American hostility to inward FDI: Virgin America

We all know about Unocal and Dubai Ports World. Ray Seilie points to the latest case of US hostility to inward FDI: a ban on foreign ownership of U.S. airlines is being used by legacy carriers to impede the establishment of Virgin America.

The LA Times editorial on this story is pretty good. Having flown Virgin Atlantic and enjoyed it very much, I wish it were legal for Richard Branson to enter the airline business in the US. Instead, he’s merely licensed the Virgin name to a group of American investors. But the legacy airlines are doing their best to bury the start-up in red tape.

“For the first time in six years roughly, the airlines are starting to experience some profitability, and the last thing that the domestic carriers want to see is new competition,” said Dan Petree, dean of the college of business at Embry-Riddle Aeronautical University. [CNN]

Virgin shoots back:

Instead of focusing on actual facts that show we are an American-owned and -controlled company, they have created irrelevant conspiracy theories about our application. It is farfetched to argue that U.S. citizens are somehow foreign, that debt is equity or that standard provisions protecting minority investors constitute ‘actual control’ of a U.S. airline that is clearly managed by U.S. citizens and 75-percent owned by U.S. citizens.

I think the phrase “regulatory capture” implies that the regulation initially had a legitimate purpose. A blanket prohibition of foreign ownership strikes me as an extremely crude method of reducing security risks. As Ray notes, “sadly, domestic airlines have every incentive to inflame this nationalistic fear-mongering.”