Actual Control of U.S. Air Carriers, 26425-26444 [06-4227]

Agencies

• Office of the Secretary
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 71, Number 87 (Friday, May 5, 2006)]
[Proposed Rules]
[Pages 26425-26444]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-4227]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Parts 204 and 399

[Docket No. OST-2003-15759]
RIN 2105-AD25


Actual Control of U.S. Air Carriers

AGENCY: Office of the Secretary, DOT.

ACTION: Supplemental notice of proposed rulemaking.

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SUMMARY: The Department is seeking additional comments on our proposal 
to clarify policies that it may use to evaluate air carriers' 
citizenship during initial and continuing fitness reviews. Our proposal 
would affect how we determine ``actual control'' of the carrier in 
situations where the foreign investor's home country has an open skies 
air services agreement with the United States, and permits reciprocal 
investment opportunities in its own national air carriers for U.S. 
investors. We continue to believe that our proposed policy would remove 
unnecessary restrictions on U.S. air carriers' access to the global 
capital market without compromising the statutory requirement that U.S. 
citizens remain in actual control of such carriers.
    We are issuing a supplemental notice of proposed rulemaking (SNPRM) 
because, after reviewing comments submitted on the NPRM and in 
consultation with other Executive Branch agencies, we have decided to 
strengthen the proposal in several areas. We have revised the proposed 
rule further to ensure that U.S. citizens will have actual control of 
the air carrier. We are also mindful of the strong interest in this 
proposal expressed by members of Congress. This SNPRM will furnish 
Congress the opportunity to review the proposal in its refined form, 
and to undertake a more informed assessment of its likely consequences.
    Our NPRM proposal would allow for delegation to foreign investors 
of decision-making authority regarding commercial issues, but in the 
areas of organizational documents, safety, security, and the Civil 
Reserve Air Fleet (CRAF) program the NPRM would not permit these 
delegations. In a key refinement of our original proposal, we now 
propose in this SNPRM to require that any such delegation of authority 
to foreign interests by the U.S. citizen majority owners be revocable. 
We are proposing this change to ensure that, notwithstanding their 
ability to delegate decision-making authority over certain commercial 
matters (as described in the NPRM) to foreign investor interests, the 
U.S. voting shareholders of a U.S. airline will retain actual control 
of the airline.
    We originally proposed to reserve exclusively to U.S. citizens 
decisions relating to organizational documents, safety, security, and 
CRAF. In another refinement, in keeping with suggestions received from 
the Departments of Homeland Security and Defense as well as the Federal 
Aviation Administration, we are now proposing to broaden the scope of 
the decision-making that must remain under the actual control of U.S. 
citizens. The aspects of control of safety and security decisions would 
no longer be limited to those implementing FAA and TSA safety and 
security regulations, but would cover safety and security decisions 
generally. Similarly, the proposed control of CRAF decisions would be 
expanded to cover all national defense airlift commitments. Our 
proposed expansion of the coverage of these three areas will ensure 
that all critical elements of a carrier's decision-making that could 
impact safety, security, and national defense airlift are fully 
covered, and that our review of a carrier's compliance with these 
requirements will not be unduly narrow.
    We tentatively conclude that, as modified, this proposal will 
eliminate unnecessary and anachronistic limitations on the ability of 
eligible foreign minority investors to participate in the commercial 
decision-making at a U.S. airline in which they have made an otherwise 
statutorily-permitted investment. At the same time, it should eliminate 
any doubt that the voting stockholders (75 percent of whom are U.S. 
citizens) and the board of directors (two-thirds of whom are U.S. 
citizens) will retain full control over decisions regarding safety, 
security, and contributions to our national defense airlift capability, 
and that those U.S. citizens also retain ``actual control'' of the 
carrier as a whole as required by statute.

DATES: Comments must be submitted on or before July 5, 2006.

ADDRESSES: You may submit comments identified by DMS Docket Number OST-
2003-15759 using any of the following methods:
     Web site: https://dms.dot.gov. Follow the instructions for 
submitting comments on the DOT electronic docket site.
     Fax: 1-202-493-2251.
     Mail: Docket Operations; U.S. Department of 
Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, 
Washington, DC 20590-001.
     Hand Delivery: Room PL-401 on the plaza level of the 
Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 
a.m. and 5 p.m., Monday through Friday, except Federal holidays.
     Federal eRulemaking Portal: Go to https://
www.regulations.gov. Follow the online instructions for submitting 
comments.
    Instructions: All submissions must include the agency name and 
docket number or Regulatory Identification Number (RIN) for this 
rulemaking. For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the Public 
Participation heading of the Supplementary Information section of this 
document. Note that all comments received will be posted without change 
to https://dms.dot.gov, including any personal information provided. 
Please see the Privacy Act heading under Regulatory Notices. We will 
consider late filed comments to the extent possible.
    Docket: For access to the docket to read background documents or 
comments received, go to https://dms.dot.gov at any time or to Room PL-
401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., 
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, 
except Federal holidays.

FOR FURTHER INFORMATION CONTACT: William M. Bertram, Chief, Air Carrier 
Fitness Division (X-56), Office of Aviation Analysis, U.S. Department 
of Transportation, 400 Seventh Street, SW., Washington, DC 20590; (202) 
366-9721.

[[Page 26426]]


SUPPLEMENTARY INFORMATION: Our proposed rule would refine the 
Department's interpretation of the term ``actual control,'' an element 
in the statutory definition of a citizen of the United States, 49 
U.S.C. 40102(a)(15). Only citizens of the United States may obtain 
certificate authority under 49 U.S.C. 41102 or 41103 authorizing them 
to provide air transportation within the United States or operate as a 
U.S. carrier on international routes. The Department's proposal does 
not change the statutory requirements that at least 75 percent of the 
voting shares of a U.S. airline be owned and controlled by U.S. 
citizens and that two-thirds of the board of directors and officers be 
U.S. citizens. Moreover, the Department's proposal would not alter the 
statutory requirement that U.S. airlines be subject to the actual 
control of U.S. citizens. The Department will continue to enforce these 
statutory requirements vigorously. Our proposal would eliminate only 
certain additional citizenship restrictions established by case law 
precedent and imposed on U.S. carriers by current policy that, we 
conclude, have become unduly burdensome. It would thus eliminate the 
requirement that foreign investors not be able to exert any substantial 
influence on carrier commercial decisions (outside of organizational 
documents, safety, security, and national defense). It would eliminate 
that requirement, however, only in the case of investments made by 
foreign citizens whose home countries are willing to be comparably 
flexible.
    Our proposal would grant U.S. carriers new flexibility to attract 
foreign investment. Subject to the proposed open-skies and investment 
reciprocity conditions, or as otherwise required by U.S. international 
obligations, a U.S. carrier could choose to involve foreign investors 
in the commercial decision-making and management of its business only 
provided that U.S. citizens retain actual control of the carrier. We 
tentatively conclude that the proposal would enable U.S. carriers to 
improve their financial condition and enhance their ability to respond 
to the demands of the global market for air transportation. Our 
proposed open-skies and investment reciprocity conditions, moreover, 
may well encourage foreign governments to liberalize their own rules, 
which would give U.S. carriers and investors additional opportunities 
to participate more comprehensively in foreign air transportation 
markets.
    Our proposal would not affect existing requirements or policies in 
regard to the safety and security of U.S. carriers or foreign carriers 
operating in U.S. air space. All carriers would remain subject to the 
safety requirements issued by the Federal Aviation Administration 
(FAA), and the security requirements issued by the Department of 
Homeland Security (DHS) and the Transportation Security Administration 
(TSA). We will continue to work with FAA, DHS, TSA, and other agencies 
and departments to ensure the safety and security of U.S. air carriers 
and air travel within the United States. Similarly, this proposal will 
not affect existing relationships that U.S. carriers have with the 
Department of Defense (DOD) regarding CRAF and other national defense 
airlift commitments, and we will continue to work with DOD in that 
regard.
    We are issuing this supplemental notice because we have revised our 
proposal in certain ways in response to our review of the comments. 
Moreover, in the interest of ensuring that the proposal would not 
inadvertently compromise aviation safety, aviation security, or the 
airlines' relationships with the DOD, we have engaged in productive 
consultations with our FAA, the DHS, and the DOD. Those conversations 
have led us to refinements that we believe enhance the rule further 
with respect to ensuring that safety, security, and national defense 
airlift commitments are not compromised. Given these refinements, we 
believe it is in the public interest to furnish interested parties with 
further clarity regarding the changes we propose and regarding our 
implementation of those changes consistent with the statutory 
citizenship requirements, and to entertain further comments on the 
proposal as clarified.

Background

    Our proposed rule would establish the interpretation of the term 
``actual control'' that would be used in fitness reviews when 
citizenship is at issue. An airline that is a corporation must be under 
the ``actual control'' of U.S. citizens to meet the citizenship 
standard. For many years, the meanings of ``actual control'' and 
``citizen of the United States'' evolved through administrative case 
law dating back to 1940, first by the Civil Aeronautics Board (CAB or 
the Board) and then, after the CAB's sunset at the end of 1984, by the 
Department of Transportation. The controlling statute originally 
defined a corporation's citizenship exclusively in terms of the 
proportion of directors and officers who were U.S. citizens and the 
share of the voting interest held by U.S. citizens. Indeed, the CAB 
itself created the ``actual control'' requirement in its enforcement of 
the citizenship requirements. Willye Peter Daetwyler, d.b.a. 
Interamerican Air Freight Co., Foreign Permit, 58 CAB 118, 120-121 
(1971).
    In 2003, Congress incorporated the ``actual control'' requirement 
into the statutory definition of a citizen of the United States. A 
citizen of the United States is now defined in 49 U.S.C. 40102(a)(15) 
as:
    (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 United States (emphasis added).
    For purposes of this proposal, the relevant definition in the 
statute is the one found in 49 U.S.C. 40102(a)(15)(C), governing 
corporations and associations.
    In its 2003 legislative amendment, Congress eliminated any claim 
that the Department lacked authority to require ``actual control,'' but 
it neither defined ``actual control'' nor required the Department to 
follow our past interpretations of the term. Vision 100--Century of 
Aviation Reauthorization Act, Pub. L. 108-176, Sec.  807, 117 Stat. 
2490 (2003). In our cases, we have not applied a fixed interpretation 
of ``actual control;'' instead, we have considered the totality of 
circumstances of an airline's organization, including its capital 
structure, management, and contractual relationships, in determining 
whether a carrier is actually controlled by U.S. citizens.
    Normally, the Department examines a carrier's citizenship in the 
context of an initial fitness review, which is the process by which a 
firm becomes licensed as a U.S. carrier. Citizenship issues may also 
arise in a different context: The continuing fitness review. Under 14 
CFR 204.5, certificated and commuter air carriers that undergo or 
propose to undergo a substantial change in operations, ownership, or 
management must submit certain updated fitness information to the 
Department. The carrier reports the information directly to the Chief 
of the Air Carrier Fitness Division, and the Department reviews it 
without a public

[[Page 26427]]

proceeding as part of an informal continuing fitness investigation. 
These reviews, both of initial applications and of carriers' continuing 
fitness, are composed of an evaluation of the following: Managerial 
competence, citizenship, financial condition, and compliance 
disposition. We also work with the FAA on all related safety matters 
and with the TSA on security matters. In some continuing fitness 
investigations, the Department may decide that a more formal, public 
proceeding is warranted, and that the carrier's authority should be 
modified, suspended, revoked, or subjected to an enforcement action if 
it no longer continues to satisfy all statutory citizenship tests, 
including the actual control test.

The Notice of Proposed Rulemaking

    Last year, the Department issued a Notice of Proposed Rulemaking 
(NPRM) concerning its citizenship policies and procedures. 70 FR 67389, 
November 7, 2005. Regarding the fitness process, we evaluated our 
procedures for addressing citizenship issues that arise during fitness 
reviews, particularly in continuing fitness reviews. We proposed not to 
change our continuing fitness procedures by conducting public 
investigations whenever citizenship issues arose under 14 CFR 204.5. 
Regarding the ``actual control'' standard, we proposed to adopt a new 
interpretation refining Department practice. We wished to ensure that 
U.S. citizens control the carrier's organizational documents and those 
areas of airline operations currently requiring significant government 
involvement. Our proposed rule therefore provided that responsibility 
for a carrier's organizational documents and for safety, security, and 
Civil Reserve Air Fleet (CRAF) participation must remain under the 
control of U.S. citizens. On the other hand, we tentatively determined 
to eliminate other restrictions on foreign involvement that had become 
burdensome and unnecessarily interfered with the ability of U.S. 
carriers to obtain capital from foreign sources and to compete 
effectively in the global marketplace. These additional restrictions, 
developed through decisions in past administrative cases, appeared to 
be unnecessary for ensuring that U.S. citizens controlled each U.S. 
carrier when foreign governments provide comparable treatment for U.S. 
carriers and investors.
    Furthermore, in order to foster greater liberalization that will 
provide greater economic opportunities to U.S. carriers and investors, 
we proposed to limit the application of the refined actual control 
standard to foreign investors whose homelands have an open-skies 
agreement with the United States and extend comparable investment 
opportunities in their airline industry to U.S. investors or where the 
United States' international obligations otherwise require the same 
approach.

Comments

    The Department invited comments on the proposal. We received 
approximately 30 comments collectively from carriers, labor parties, 
and industry associations. We received over 3,000 other comments from 
state legislators, local government officials, airline employees, and 
other individuals. See Summary of Comments, below.
    The Department received support for its proposed changes from the 
Air Carrier Association of America (ACAA), Airports Council 
International-Europe (ACI-Europe), Airports Council International-North 
America (ACI-North America), the Association of European Airlines 
(AEA), Airline Professionals Association, Asociaci[oacute]n 
Internacional de Transporte A[eacute]reo Latinoamericano (AITAL), Atlas 
and Polar, bmi, Boeing, Delta, Federal Express (FedEx), Hawaiian, the 
International Air Transport Association (IATA), United, USA-BIAS, and 
the Washington Airports Task Force. They generally argue that the 
proposal's adoption will give U.S. carriers a better ability to obtain 
capital, especially from strategic investors, will eliminate 
unnecessary restrictions on airline activities, will lead to further 
liberalization of airline and airline finance markets, and is within 
our statutory authority.
    Other commenters--Alaska, Continental, U.S. Airways, the National 
Air Carrier Association (NACA), the Association of Flight Attendants 
(AFA), the Air Line Pilots Association (ALPA), the Aircraft Mechanics 
Fraternal Association (AMFA), the Allied Pilots Association (APA), the 
International Association of Machinists (IAM), the Independent Pilots 
Association (IPA), and the Transportation Trades Department--AFL-CIO 
(AFL-CIO TTD)--oppose our proposed change to the actual control 
standard. They generally argue that the proposed change is unnecessary 
and contrary to Congress' alleged intent to maintain the traditional 
interpretation of ``actual control,'' and will reduce the safety of 
airline operations, adversely affect the U.S. Department of Defense's 
(DOD) ability to operate CRAF, and harm airline labor.
    Below, we address the concerns of commenters and further explain 
our proposed rule.

Discussion of Comments

Need for a Change in Policy

    The Department has carefully reviewed the comments and continues to 
believe that our proposal to refine our interpretation of actual 
control would be beneficial. Nevertheless, because we have refined our 
proposal in a number of ways in response to comments received, we 
believe that it is in the public interest to furnish interested persons 
an additional opportunity to review and comment on the proposed change. 
The statute allows global investors to own up to 25 percent of the 
voting interest in a U.S. airline. We believe that our traditional 
approach may have unreasonably deterred some global investment, thereby 
thwarting the intent of the statute. Based on our experience, foreign 
investors often wish to have a more active role in the carrier, and/or 
various safeguards designed to protect their investment. Our refusal to 
permit this has, we believe, discouraged foreign investment, thereby 
effectively closing the global capital market to U.S. airlines.
    We are tentatively persuaded that adopting our proposed 
interpretation would enhance the access of U.S. carriers to global 
capital markets by expanding the pool of potential investors, 
introducing new competition in capital markets to provide U.S. carriers 
with better terms of investment, and facilitating strategic and long-
term investment in the U.S. airline industry--all potentially lowering 
the cost of capital and ensuring that U.S. airline asset values are not 
depressed by artificial and unnecessary constraints on competition 
among potential investors. These enhancements would enable U.S. 
carriers to respond better to the challenges and opportunities 
presented by the changing global air transportation marketplace and to 
pursue whatever strategies they believe will enhance their ubiquity, 
competitiveness, and profitability in the global airline industry. By 
providing favorable terms for capital-intensive projects to facilitate 
greater alliance integration, our proposed rule would potentially 
promote inter-alliance competition and allow U.S. carriers to continue 
their leadership role in the development of global alliances.
    The NPRM cited three crucial characteristics of airline 
competition. First, airlines require significant capital investments in 
facilities, technology, and a variety of commercial

[[Page 26428]]

arrangements. 70 FR 67393. Second, airlines function in a virtually 
seamless global environment in virtually every aspect of their 
operations. 70 FR 67393. Third, the structure of global financial 
markets has changed, now offering pools of highly mobile capital. 
Innovations in the use of investment funds, new forms of aircraft 
financing, and the growing role of international aircraft leasing 
companies have changed the nature of airline financing. 70 FR 67392. In 
view of those characteristics, the NPRM proposed that U.S. air carriers 
should have the broadest access to the global capital markets permitted 
by law, so long as such access does not impinge on those areas of 
airline operations currently requiring significant government 
oversight. We tentatively found that our historical interpretation of 
``actual control'' has failed to keep pace with changes in the global 
economy and evolving financial and operational realities in the airline 
industry itself, to the detriment of U.S. carriers. Our proposal sought 
to eliminate U.S. policies that unnecessarily restrict the operational 
and financial flexibility of U.S. carriers. The proposal also sought to 
continue our policy of allowing the market to operate with minimal 
regulation, and was consistent with our obligation to foster a safe, 
healthy, efficient, and competitive airline industry.
    After reviewing the comments, we have tentatively concluded that 
our prior interpretation of actual control imposes unnecessary 
restrictions on participation in U.S. carrier operations by certain 
foreign investors which, in and of itself, limits U.S. carriers' access 
to foreign sources of capital and their ability to benefit from 
competition in the capital markets. We would apply our updated 
interpretation only in cases where the foreign investors' home 
countries have an open-skies agreement with the United States and offer 
U.S. carriers and other U.S. investors a comparable ability to invest 
in their own airline industries, or where it is otherwise appropriate 
to ensure consistency with U.S. legal obligations.
    The limitations in our traditional interpretation appear to have a 
negative effect on U.S. carriers' access to strategic investment 
capital. Our proposed updated interpretation of the ``actual control'' 
test would eliminate restrictions on business activity that have unduly 
and unnecessarily limited airline access to foreign investment. 
Furthermore, the proposed rule's reciprocity condition should encourage 
market liberalization that would create new opportunities for U.S. 
airlines and other U.S. investors to take advantage of similar 
opportunities overseas. We also tentatively find that the benefits 
likely to result from our modified interpretation will substantially 
outweigh any hypothetical drawbacks that some commenters allege could 
occur. In this connection, we do not believe that our proposal would 
adversely affect U.S. carrier safety, security, and CRAF participation 
or harm U.S. airline employees. In addition, we believe that our 
existing authority to interpret the statutory citizenship requirements 
in the context of enforcement should allow us to update our 
interpretation of actual control in light of changing circumstances.
    We should not maintain an interpretation that is more restrictive 
than necessary to meet statutory requirements. We believe that we 
should interpret the ``actual control'' requirement in light of the 
continuing globalization of the airline industry and Congress' decision 
that the airline industry should largely be deregulated (except, of 
course, for safety and security regulation). To be sure, deregulation 
is a work in progress. When industry developments make it unnecessary 
or counterproductive to maintain rules or policies that restrict 
airline business decisions, we should terminate them. We recently did 
so when we eliminated all of our rules governing computer reservations 
systems. 69 FR 976, January 7, 2004. The record in this proceeding thus 
far suggests that our past interpretations of the ``actual control'' 
standard have similarly become burdensome without providing significant 
benefits.
    We are proposing this rule because we have tentatively concluded 
that the Department has in certain circumstances construed the 
citizenship requirement in a more restrictive manner than necessary, 
particularly in cases where the foreign investors' home countries have 
entered into open-skies bilaterals with the U.S. and are following more 
flexible foreign investment policies for their airline industries. We 
have long operated under the premise that relying on competition to 
solve regulatory problems is in part a reliance on managers and 
investors to act rationally in searching for opportunities to provide 
profitable air service. But competition itself will be thwarted, and 
thus the public interest disserved, if we were to restrict capital and 
management from flowing to the airline industry. There is 
correspondingly less justification for second-guessing investment 
decisions that bring fresh capital and management to the industry 
without threatening sound air transportation or antitrust objectives.
    We believe that our past interpretations of the citizenship 
requirement have imposed unnecessary and harmful burdens on U.S. 
carrier access to investment capital. Indeed, we have recognized that 
by-product of our policy by informally liberalizing our past 
interpretation in some cases. For example, Hawaiian Airlines has 
benefited from a recent modification of our citizenship standards which 
enabled the carrier to successfully reorganize and obtain new 
financing. Hawaiian Comments at 1. However, in order to do so, Hawaiian 
had to satisfy significant regulatory concerns and undergo a 
substantial delay in its ability to obtain the new financing. Hawaiian 
maintains that our modified interpretation here ``will help ensure the 
economic viability of U.S. airlines by providing for unfettered access 
to worldwide capital markets'' without the need for these undue 
burdens. Hawaiian Comments at 2.
    Adopting our proposed rule would make new sources of capital 
available to U.S. carriers, which has the potential to strengthen the 
U.S. airline industry. As United Air Lines notes:

    To remain competitive with these ever-strengthening foreign 
carriers, U.S. carriers must continue to expand and improve their 
own global networks rather than simply relying on their alliance 
partners. Such growth, however, is extremely capital intensive. 
Unfortunately, given the industry's historic economic performance, 
and continued governmental barriers to global integration, domestic 
carriers' ability to raise long-term equity capital is constrained. 
As a result, although capital continues to be available, it has 
generally been limited to speculative investments from venture 
capital funds, hedge funds, and other private investors looking to 
take advantage of the industry's depressed valuations. If the U.S. 
airline industry is to regain its global leadership position, 
artificial limitations on the ability of long-term strategic 
investors, regardless of nationality, to participate in the industry 
and earn adequate returns on their investment need to be removed.

United Comments at 4.
    As United observes, strategic investors would likely be more 
concerned about a U.S. airline's product quality, market strategy, and 
its capital reinvestment plans than short-term investors who view 
airlines merely as trading vehicles. Foreign airline investors, for 
example, would be likely to take a long-term, strategic view of their 
capital investments and thereby provide additional economic benefits 
that support the long-term viability of the U.S. airlines in which they 
invest, such as network expansion, access to

[[Page 26429]]

new technology, and management and market experience in new markets.
    As United and Hawaiian point out, the elimination of unnecessary 
barriers to the flow of capital from foreign investors to U.S. airlines 
should further ensure the competitive position of U.S. airlines in a 
globalizing economy. See also IATA Comments at 3. We have tentatively 
concluded that arguments made by some commenters (See, e.g., U.S. 
Airways Comments at 4-5; AFL-CIO TTD Comments at 2) that it is 
unnecessary for U.S. airlines to have enhanced access to capital from 
foreign sources are not persuasive because, even if adequate capital 
were otherwise available, we expect that increasing the competitive 
sources of capital accessible by U.S. carriers should enable them to 
obtain better terms from investors. Such lower capital costs would 
benefit U.S. consumers, as well as the carriers' employees and 
shareholders.
    Our proposed modified interpretation of ``actual control,'' 
moreover, would reflect the globalization of the international airline 
business and the increasing role of market forces in determining what 
services and fares will be offered in international airline markets. 
U.S. airlines are increasingly integrating their operations and 
services with the operations and services of foreign airlines. All U.S. 
passenger airlines with significant international operations have 
formed marketing alliances with several foreign airlines in order to 
offer more integrated worldwide services sought by many consumers--the 
arrangements between American Airlines and LAN Airlines, Continental 
and Emirates, and Delta and Air France are a few of many examples. We 
have found that these airline marketing alliances can benefit consumers 
by creating worldwide networks and strengthening the competitive 
position of the U.S. airline partners. See, e.g., Order 2005-12-12 
(Dec. 22, 2005) at 28. In order to remain competitive in the global 
marketplace, alliance partners seek to integrate their operations and 
increase the scale and scope of their respective networks. We believe 
that maintaining unnecessary limitations on the ability of U.S. 
airlines to quickly adapt to industry changes--particularly in 
international markets--would only serve to inhibit U.S. carriers from 
receiving increased revenues from alliance cooperation and deprive U.S. 
consumers of the potential economic benefits of global alliances. 
Enabling U.S. airlines to invest more readily in their strategic 
partners, and vice versa, should potentially promote the development of 
pro-competitive alliance relationships.

Labor Issues

    We have carefully considered our proposal's impact on U.S. airline 
workers. We recognize that the financial challenges affecting U.S. 
carriers have had a severe impact on their employees. The airlines' 
struggle to reduce their costs has led to job losses, lower pay, and 
fewer benefits. Airline employees nonetheless have continued to provide 
safe and reliable transportation to airline customers. The labor 
parties, including AFA, AFL-CIO TTD, ALPA, AMFA, IAM, and IPA, 
generally oppose our proposal in the belief that it will lead to fewer 
and less desirable jobs at U.S. carriers. After carefully considering 
their comments and the record, we tentatively conclude that our 
proposed rule would not cause such harm.
    First, U.S. carriers must comply with U.S. labor law whether or not 
we change our interpretation of actual control. All employees at any 
U.S. carrier would retain all of the protections created by the United 
States' labor laws. Further, the unionized employees of every U.S. 
airline would continue to enjoy their rights under their collective 
bargaining agreements.
    Second, our proposed modified interpretation is designed to improve 
the financial position of U.S. carriers by giving them access to 
additional sources of capital. This enhancement would strengthen the 
carriers' competitive position overall, which should increase jobs for 
U.S. workers.
    Third, by applying our proposed updated interpretation only in 
cases where the foreign investors' home countries have an open-skies 
agreement with the United States and offer U.S. carriers and investors 
a comparable ability to invest in their own airline industry, or where 
it is otherwise appropriate to ensure consistency with U.S. legal 
obligations, our modified interpretation would enable U.S. carriers to 
strengthen their competitive position by investing in foreign airlines 
(alone or as part of a group of investors), and forming enhanced 
business relationships with them that would be mutually beneficial. 
U.S. air carriers, and their employees, also benefit from open-skies 
agreements, in that the opportunities to expand and serve more 
countries without the impediment of restrictive bilateral agreements 
may lead to additional service by U.S. carriers providing additional 
revenue for the carrier and more job opportunities for its employees.
    Fourth, we are not persuaded that foreign investment will lead to 
fewer desirable jobs at U.S. carriers. Under our proposal, just as now, 
U.S. carriers would be controlled by their shareholders and boards of 
directors, most of whom must be U.S. citizens, and those shareholders 
and directors would have every incentive to maximize the U.S. carrier's 
performance. Were a foreign carrier-investor to attempt to shift long-
haul services to itself from a U.S. carrier in which it had invested, 
that could be contrary to the economic interest of the U.S. citizen 
shareholders who, even under this modified interpretation, will 
continue to retain actual control of the carrier. We tentatively 
conclude that the U.S. investors would withdraw their delegation of 
authority over commercial decisions were the foreign investor to 
exercise that authority contrary to the interest of the U.S. carrier 
and its U.S. citizen investors.
    Several labor parties contend, however, that U.S. carriers have 
already chosen to outsource large parts of their operations, including 
much of their maintenance work. These commenters believe that any 
significant foreign citizen involvement in the management of any 
carrier operations will inevitably lead to the transfer of additional 
work overseas. See, e.g., ALPA Comments at 8-9. We do not believe that 
this proposal will impact a carrier's incentive to outsource.

European Union Air Services Agreement

    Negotiations between the United States and the European Union have 
produced a draft comprehensive air services agreement that will 
transform the framework for transatlantic air services if implemented. 
The European Union negotiators have made it clear that the European 
Union will consider the outcome of this proceeding in determining 
whether it will sign the draft agreement. See Statement of John R. 
Byerly, Deputy Assistant Secretary of State, before the Aviation 
Subcommittee of the House Committee on Transportation and 
Infrastructure (February 8, 2006), at 9. However, we have proposed our 
updated interpretation of the ``actual control'' standard because we 
tentatively determined that a reinterpretation of that standard would 
eliminate unnecessary restrictions on U.S. carrier business decisions, 
not because of its impact on an agreement with the European Union.
    A number of commenters, including Delta, FedEx, United, and parties 
representing major airports in the United States and Europe, urge us to 
make our proposal final because, in addition to the proposal's own 
benefits, they believe that the European Union will then sign the 
agreement with the

[[Page 26430]]

United States. Other commenters, including many of the individual 
commenters, allege that we are planning to adopt the proposal only in 
order to secure the agreement with the European Union, which they 
assert will harm the United States and its airline industry. 
Continental, for example, alleges that the agreement fails to provide 
adequate access for U.S. carriers at London's Heathrow airport, and 
U.S. Airways contends that the agreement would not create a level 
playing field for U.S. carriers in transatlantic markets. Continental 
Comments at 34-38; U.S. Airways Comments at 6-9.
    This rulemaking was initiated, and is being pursued, based on its 
own merits. The goal of this proceeding is to realize the commercial 
and public benefits obtained by providing the airline industry with 
greater access to global capital markets, while ensuring that U.S. 
citizens remain in actual control. We are proposing to modify our 
interpretation of ``actual control'' because a change in the historic 
interpretation appears to be long overdue and in the best interests of 
the U.S. airline industry and the American public.

New Interpretation of ``Actual Control'

    We are therefore proposing, as explained above, to further refine 
our proposed new interpretation of ``actual control.'' If we adopt our 
proposed rule, we would use the new interpretation of the ``actual 
control'' requirement in our future continuing fitness cases and our 
review of applications for initial certificate or commuter authority. 
We would ensure that each U.S. carrier remains under the actual control 
of U.S. citizens, as required by the statute. We would also continue to 
enforce the explicit statutory requirements that U.S. citizens hold at 
least seventy-five percent of the voting interest of each U.S. carrier, 
and that the president and at least two-thirds of the directors and of 
the managing officers be U.S. citizens.

Our Overall Application of the Rule

    In this section, we explain in more detail the anticipated 
practical impact of our proposed rule, including its limits on foreign 
involvement, and respond to the requests for clarification. We would 
use our modified ``actual control'' standard only where the foreign 
investors' home countries offer reciprocal treatment to U.S. investors 
in their airline industry and have open-skies air service agreements 
with the United States, or where using the revised standard would 
otherwise be appropriate to ensure consistency with the United States' 
international legal obligations. This supplemental notice is designed 
to give interested parties an additional opportunity to comment on our 
proposed change in policy and our proposed implementation thereof.
    Under our further modified interpretation, we would specifically 
require that U.S. citizens control the adoption of, and any changes to, 
the carrier's organizational documents (documents such as the articles 
of incorporation and by-laws that define the carrier's structure and 
governance). If the carrier met that requirement, we would only look to 
see whether U.S. citizens control the carrier's decisions in three 
operational areas: safety, security, and the provision of airlift to 
the Department of Defense, whether through CRAF or other arrangements. 
If these areas were controlled by U.S. citizens, the requirements of 
our citizenship review would have been met. We would not consider 
whether other relationships between a carrier and foreign investors or 
other foreign citizens give the latter influence at the carrier or 
management authority over some parts of the carrier's operations. Every 
U.S. carrier would be actually controlled by U.S. citizens because, 
under our further refined interpretation, we would be requiring all 
delegations to foreign interests ultimately to be revocable by the 
board of directors or the voting shareholders.
    Our proposed updated interpretation of actual control would allow 
foreign firms and individuals to manage parts of a U.S. carrier's 
operations and business, but only when so authorized by the board of 
directors, two-thirds of whom must be U.S. citizens, and subject to the 
ultimate control of the shareholders, whose votes would be dominated by 
U.S. citizens. We would ensure, moreover, that the board of directors 
or the voting shareholders could ultimately revoke delegations of 
managerial responsibilities, as discussed below.
    Furthermore, this rulemaking would not affect our policy that a 
U.S. citizen who acts as president, as a director, or as another 
managing officer would be treated as a foreign citizen for carrier 
citizenship purposes if our evaluation determined that the U.S. citizen 
was appointed or designated for that position by foreign citizens. 
Similarly, we would not view a U.S. citizen acting as president, 
director, or managing officer as being a U.S. citizen if, as a 
practical matter, the citizen's financial and business relationships 
with foreign citizens mean that the U.S. citizen is not likely to carry 
out his or her responsibilities independently.
    Because our policy would ensure that U.S. citizens would continue 
to have actual control of each U.S. carrier under our proposal, every 
U.S. carrier would continue to be eligible to hold any route authority 
available to U.S. carriers under the United States' air services 
agreements with other countries. We have tentatively concluded that 
arguments made by some commenters (See, e.g., Continental Comments at 
13; ALPA Comments at 16) that the bilateral rights of U.S. carriers who 
took advantage of this proposal might be compromised are not persuasive 
because, under the Department's proposed rule U.S. citizens would 
continue to have substantial ownership and effective control of each 
U.S. carrier, consistent with the terms of the bilateral air services 
agreements, and therefore would clearly retain their authority to 
exercise international route rights enshrined in air services 
agreements to which the United States is a party.
    While we would be requiring U.S. citizens to maintain control over 
core corporate decisions and the operational areas still subject to 
significant government oversight, a U.S. carrier's board (two-thirds of 
whom must be U.S. citizens) or the voting shareholders (in whom 75 
percent of the voting interests are vested in U.S. citizens) could 
choose to delegate the management of other parts of the carrier's 
operations to foreign investors. AEA has asked whether a foreign 
investor could control such elements as ``definition and quality of the 
product, branding, fleet mix, origins and destinations, network issues 
defin[ing] the business of the company.'' AEA Comments, Annex at 1. Our 
proposal would allow a U.S. carrier to delegate management or decision-
making regarding various commercial aspects of its business to foreign 
investors, or otherwise involve those foreign investors in its 
operations.
    Of course, as noted above, these delegations could only occur with 
the continuing approval of the carrier's board of directors or voting 
shareholders. In addition, two-thirds of the directors must be U.S. 
citizens and seventy-five percent of the shareholders' voting interest 
must be vested in U.S. citizens. Under our proposed rule, a carrier 
could delegate the decision-making authority over the areas listed by 
AEA, or otherwise involve foreign investors in its operations, if the 
voting shareholders or directors first determined that doing so was in 
the carrier's best interests. Additionally, the board or voting 
shareholders would retain the ultimate power to revoke delegations of 
managerial responsibilities to foreign investors. The board's or 
shareholders' ability to

[[Page 26431]]

revoke the delegation under this proposal could not be conditioned on 
terms that would make revocation impracticable.
    A number of commenters are requesting us to clarify our proposed 
rule in various respects and provide illustrative examples. We are 
providing as much information as practicable in this notice, and this 
notice's rationale for our proposed future interpretation of the 
statutory ``actual control'' requirement should provide substantial 
guidance to foreign citizens planning to invest in a U.S. carrier on 
the operation of our proposal. Some questions regarding the 
implementation of our modified interpretation can be resolved only 
through our review of specific transactions. Determining whether U.S. 
citizens control a carrier necessarily depends on each carrier's 
specific facts. We would also encourage carriers and investors to 
consult with us before making final decisions on the terms of any 
substantial foreign involvement in a carrier, as often occurs now, and 
as we noted in our proposal. 70 FR 67395.
    British Airways asks whether our proposal would allow a carrier's 
board of directors to delegate to foreign investors the authority to 
hire and fire officers up to and including the carrier's president and 
executives in charge of safety, security, and CRAF participation 
matters. British Airways Comments at 9. We answer in the negative. By 
statute the president must be a U.S. citizen. By longstanding policy, 
we have construed this position as any corporate officer who 
effectively functions as president regardless of title. In addition to 
the president, two-thirds of managing officers must also be U.S. 
citizens, and neither the president nor those managing officers may be 
appointed by or otherwise beholden to foreign interests. Our proposed 
rule would not affect that policy. Under our proposal, the managing 
officers with direct, day-to-day responsibility for safety and security 
matters and contributions to military airlift requirements must be 
clearly and demonstrably subject to control by U.S. citizens. That 
would mean, among other things, that decisions involving the 
appointment of these managing officers, and involving their 
supervision, budgets, and compensation, must remain under the control 
of U.S. interests in accordance with current policy and therefore could 
not be delegated to foreign investors or managing officers in a 
management group appointed by foreign investors, if there were 
significant foreign investment and involvement in a U.S. carrier under 
this proposed rule. As indicated, however, our updated interpretation 
would allow a carrier to delegate to foreign investors a greater role 
in the carrier's commercial decision-making, if the carrier's board 
members or voting shareholders approved doing so. We accordingly would 
allow the foreign investors to hire and fire the managers responsible 
for day-to-day operations in those delegated areas (other than safety, 
security, and military airlift operations), so long as the delegations 
were ultimately revocable by the board of directors or the voting 
shareholders.
    Commenters request information on whether we would maintain the 
limit on foreign ownership of a carrier's non-voting equity stock 
established in Northwest Airlines Acquisition by Wings Holdings, Order 
91-1-41 (Jan. 23, 1991). Delta Comments at 13; Hawaiian Comments at 5. 
Neither our NPRM nor this supplemental notice propose any changes to 
our policy with regard to equity ownership requirements as established 
by the Northwest/Wings line of precedent, but only to the 
interpretation of ``actual control'' of the carrier. Consequently, this 
rulemaking would not alter that line of precedent.
    Commenters ask what kinds of super-majority voting clauses could be 
obtained by foreign investors without placing the U.S. carrier's 
citizenship at risk. See, e.g., AEA Comments, Annex at 1. Our notice of 
proposed rulemaking stated with respect to U.S. citizen control of the 
organizational documents, ``Foreign citizens may hold rights essential 
to protect their financial interests--for example, provisions requiring 
concurrence before a company may enter bankruptcy or be dissolved--but 
the fundamental organization of the company must remain in U.S. citizen 
hands.'' 70 FR 67394. Super-majority clauses are designed to protect 
minority shareholders, but do not give any affirmative rights to make 
decisions absent board members' or shareholders' consent. We cannot now 
further define which kinds of super-majority voting requirements 
obtained by foreign investors in a U.S. carrier would not violate the 
statutory ``actual control'' standard. The appropriateness of any 
particular super-majority voting clause under our proposed rule would 
depend on the precise terms of the clause, and the nature of the 
foreign investors' involvement in the carrier.
    Continental asserts that our proposed revised interpretation of 
``actual control'' would be unfair to U.S. shareholders by encouraging 
U.S. carriers to establish dual-class share structures to accommodate 
foreign investors: ``A class of shares with lesser control rights'' 
held by U.S. shareholders, and ``shares with greater control rights'' 
``vested in foreign nationals.'' Continental Comments at 22. We do not 
anticipate such a result. Under our proposal, the U.S. shareholders, 
not the foreign shareholders, would have the shares with the greater 
rights by virtue of the statutory requirement that U.S. citizens hold 
75 percent of the U.S. carrier's voting interest; U.S. shareholders 
will control the carrier, the board of directors, and any shareholder 
vote. The U.S. citizens controlling the carrier could decide to give 
foreign investors some voting rights for protecting their interests, 
but only if those U.S. citizens determined that doing so was in the 
carrier's best interests. Furthermore, Continental's argument assumes 
different classes of stock and voting rights are inherently unfair. A 
U.S. carrier's creation of different classes of stock for foreign 
investors and other investors with different needs instead would only 
duplicate a common U.S. practice. Many other U.S. corporations have 
created several classes of common and preferred stock in order to 
accommodate the interests of different types of investors, give the 
company more flexibility in obtaining capital, and lower its overall 
cost of capital.
    We also wish to clarify our intent on our proposed requirement that 
U.S. citizens must control four specific matters at each U.S. carrier: 
The organizational documents, safety, security, and military airlift 
participation.

Organizational Documents

    Under our proposed interpretation of the ``actual control'' 
requirement, U.S. citizens would control the carrier's structure, 
governance, and organization because they would control the carrier's 
organizational documents. Their control of those documents would ensure 
that U.S. citizens controlled any decisions affecting the fundamental 
nature of the carrier's overall structure, including its authorized 
capital structure, the rights and voting powers of its equity owners, 
the structure and selection of the board of directors, and the role and 
responsibilities of its senior officers. The governance of the carrier 
embodied in its core documents would remain under the actual control of 
U.S. citizens. 70 FR at 67394.
    This proposed requirement that U.S. citizens must control the 
carrier's organizational documents would allow them, either directly or 
through their directors, to revoke delegations of management authority 
to foreign investors, and thus would ensure that U.S. citizens 
controlled the carrier's

[[Page 26432]]

fundamental decisions related to its corporate and organizational 
structure. As we stated in the NPRM, however, we are proposing that 
foreign investors could hold rights essential to protect their 
financial interests, such as provisions requiring their approval before 
a carrier may enter bankruptcy or be dissolved. 70 FR at 67394. The 
fundamental organization of the company must be in U.S. hands, even 
though foreign investors could in some cases have veto authority over 
certain types of corporate decisions.
    British Airways' assertions that the proposed requirement relating 
to organizational documents would be unnecessary or counterproductive 
are not persuasive. British Airways fears that foreign investors would 
be unable to obtain super-majority voting provisions and similar 
contract provisions that would provide the foreign investors reasonable 
protection against actions by the majority of the carrier's 
shareholders or directors that would substantially prejudice the 
foreign citizens' investment interests. British Airways Comments at 5-
6. British Airways' concern appears to be unjustified. As discussed 
above and in the notice of proposed rulemaking, we recognize that 
foreign investors, like other minority investors, may have a legitimate 
need for super-majority clauses that will protect their essential 
investment interests. We would not expect to block such clauses when 
they are similar to standard provisions obtained by minority 
shareholders and do not affect U.S. citizen control of safety, 
security, and military airlift matters. Whether such super-majority 
clauses would in fact be adopted and remain in place would be up to the 
board of directors or the voting shareholders.
    Hawaiian asked us to identify which documents will be considered 
organizational documents that must be controlled by U.S. citizens. 
Hawaiian Comments at 3. Organizational documents would include the 
carrier's articles of incorporation (or corporate charter) and by-laws, 
and comparable documents (for example, shareholder agreements) as 
reflected in the text of the proposal. We wish to ensure that U.S. 
citizens control the adoption and amendment of the documents that 
determine the corporate structure, such as the classes of stock, the 
shareholders' voting rights, the structure and membership of the board 
of directors, and the selection, responsibilities, and powers of the 
president and other principal officers. We would consider as 
organizational documents any related agreements that modify the 
provisions set forth in the articles of incorporation or by-laws or 
that dictate the fundamental operational and capital structure of the 
airline.
    Hawaiian further requested that we announce that any review of a 
carrier's citizenship would be limited to these documents. Hawaiian 
Comments at 3. We doubt that we could state in this proceeding which 
other documents we would need to review as part of a citizenship 
investigation, but we expect that our review would not necessarily be 
limited to the organizational documents identified above. For example, 
to ensure that U.S. citizens actually control the carrier's corporate 
structure and the selection of the board of directors, we would need to 
review any contractual agreement between U.S. shareholders and a 
foreign investor.

Safety

    The FAA is responsible for determining that every U.S. air carrier 
meets appropriate safety standards. Because safety is one of our 
highest priorities, however, we wish to make certain that U.S. carrier 
decisions on safety policies are made by U.S. citizen interests, even 
if a U.S. carrier has chosen to delegate the management of other parts 
of its operations to foreign investors. Security and military airlift 
participation are also matters of great concern to us. Our proposed 
interpretation of the ``actual control'' requirement therefore would 
require that U.S. citizens control decision-making on safety and, as 
discussed in the next sections, security and defense-related matters.
    We traditionally review issues related to safety in our broader 
fitness review. We work closely with the FAA in a variety of contexts, 
including determining the competence of key safety officials, and 
whether the carrier currently meets and complies with the Federal 
Aviation Regulations. We review where and with whom the key safety 
officials work, and are alerted by the FAA when that agency discovers a 
potential problem.
    In our review of the air carrier's operations to ensure U.S. 
citizen control over safety decisions, we would consider whether 
deviations from current industry practices and staffing at key business 
locations might adversely affect the FAA's ability to oversee the air 
carrier's operational safety. To determine whether U.S. citizens 
control safety decisions under the proposed rule, we would evaluate the 
accessibility of required safety managers and required safety records 
to the FAA. For example, today the key safety officials of U.S. 
carriers are located within the United States at one of the carriers' 
key business locations. They are available for frequent, regular 
meetings with FAA inspectors responsible for oversight of the carrier. 
Records that are necessary to determine regulatory compliance are also 
accessible at these same key locations. To meet our definition of 
actual control, we would expect key safety officials and necessary 
records to be as easily accessible as they are today. Should the 
Department become aware of any unusual circumstances, we would reserve 
the right to initiate a continuing fitness review to address these 
safety issues.
    Several commenters expressed opinions on our safety proposal. FedEx 
and NACA agree with the proposal requiring that U.S. citizens retain 
actual control over safety decisions, and none of the airlines that 
submitted comments suggested that our proposal would compromise the 
safety of its operations. ALPA, AMFA, AFL-CIO TTD, and IAM, however, 
argue that the proposal would allow foreign investors to make decisions 
on economic and operational issues that affect safety.
    Several commenters seek clarification about the chain of command 
for safety matters. They ask, for example, whether every manager in the 
chain of command for safety matters must be a U.S. citizen. Polar & 
Atlas Comments at 7; AEA Comments at 4. That would not be required by 
our proposal. In cases where there would be significant foreign 
investment and involvement under this proposed new rule, we would 
require only that decisions relating to safety be clearly and 
demonstrably subject to actual control by U.S. citizens. Our past 
decisions under the ``actual control'' standard have never required 
every manager and executive to be a U.S. citizen. The statute defining 
citizenship similarly requires that at least two-thirds of the 
carrier's managing officers must be a U.S. citizen, not that every such 
officer must be a U.S. citizen. As stated above, decisions involving 
the appointment of managing officers with direct, day-to-day 
responsibility for safety, and involving their supervision, budgets, 
and compensation, would remain under the control of U.S. interests in 
accordance with current policy and therefore cannot be delegated to 
foreign investors or managing officers in a management group appointed 
by foreign investors.
    Furthermore, because the statute requires that the president and 
two-thirds of the board of directors and the managing officers must 
also be U.S. citizens, the persons with ultimate responsibility for the 
carriers operations

[[Page 26433]]

would be U.S. citizens, not foreign investors. This would further 
guarantee that U.S. citizens control the decision-making on safety 
matters. ALPA itself recognizes that those officers and the directors 
control safety: ``It is thus inevitable that whoever controls the 
operation of the airline as a whole will also ultimately control its 
safety policies and their implementation.'' ALPA Comments at 15. We 
therefore are not convinced by the contention by some commenters that 
our proposal would be ineffective, because many operational issues, not 
just those directly related to safety requirements, affect safety. ALPA 
Comments at 11-14; Virgin Atlantic Comments at 6-7.
    We tentatively do not accept the related contention that our 
proposal would be impracticable because safety matters cannot be 
separated from other operational matters. See, e.g., AFL-CIO TTD 
Comments at 3; ALPA Comments at 15. Different executives at every 
carrier already have responsibilities that overlap to some extent, but 
that does not make efficient operations impossible. The officers 
responsible for marketing and route development, for example, make 
decisions that affect each other's responsibilities. Our experience in 
examining U.S. corporate organizational and financial structures 
suggests that decision-making authority for various airline functions 
within the corporate structure, despite their interrelationships, can 
be explicitly and satisfactorily tied to U.S. citizen interests within 
the company to ensure compliance with the fundamental application of 
our ``actual control'' test. For example, in cases where the Department 
has granted antitrust immunity for alliance agreements between a U.S. 
airline and its foreign airline partner, both airlines have been able 
to comply with Department conditions that exclude cooperation on very 
specific overlap routes while still cooperating on all other routes 
throughout their combined networks. Ultimately, the carrier's 
controlling U.S. shareholders, board and principal officers are 
responsible for ensuring that safety is the highest priority of the 
carrier and that it remains so, no matter what the nature of the 
foreign investment in the carrier.
    In response to ALPA's comments, we propose to further revise the 
rule's text to better reflect our intent. The preamble suggested that 
U.S. citizens must control all safety and security matters, not just 
compliance with FAA and Transportation Security Administration (TSA) 
requirements (``responsibility for * * * policies and procedures 
related to safety''). 70 FR 67394. The original text of our proposed 
rule, however, stated that U.S. citizens must control each U.S. 
carrier's compliance with FAA safety requirements. 70 FR 67396. We 
agree with ALPA that the wording of the proposed rule was unduly 
narrow. ALPA asserts that safety programs created by the FAA include 
voluntary programs and that our proposal could allow foreign citizens 
to determine whether a carrier would participate in such programs. ALPA 
Comments at 12-14. We are revising the language of the proposed rule to 
clarify that U.S. citizens must control the carrier's overall safety 
and security programs and policies, not just the carrier's compliance 
with the requirements of the FAA and the TSA.
    Finally, the contentions of AMFA and IAM that carriers already rely 
too much on domestic and foreign repair stations for maintenance work 
have not persuaded us that our rule would harm safety. The FAA is 
responsible for overseeing the carriers' use of repair stations and 
other maintenance operations not handled directly by a carrier's own 
personnel and must ensure that any such facility's operations will not 
impair safety.
    In sum, we have tentatively concluded that prohibiting delegation 
of decision-making authority for safety policies and requirements and 
their implementation to foreign investors, together with the other 
requirements for U.S. citizen control prescribed by our ``actual 
control'' policy and the statute, and the FAA's continuing oversight of 
U.S. carrier safety, would ensure the safety of every U.S. carrier's 
operations.

Security

    Security issues, especially since September 11, are a paramount 
concern. The Department of Homeland Security, through the 
Transportation Security Administration (TSA), is responsible for 
determining that U.S. and foreign carriers meet appropriate security 
standards and policies. Because security, like safety, is one of our 
highest priorities, our proposed interpretation would require that U.S. 
carrier decisions on security matters not be delegated to foreign 
investors, if there were significant foreign investment and involvement 
under this new