The US government unveiled plans on Wednesday to relax rules limiting foreign investment in US airlines, a move that it said could boost access to capital and improve cross-border co-operation between carriers.

The Department of Transportation said it would end the strict interpretation of current laws that barred almost any influence of foreign nationals and investors in the running of US airlines. US citizens, however, would oversee matters relating to defence, safety and security.

The proposal will not change current ownership restrictions, which can be altered only by Congress. At present, foreign entities are limited to holding a maximum 25 per cent voting stake in a US airline, and up to 49 per cent of the equity capital if they have a liberalised open-skies deal with the US. Any change to those limits is unlikely in the short- to medium-term, as it would face entrenched opposition in Congress.

“The statute really has become an impediment to cross-border co-operation,” said Jeff Shane, undersecretary for policy at the DoT, noting the central role of the largest US carriers in the global airline alliances that have emerged over the past decade.

Mr Shane also acknowledged the plan could help smooth talks with the European Union to liberalise the transatlantic market. EU governments have long sought an end to the ownership and control barriers. While these do not form part of the current talks, scheduled to resume on November 14, Mr Shane said the policy change could be useful. “[But] we would do this regardless of what happens in the EU talks,” he added.

The proposal would ease the control restrictions only to countries with an open-skies deal with the US and reciprocal investment regimes.

The policy shift is not expected to trigger a flood of overseas capital into the US, though Mr Shane suggested the restructuring of loss-making carriers could provide a buying opportunity. “This might not be a bad time to invest in the US airline industry,” he said.

However, not all executives share the belief that there is pent-up demand. “Foreign ownership is a bit of a red herring in the industry,” said Gerard Arpey, chief executive of American Airlines before the US announcement.

The current ownership rules have influenced the poor record of deals between carriers based on minority holdings, say airline executives, by restricting the influence that owners have on their investments.

British Airways and KLM, now part of Air France, respectively bought and then sold 25 per cent stakes in US Airways and Northwest Airlines.

The issue of airline ownership and control is high on the European agenda in the US-EU open-skies talks. The details of the concession to be offered by Washington will be closely studied by both European governments and airlines.

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