Mr. Daetwyler’s relationship with
respect to Interamerican, the decision does conclude that “[t]he Daetwyler control is
reflected by the fact that the corporation [Interamerican] is the direct successor of the
Daetwyler forwarding company and [was] created wholly at the instance of Daetwyler.” Id.
at 120.
46 Id. at 121.
47 Id.
48 Id. at 120.
49 Id.
50 Id.
51 In re the Acquisition of Northwest Airlines by Wings Holdings, Inc., 1989 WL 256026, *1
(D.O.T.) (1989).
52 Id.
53 Id. For example, KLM’s position as an equity holder gave the corporation the ability to
prevent issuance for liquidation, dissolution or dividends, as well as the ability to block
amendments to the certificates of incorporation that would allow for changes in stock
(continued...)
In discussing the citizenship test, the DOT cited the Daetwyler decision
favorably, stating that the control test “has traditionally been a complex matter in past
cases.”54 The DOT declined to enumerate specific factors to determine the existence
of control, saying instead that the analysis with respect to control “has always
necessarily been on a case-by-case basis, as there are a myriad potential avenues to
control.”55
The DOT pointed to three specific factors that led it to conclude that this merger
resulted in a company that was not a U.S. citizen. First was the equity interest in the
new company held by KLM. Although a majority of KLM’s interest was held in
nonvoting stock, the DOT concluded that it “represent[ed] a genuine ownership
interest” and, therefore, significantly increased KLM’s incentive to participate in
Northwest’s business decisions.56 Second, the corporate structure of the new
company, according to DOT, would have allowed KLM to exert influence even
without voting rights.57 Finally, the DOT pointed to the fact that KLM was an actual
competitor with Northwest in various markets, and had stated an intention to become
involved in the decisions of the new corporation.58 Taken together, these factors
resulted in a finding that, as presented at the time, Wings Holdings, Inc., was not a
U.S. citizen as defined by the Federal Aviation Act.59 Upon review of this decision,
the DOT commented on an additional foreign control factor. With respect to
equity/debt relationships, the DOT held that “absent a default, unless the loan
agreement provides special rights to the debt holder that imply control, we do not
anticipate treating debt as a foreign control issue.”60
In sum, these precedents establish DOT’s methodology of looking behind the
corporate structure or transaction for the purpose of determining whether “actual
control” is held by U.S. citizens. With respect to factors that can be utilized in
determining actual control, the DOT has specifically considered equity ownership,
business and personal relationships, control over the voting rights of stock, veto
53 (...continued)
designations or the special rights of preferred stock holders. See id.
54 Id. at * 3.
55 Id.
56 Id. at *4.
57 Id. at *4-5.
58 Id. at *5.
59 The companies reached an agreement with the DOT for a series of corporate adjustments
that if implemented would bring them into compliance with the citizenship statute. Id. at
*7-8. Fifteen months later, the DOT reviewed the application a second time and granted the
petition for citizenship. See In re the Acquisition of Northwest Airlines by Wings Holdings,
Inc., 1991 WL 247884, *4 (D.O.T.) (1991).
60 See In re the Acquisition of Northwest Airlines by Wings Holdings, Inc., 1991 WL
power, equity/debt agreements, competitive status, and other features of corporate
t ransact i ons. 61
Most recently, the issue of foreign ownership and control was considered in a
case involving DHL Airways, also known as ASTAR Air Cargo. At issue in this
case was whether the level of control exerted by DHL Worldwide Express, a foreign
company owned in part by Deutsche Post, Germany’s national postal service, was
sufficient to consider ASTAR not a U.S. citizen. The specific mechanism through
which it was alleged that DHL Worldwide exercised control was an agreement
between ASTAR and DHL Worldwide Express known as an Aircraft, Crews,
Maintenance, and Insurance Agreement (ACMI). Broadly defined, the ACMI
agreement was a “wet lease,” in which ASTAR agreed to provide DHL Worldwide
Express with aircraft, crews, maintenance, and insurance for the purpose of allowing
DHL Worldwide to legally transport air cargo within the United States.62 According
to the challengers of ASTAR’s citizenship status, the ACMI agreement provided for
more than 90% of ASTAR’s revenues, contained payment provisions that were
integral to both ASTAR’s financing and working capital, and shifted all of ASTAR’s
risks to DHL Worldwide.63 In addition, the ACMI agreement allegedly gave
Deutsche Post/DHL Worldwide the power to veto changes in corporate control, limit
third-party business, and audit ASTAR’s financial records.64
The ASTAR case was decided by an Administrative Law Judge (ALJ) who
concluded that “[f]rom the record taken as a whole ... ASTAR is a citizen of the
United States.”65 Specifically, with respect to the fact that the ACMI agreement
produced approximately 90% of ASTAR’s revenues, the ALJ provided a two-step
analysis for determining if, in fact, such control exists. According to the ALJ, it must
first be established that the predominant customer is in a position to control the
carrier by threatening to withdraw their business and then that the carrier would
believe the threat to be creditable.66 In ASTAR, the ALJ concluded that because the
threats were only available in very limited circumstances and most were controlled
by ASTAR, the second prong of the test, credibility of the threats, could not be
61 See Thomas Lehrich and Jennifer Thibodeau, Citizenship Requirements and Why Branson
Can’t Save United, 18 SUM AIR & SPACE LAW 8, 9-10 (2003); see also Constantine G.
Alexandrakis, Foreign Investment in U.S. Airlines: Restrictive Law is Ripe for Change, 4
U. MIAMI BUS.L.J. 71, 76-91 (1994) (providing additional summaries and analysis of DOT
precedent with respect to air carrier citizenship requirements).
62 See Proposed Findings of Fact and Conclusions of Law of Federal Express Co. and United
Parcel Service, Co., No. OST-2002-13089-580, 40-43 available at [http://dmses.dot.gov/
docimages/pdf88/259142_web.pdf].
63 Id. at 82-90.
64 Id. at 90-94.
65 See Recommended Decision of Administrative Law Judge, Dec. 19, 2003, No. OST-2002-
13089-594, 2 available at [http://dmses.dot.gov/docimages/pdf88/262152_web.pdf]. The
Vision 100 Bill, see supra note 5, was signed into law on December 12, 2003, one week
prior to the Administrative Law Judge’s recommended decision in this case.
66 Id. at 23-24.
satisfied; therefore, control by DHL Worldwide on the grounds that they are a
predominate customer can not be established.67
Regarding whether ASTAR is a “captive supplier” because of the ACMI’s
restrictions on pursuing third-party business, the ALJ held that while the success of
ASTAR’s expansion of third-party business is not relevant to its citizenship,
ASTAR’s ability to pursue such business independent of its agreement with DHL
Worldwide is crucial.68 The ALJ concluded that the agreement provided ASTAR
with significant incentives to expand it business.69 For example, the ALJ cited the
guaranteed payment of $15 million from DHL Worldwide to ASTAR,70 which
arguably put ASTAR in a better position than if it were to do business elsewhere.71
Finally, with regard to DHL Worldwide’s alleged veto power over
administrative and operational functions, as well as the ability to perform audits with
respect to reimbursable costs, the ALJ concluded that while there were
administrative provisions in the ACMI, ASTAR retained control over all the carrier’s
essential decisions, as well as the day-to-day operations.72
The Department of Transportation’s Proposed “Actual
Control” Rule
On November 7, 2005, the DOT published a Notice of Proposed Rulemaking
(NPRM) seeking comments on a proposal to clarify the policy with respect to when73
“actual control” rests with a citizen of the United States. The DOT has proposed
that the “actual control” requirement be interpreted in two ways. The first
interpretation involves cases where the foreign investor’s home country provides
U.S. citizens reciprocal investment access and U.S. air carriers full and fair market
access, as evidenced by having entered into an “Open Skies” Agreement with the
United States, or where it is necessary for compliance with U.S. international
obligations. In these situations, air carriers seeking to be considered U.S. citizens
will have to demonstrate that U.S. citizens exercise “actual control” only with respect
to (1) organizational documentation, including such things as incorporation charters,
67 Id. at 24.
68 Id. at 25.
69 Id.
70 Id. (stating that the guaranteed payment “encourages the carrier to pursue opportunities
and take chances it might not otherwise take — including exposing itself to a downside risk
by way of enlarging the business.”).
71 Id. at 28 (stating that “ASTAR would be in a better position if DHL [Worldwide] elected
to take its business elsewhere; ASTAR could then charter the formerly dedicated aircraft to
other air freight forwarders and still collect on the DHL [Worldwide’s] guarantee.”).
72 Id. at 30 (holding that “[t]he structure of ASTAR is consistent with an independent
enterprise. It controls all employment decisions. The carrier hires and fires its own
employees — executive, managerial, and otherwise — and sets their responsibilities and
compensation.”).
73 See 70 Fed. Reg. 67,389 (Nov. 7, 2005)
corporate by-laws, stockholder agreements and other documents of a similar nature;
(2) Civil Reserve Air Fleet (CRAF) commitments; (3) transportation security
requirements as implemented by the Transportation Security Administration; and (4)
safety requirements as implemented by the Federal Aviation Administration.74 The
second scenario involves situations where the foreign investor’s home county refuses
to extend reciprocal investment and/or market access rights to U.S. citizens and
carriers and there are no other relevant international obligations. In these cases, the
traditional case-by-case actual control analysis as determined by DOT precedent
would control the citizenship inquiry.75
In asserting a justification for its new interpretation of the “actual control”
requirements, the DOT relies primarily on nonlegal or policy grounds. For example,
the DOT asserts that the present interpretation of the actual control requirement “has
failed to keep pace with changes in the global economy and evolving financial and
operational realities in the airline industry itself, to the determent of U.S. carriers.”76
As a result of these changing global economic demands, “U.S. air carriers seeking to
enter the market should similarly be able to obtain the financial capital necessary to
launch their businesses. We tentatively do not believe that ‘actual control’ should be
interpreted in a way that needlessly restricts the commercial opportunities of U.S. air
carriers and their ability to compete.” Legally, it appears that the DOT recognizes
that Congress has established objective statutory requirements that an air carrier must
satisfy to be considered a U.S. citizen; however, they assert that nothing in this
NPRM would alter or in any way circumvent those statutory requirements.77
Given DOT’s assertion that this new interpretation of the actual control
requirement is a legitimate exercise of its legal authority, it would appear that should
a challenge be brought against this proposal becoming a final rule, a reviewing court
would likely address the issue pursuant to the standards delineated by the Supreme
Court in Chevron U.S.A. Inc. v. Natural Resources Defense Council (Chevron).78 In
Chevron, the Supreme Court established a two-part test for judicial review of agency
statutory interpretations. First, a reviewing court must determine “whether Congress
has directly spoken to the precise question at issue.”79 If a court finds that there has
been an express congressional statement, the inquiry is concluded, as the court “must
give effect to the unambiguously expressed intent of Congress.”80 In the event that
Congress has not unequivocally addressed the issue, a reviewing court must respect
an agency’s interpretation, so long as it is permissible.81 The Court further stated that
74 See id. at 67,396.
75 See id. at 67,395.
76 Id. at 67,393.
77 See id. at 67,394.
78 467 U.S. 837 (1984).
79 Id. at 842.
80 Id. at 843.
81 See INS v. Aguirre-Aguirre, 526 U.S. 415, 424 (1999).
[i]f Congress has explicitly left a gap for the agency to fill, there is an express
delegation of authority to that agency to elucidate a specific provision of the
statute by regulation....Sometimes the legislative delegation to an agency on a
particular question is implicit rather than explicit. In such a case, a court may not
substitute its own construction of a statutory provision for a reasonable82
interpretation made by the administrator of an agency.
The Court went on to note that “[j]udges are not experts in the [technical] field,
and are not part of either political branch of the Government,” while agencies, as part
of the executive branch, appropriately make “policy choices — resolving the
competing interests which Congress itself either inadvertently did not resolve, or
intentionally left to be resolved by the agency charged with the administration of the
statute in light of everyday realities.”83 Thus, the rationale for this deference is
predicated on the notion that it is not the role of the judiciary to “assess the wisdom”
of policy choices and resolve the “struggle between competing views of the public
interest,” as well as an agency’s greater expertise regarding the subject matter of the
regulations. 84
The DOT received numerous comments to its NPRM, representing almost every
segment of the aviation industry. Many of the comments have focused specifically
on the DOT’s legal authority to reinterpret the “actual control” requirement.
Supporters of the DOT’s action generally assert that the phrase “actual control,”
though it appears in the statute, is vague and undefined. As a result, the language is
arguably ambiguous and, therefore, subject to departmental interpretation. Thus,
82 Chevron, 467 U.S. at 843-44.
83 Chevron, 467 U.S. at 865. In Cablevision Sys. Dev. v. Motion Picture Ass’n, 836 F.2d 599,
608-609 (D.C. Cir. 1988), the court noted that, “Chevron’s rationale for deference is based
on more than agency expertise.” Elaborating, the court stated: “Like the Court in Chevron,
we are faced with several interpretations of ambiguous language which really involve
competing policies among which Congress did not explicitly choose. We see no reason to
deny the Copyright Office’s legitimacy in selecting, as the EPA did in Chevron, among
those choices so long as the interpretation selected is reasonable.” Id. at 609.
84 Chevron, 467 U.S. at 866; Rust v. Sullivan, 500 U.S. 173, 187 (1991). It should be
mentioned that the Supreme Court revisited Chevron in FDA v. Brown & Williamson
Tobacco Corp., 529 U.S. 120 (2000), declaring that the Food & Drug Administration lacks
jurisdictional authority to regulate tobacco products. In reaching this determination, the
Court discussed the first prong of Chevron, declaring that the proper analysis is to focus not
only on the statutory clause, but rather to consider the structure, function, and history of all
relevant provisions, interpreting a statute “as a symmetrical and coherent regulatory
scheme.” Id. at 1294. Upon concluding that Congress “squarely rejected proposals to give
the FDA jurisdiction over tobacco,” the Court stated that it was “obliged to defer not to the
agency’s expansive construction of the statute, but to Congress’ consistent judgment to deny
the FDA this power.” Id. at 1315. This reasoning centers on an analysis of the unique
regulatory scheme created for tobacco products under the first prong of the Chevron test,
and, as such, does not appear to impact the traditional inquiry as it applies to the issue at
hand. The Supreme Court further clarified the limits of the Chevron standard in United
States v. Mead Corp., 533 U.S. 218, 229 (2001), ruling that deference applies only in
instances when Congress has delegated authority to an agency to make rules carrying the
force of law, and when the agency interpretation claiming deference was promulgated
pursuant to that authority.
pursuant to Chevron, the DOT has wide latitude and is entitled to substantial
deference when rendering an interpretation, provided that it does so reasonably and
in a manner that is consistent with the plain meaning of the statute.85
Conversely, opponents of the NPRM assert that when Congress specifically
added the phrase “actual control” to the statute, they were in effect codifying the
DOT’s long-standing precedent and not granting any additional authority over the
interpretation of the phrase than previously existed.86 In addition, opponents of the
NPRM assert that the DOT’s interpretation is contrary to the express language of the
statute. Specifically, they argue that unlike the four narrow areas of control defined
by the DOT, actual control of an air carrier rests with the entity that makes the
fundamental economic decisions that determine the nature of the airlines’
operations.87 These decisions include, but are not limited to, the types of airplane
flown, markets to be served, flight schedules, fares, and aircraft maintenance and
other services.88 Thus, according to opponents of the NPRM, relinquishing control
over these elements of an air carrier renders any other statutory requirements
“pointless.”89
Finally, opponents of the proposed NPRM cite the military’s continued reliance
on the Civil Reserve Air Fleet Program (CRAF). Under this program, domestic air
carriers supply aircraft on a voluntary basis to increase the military’s airlift capacity.
CRAF allows the U.S. military, in times of need, to demand access to a selected
percentage of the civil aircraft fleet to deliver troops and equipment to the
battlefield.90 Concern with respect to CRAF is not new; prior to the NPRM, several
85 See Comments of United Airlines, Docket OST-2003-15759, 7-9 available at
[http://dmses.dot.gov/docimages/pdf95/380696_web.pdf] (Jan. 6, 2006); see also Comments
of Delta Airlines, Docket OST-2003-15759, 9 available at [http://dmses.dot.gov/
docimages/pdf95/380757_web.pdf] (Jan. 6, 2006); Comments of Federal Express
Corporation, Docket OST-2003-15759, 9 available at [http://dmses.dot.gov/
docimages/pdf95/380710_web.pdf] (Jan. 6, 2006).
86 See Comments of Continental Airlines, Docket OST-2003-15759, 5-6 available at
[http://dmses.dot.gov/docimages/pdf95/381133_web.pdf] (Jan. 6, 2006) (citing 149 Cong.
Rec. S7813 (June 12, 2003) (stating that the DOT assured the Congress that the amendment
“will not in any way affect [DOT’s existing] determination of what constitutes a citizen of
the United States”)).
87 See Comments of Airline Pilots Association International, Docket OST-2003-15759, 4-5
available at [http://dmses.dot.gov/docimages/pdf95/380514_web.pdf] (Jan. 6, 2006).
88 See id.
89 Id. at 5.
90 See 10 U.S.C. § 9512 (2004). CRAF has only been used twice in our nation’s history.
The first use occurred during the 1991 Gulf War, when approximately two-thirds of the
available aircraft were deployed. See William G. Palmby, “Enhancement of the Civil
Reserve Air Fleet: An Alternative for Bridging the Airlift Gap,” 53-54, available at
[http://www.fas.org/man/eprint/palmby.htm] (noting that the CRAF is activated in three
stages, and that during the 1991 Gulf War the aircraft in the third stage were not activated).
More recently, on February 8, 2003, the Department of Defense activated 47 civilian aircraft
for service in Iraq, representing approximately five percent of CRAF’s total capability. See
(continued...)
commentators had noted that changes to the U.S. civil aviation ownership and control
requirements could substantially hinder or even destroy CRAF, as aircraft that move
from domestic to foreign ownership would not be under any legal obligation to
remain available to the program.91 The NPRM specifically states that for an air
carrier to be considered a U.S. citizen, decisions with respect to CRAF are to remain
under the control of U.S. citizens; however, at least one commentator has questioned
how the DOT will ensure that U.S. citizens are not pressured by their foreign partners
to either modify or eliminate their participation in this voluntary program.92 In
addition, both Continental Airlines and Delta Airlines noted that new foreign owners
might, as a result of their control over other commercial aspects of an airline, divest
the use, upkeep, and maintenance of “long-haul” aircraft that are useful to the
CRAF.93 Divestitures of this type would, argued the commentators, render those
airlines of no effective use to CRAF and, therefore, could potentially result in a
diminished air fleet from which DOD could call upon.94
Recent Developments. In response to the numerous comments on the
NPRM and to the spate of legislative responses from Members of Congress discussed
below, on May 5, 2006, the DOT issued a “Supplemental Notice of Proposed
Rulemaking” (SNPR) that attempts to clarify the Department’s position on several
of the major issues raised by the initial NPRM.95 In light of the fact that several
critical comments revolved around the influence that foreign investors may have, the
DOT clarified its proposed interpretation by stating that it “would be requiring all
delegations to foreign interests ultimately to be revocable by the board of directors
or the voting shareholders.”96 According to the DOT, requiring that any delegations
of authority to foreign investors be revokable ensures that “actual control” is retained
by U.S. citizens, as the Federal Aviation Act requires that both the board of directors
90 (...continued)
“DOD Activates Commercial Airlift Reserves for Troops, Regulatory Intelligence Data,”
Feb. 10, 2003; see also “Defense Dept. Activates First Stage of Civil Aircraft Fleet,”
Aviation Daily, Feb. 11, 2003, at 3.
91 See Stephen D. Reynerson, Everybody Wants to go to Heaven, but Nobody Wants to Die:
The Story of the Transatlantic Common Aviation Area, 30 DENV. J. INT’L L. & POL’Y 421,
456 (2002) (estimating that the cost of replacing the transport capacity of the CRAF “would
be approximately fifty billion dollars and maintenance costs of one to three billion dollars
a year thereafter.”); see also Jacob A. Warden, “Open Skies” at a Crossroads: How the
United States and European Union Should use the EJC Transport Cases to Reconstruct the
Transatlantic Aviation Regime, 24 NW. J. INT’L L. & BUS. 227, 250 (2003).
92 See Comments of the Transportation Trades Department, AFL-CIO, Docket OST-2003-
93 See Comments of Continental Airlines, Docket OST-2003-15759, 12, available at,
[http://dmses.dot.gov/docimages/pdf95/381133_web.pdf] (Jan. 6, 2006); see also Comments
of Delta Airlines, Docket OST-2003-15759, 10, available at,
[http://dmses.dot.gov/docimages/pdf95/380757_web.pdf] (Jan. 6, 2006).
94 See id.
95 See 71 Fed. Reg. 26,425 (May 7. 2006).
96 Id. at 26,430.
and the voting shareholders be controlled by super-majorities of U.S. citizens (b of
the board and/or 75% of the shareholders must be U.S. citizens).97
The DOT also responded at length to the legal arguments presented by the
commentators, especially with respect to the agency’s legal authority to adopt such
an interpretation of the underlying statute. The DOT, in making its arguments,
appears to rely on well-established principles of administrative law, especially with
respect to its ability to effectively interpret and administer the statute.98 DOT argues
that they have often interpreted the citizenship statute and, in fact, developed the
“actual control” test prior to its inclusion in the statute by Congress.99 In addition,
DOT asserts that Congress, in adopting the “actual control” language into the statute,
recognized the need for continued agency interpretation and “did not direct us to
follow the past interpretations.”100 DOT’s position appears to be that the amendment
to the Federal Aviation Act, which inserted the phrase “actual control,” did not in any
way amend or alter the agency’s discretionary authority to modify its interpretation
as appropriate.101 In support of its position, the DOT extensively cites the
amendment’s legislative sponsor and floor manager, who, at the time the Vision —
100 legislation102 was being considered, stated that the amendment “leaves the
interpretation of effective control up to DOT, but the department can draw upon its
decades of precedents to reach these conclusions.”103 Further, DOT cites to the floor
manager’s assertion that the amendment “was simply a reflection of existing law”
and that the inclusion of the actual control language “will not in any way affect [the
Department’s] determination of what constitutes a citizen of the United States.”104
In addition to addressing the numerous other legal and policy arguments made
by opposition comments, the SNPR specifically addressed the concerns raised with
respect to CRAF commitments. First, DOT clarifies and expands its proposal to
require that not only CRAF commitments be actually controlled by U.S. citizens, but
also that overall airline participation in “national defense airlift operations” be in the
actual control of only U.S. citizens.105 According to the DOT, this requirement
97 Id.
98 Id. at 26,436 (stating that “[o]ur responsibility for enforcing the statutory citizenship
requirement gives us the authority to interpret that requirement to the extent that it is not
specifically defined”(citing Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837, 843
(1984), (quoting Morton v. Ruiz, 415 U.S. 199, 231 (1974)); see also Continental Air Lines
v. DOT, 843 F.2d 1444, 1449 (D.C. Cir. 1988)).
99 Id. (citing Wille Peter Daetwyler, D.B.A. Interamerican Airfreight Co., Foreign Permit,
100 Id. at 26,436-437.
101 Id.; see also supra, notes 36-38 and accompanying text.
102 See supra, note 38 and accompanying text.
103 71 Fed. Reg. 26,425, 26,436-437 (May 7. 2006) (citing Congressional Record, S7813
(June 12, 2003)).
104 Id. (citing Congressional Record, S7813 (June 12, 2003)).
105 See id. at 26,434.
means that “the carrier could not allow foreign investors to make decisions that
would make participation in CRAF or other national defense airlift operations
impossible as a practical matter.”106 Moreover, if there was suspicion that national
defense airlift operations were precluded or impaired by decisions of the foreign
investor(s), the SPNR indicates that DOT would investigate to determine if the
requirements for the actual control test was being satisfied by the carrier.107 The
DOT responds to the concerns about the proposal’s potential negative impact on
CRAF commitments by noting that participation in the CRAF is a voluntary
commercial arraignment in which the airlines commit aircraft in return for access to
U.S. government contracts. According to the DOT, because nothing in the NPRM
changes or alters that dynamic “DOD can adjust the economic incentives of the
program in order to better ensure sufficient military airlift capacity” and, thus,
maintaining adequate participation levels.108 Finally, in direct response to some of
the commentators concerns about fleet divestment, DOT argues that because
domestic carriers make their fleet decisions based on what is best to ensure a
successful commercial operation, foreign owners would “be motivated by the same
commercial incentives” and, therefore, in DOT’s opinion, there should be no
significant changes to CRAF commitment levels.109
The DOT and DOD have entered into a Memorandum of Understanding (MOU)
that appears to be intended to provide a procedural framework for DOD’s
participation in DOT’s consideration of air carrier citizenship issues as they relate to
CRAF commitments.110 This MOU will become effective on the date that the final
actual control rule goes into effect.111 The MOU applies in situations that involve (1)
citizenship issues in which the proposed actual control rules may apply and (2)
airlines that have existing CRAF commitments or have aircraft that could be operated
as part of the “Long-Range International Segment of the CRAF program.”112
According to the MOU, DOT agrees to notify DOD of all air carrier fitness requests
and, upon request from DOD, will share with DOD all documents relating to fitness
reviews that implicate CRAF commitments.113 DOT further agrees to consult with
DOD with respect to an ultimate disposition in those reviews where DOD has
106 Id.
107 Id. (stating that “[DOT] would likely investigate whether the carrier is living up to its
obligation under our revised rule to ensure that decisions relating to military airlift
participation are wholly controlled by U.S. citizens. Because a failure to comply with that
obligation would call into question the carrier’s eligibility to retain its operating certificate,
airline management can be expected to take those obligations very seriously”).
108 Id.
109 Id.
110 See Memorandum of Understanding Between the Department of Transportation and the
Department of Defense Concerning United States Air Carrier Citizenship Reviews, 2, (July
111 Id. at 6.
112 Id. at 2.
113 Id. at 2-3.
expressed an interest.114 In cases where DOT and DOD disagree, and DOD so
requests, meetings can be arranged to discuss and solicit input prior to a final
decision.115 Moreover, in situations where DOD can demonstrate “good cause,”
which, while not specifically defined, appears to include “a significant reduction or
proposed significant reduction in a carrier’s capability to meet its CRAF
commitments,” DOT agrees to “commence a review to determine the continuing
fitness of an identified air carrier within the scope of this agreement....”116 In cases
where DOD requests a continuing fitness review, it agrees to provide all information
and documents, necessary to support its position, in a manner that can be provided
to the air carrier so that it may properly respond.117 Finally, DOD agrees to
“expeditiously provide any input to DOT so as not to delay DOT’s processing of the
case....”118
Legislative Responses. Several Members of Congress have taken an
interest in this rulemaking and have even filed written comments with DOT
expressing concerns with respect to CRAF commitments, airline employees, and119
consumer protection issues. In addition, companion House and Senate bills have
been introduced in the 109th Congress to address this issue. H.R. 4542 and S. 2135
both contain provisions that would prevent the DOT from issuing a decision on the
NPRM for a period of one year after the date of enactment.120 The House and Senate
bills both require that at least 180 days prior to issuing a final decision, the DOT shall
submit to Congress a report assessing the impact of the proposed rule on various121
aspects of domestic and international aviation law. In addition, both the House and
Senate attempted to address this issue by adopting language in their respective122
versions of the 2006 Emergency Supplemental Appropriations Bill. While the
House of Representatives’ version did not contain any legislative language with
respect to the DOT rulemaking, the committee report made express mention of the
issue.123 According to the committee’s report, the committee considers airlines to be
part of the United States’ critical infrastructure and, as such, believes that it is
“critical that any final rule regarding foreign control of U.S. airlines not only comply
114 Id.
115 Id. at 3.
116 Id.
117 Id. at 3-4 (stating that “DOD will also provide unclassified information to DOT that can
be released to the carrier, so that the air carrier can effectively respond”).
118 Id. at 4.
119 See Letter from The Honorable Don Young, Chairman of the House Committee on
Transportation and Infrastructure and The Honorable John L. Mica, Chairman of the
Subcommittee on Aviation to The Honorable Norman Y. Mineta, Secretary of the U.S.
Department of Transportation 2-3 (Dec. 8, 2005) available at [http://dmses.dot.gov/
docimages/pdf95/378411_web.pdf].
120 See H.R. 4542, 109th Cong. (2005); see also S. 2135, 109th Cong. (2005).
121 See id. at § 2.
122 See H.R. 4939, 109th Cong. (2006).
123 See H.REPT. 109-388, at 68.
with current laws regarding foreign ownership, but also comply with statutes recently
passed by the Congress which require that all U.S. airlines be under the ‘actual
control’ of U.S. citizens.”124 The committee, therefore, inserted language directing
the Secretary of Transportation “to refrain from issuing a final rule for 120 days.”125
While this suggestion is a clear expression of the views of the House Appropriations
Committee, it would not have been legally binding on the DOT and, absent some
other legislative action, would likely not have prevented the promulgation of a final
rule with respect to foreign ownership. The Senate version, on the other hand, did
contain explicit legislative language that would have effectively prevented the DOT
from promulgating a final rule.126 Ultimately, however, neither version was included
in the final bill.
Subsequently, both the House of Representatives and the Senate have included
the following identical language into the Transportation, Treasury, and Housing and
Urban Development, the Judiciary, District of Columbia Appropriations Bill (H.R.
None of the funds made available in this Act may be used by the Department of
Transportation to finalize or implement the policy proposed in the notice of
proposed rulemaking published in the Federal Register on November 7, 2005 (70
Fed. Reg. 67389), or the supplemental notice of proposed rulemaking published
in the Federal Register on May 5, 2006 (71 Fed. Reg. 26425), in Docket No.127
OST-2003-15759.
This language, if included in the final appropriations measure, would appear to
prohibit the DOT from promulgating the final rule using any funds made available
for fiscal year (FY) 2007. In addition, if DOT were to issue a final rule prior to the
enactment of this language, it would appear to prevent the use of any FY2007 funds
from being used to implement the rule’s provisions. While it is difficult to conceive
of any statutory interpretation arguments that DOT could use to avoid the plain
meaning of this language, it is important to note that the language does not contain
any independent enforcement mechanism. As such, to ensure compliance, Congress
124 Id.
125 Id.
126 See John Crawley, US Senate Panel Votes to Block Air Ownership Change, REUTERS,
April 5, 2006, available at [http://www.redorbit.com/modules/news/tools.php?tool
=print&id=457830]; see also Michael Posner, Appropriators Clear $107 Billion War
Supplemental, NATIONAL JOURNAL, April 5, 2006, available at [http://nationaljournal.com/
members/markups /2006/04/mr _20060404_1.htm] .
127 Transportation, Treasury, and Housing and Urban Development, the Judiciary, District
of Columbia and Independent Agencies Appropriations Act, 2007, H.R. 5576 § 952, 109th
Cong. 2d Sess. (2006) (as adopted by the House); see also Transportation, Treasury, and
Housing and Urban Development, the Judiciary, District of Columbia and Independent
Agencies Appropriations Act, 2007, H.R. 5576 § 104, 109th Cong. 2d Sess. (2006) (as
passed by the Senate Appropriations Committee and currently pending before the full
Senate).
would likely have to rely on its oversight functions or other general laws governing
the use of appropriated funds, such as the Anti-Deficiency Act.128
Cabotage
Another major issue facing international civil aviation law is cabotage. As
previously mentioned, cabotage is the right of a foreign airline to carry passengers
and/or cargo between airports of the same country (e.g., from New York to Los
Angeles).129 Currently, the Federal Aviation Act contains a general prohibition
against cabotage activity by foreign air carriers. The prohibition states that “aircraft
may take on for compensation, at a place in the United States, passengers or cargo
destined for another place in the United States only if — (1) specifically authorized
under section 40109(g) of this title; or (2) under regulations the Secretary prescribes
authorizing air carriers to provide otherwise authorized air transportation with foreign
registered aircraft under lease or charter to them without crew.”130 If neither of those
situations exists, foreign aircraft are not permitted to perform cabotage within the
United States. In addition, the Secretary of Transportation has general discretionary
authority to waive other economic-related statutory provisions listed in section
40109(c) “when the Secretary decides that the exemption is consistent with the public
interest.”131 The cabotage prohibition, however, is not among the regulations listed
in section 40109(c).132
Congress last amended the cabotage laws as part of the Vision — 100 Century
of Aviation Authorization Act.133 The enacted changes permit “eligible cargo” to be
removed from aircraft, including foreign aircraft, in Alaska and “not be deemed to
have broken its international journey in, be taken on in, or be destined for Alaska.”134
The statute defines “eligible cargo” as cargo “transported between Alaska and any
other place in the United States on a foreign air carrier (having been transported
from, or thereafter being transported to, a place outside the United States on a
different air carrier or foreign air carrier) that is carried — (A) under the code of a
United States air carrier providing air transportation to Alaska; (B) on an air carrier
way bill of an air carrier providing air transportation to Alaska; (C) under a term
arrangement or block space agreement with an air carrier; or (D) under the code of
128 See 31 U.S.C. § 1301(a) (2000) (prohibiting officers of the United States from utilizing
funds specifically authorized by Congress for other than their intended purpose).
129 See supra note 15.
130 49 U.S.C. § 41703(c)(1)-(2) (2003). Section 40109(g) gives the Secretary of
Transportation the authority to grant limited 30 day exemptions if it is determined that either
there is an emergency, or it is necessary to avoid unreasonable hardship and no unreasonable
advantage will be given to any party involved in a labor dispute. 49 U.S.C. § 40109(g)
(2003).
131 49 U.S.C. § 40109(c) (2003).
132 Id.
133 Vision 100 — Century of Aviation Re-authorization Act, P.L. 108-176, § 808 117 Stat.
134 Id. (codified at 49 U.S.C. § 41703(e)(1)).
a United States air carrier for purposes of transportation within the United States.”135
These provisions provide for a very limited statutory exception to the general
prohibition against cabotage activities.
While it does not appear that the current draft “Open Skies” Agreement with the
European Union requires the granting of more cabotage rights to foreign-owned or
controlled carriers, it appears to remain a major issue in international civil aviation.
It appears, however, that statutory changes would be required before the executive
branch can enter into any sort of agreement purporting to liberalize the cabotage
rules. Although foreign aircraft are allowed to navigate within U.S. airspace, unless
specifically authorized either by statute or DOT regulations, they are not permitted
to perform any form of cabotage within the United States.136 While it is unclear
what, if any, economic effect a more liberal cabotage policy would have on the
domestic airline industry, only Congress has the legal authority to amend the Federal
Aviation Act and permit foreign carriers to have cabotage rights
135 Id. (codified at 49 U.S.C. § 41703(e)(2)).
136 49 U.S.C. § 41703(c)(1)-(2) (2004).