Since the Chicago Convention, international civil aviation rights have developed primarily through a series of bilateral agreements between the United States and foreign countries. 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. Finally, U.S. law has created an incentive program exclusively available to domestic air carriers; namely, the Civil Reserve Air Fleet Program (CRAF). "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. 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 cabotage are not included within its principles. 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. As a result of this decision, the legal status of the existing "Open Skies" Agreements has been questioned, and the EU Members have granted the Commission a mandate to negotiate a civil aviation agreement with the United States. 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. 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 United States. 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, 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. 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. 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 various aspects of domestic and international aviation law. 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. 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.
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.