“Fly America Act – Title 49 U.S.C. §40118 – generally requires that federal agencies ensure that government-financed air transportation is provided by a U.S. air carrier if such a carrier is available” See, B-258059, 1994 U.S. Comp. Gen. LEXIS 913, citing, Letter to Mr. James T. Lloyd, Dec. 6, 1994. To participate in a federally sponsored bidding process soliciting for air transportation services for United States Federal Government employees such as The City Pair Program (hereinafter “CPP”), an air carrier must satisfy the conditions stated in Fly America Act among other prerequisites outlined in a Request for Proposal (hereinafter “RFP”). For foreign air carriers, Fly America Act often appears as the most daunting and complicated part of the eligibility analysis, and pursuant to Title 49 U.S.C. §40118, a federal air transportation procurement cannot be obtained without complying with its terms. Therefore, any foreign air carrier looking to become a participant in these federal bidding procedures must learn, understand, and comply with the act.
As briefly discussed below, a review of the relevant law reveals three (3) realistic and practical ways of overcoming the restrictions incorporated in §40118.
Code-Share Arrangement:
One of the three options is to partner up with a U.S. air carrier in a code-share arrangement that meets the statutory and practical requirements either stated or implied in §40118 and in other relevant law. One of, if not the most important condition such arrangements need to satisfy is Title 49 U.S.C. §41102(a)’s restriction of participation in the federal bids to U.S. citizens. However, fortunately for foreign air carrier, relevant interpretation of the term “U.S. Citizen” under the Fly America Act is much broader, encompassing code-share arrangements between U.S. and foreign air carriers. See, Fly America Act – Code Sharing Transportation by U.S. Carrier, B-240956, 1991 U.S. Comp. Gen LEXIS 1113 (Sept. 25, 1991).
As a result, a correctly engineered code-share structure can make a foreign air carrier an eligible participant in a federally sponsored bidding process so long as its proposal is submitted by and along with its U.S. partner. In light of a recent decision issued the General Services Administrator (“GSA”) following a dispute between United Airlines and JetBlue/Emirates, a code-share arrangement only needs to satisfy one condition to qualify under the act: “The U.S. carrier should receive a substantial portion of the revenue.” See, In the Matter of: United Airlines, Inc., 2015 U.S. Comp. Gen. LEXIS 389; 2015 Comp. Gen Proc. Dec. P376, 14-15. However, despite its simple appearance and wording, tailoring the arrangement to meet all of these criteria remains to be a complex endeavor that must be undertaken by advice from competent legal counsel.
Joint Venture Partnership:
The second option is to form a joint venture structure with a U.S. based regional air carrier. Forming a joint venture with a U.S. based airline will serve two very important goals: (1) In the short run, a foreign air carrier can financially benefit from receiving federal awards, and (2) it can also establish a foothold in the U.S. air transportation market that can yield further, stronger, and much more clandestine extension into the US market.
Because of the strict restrictions imposed by the Civil Aeronautics Act of 1938 (“C.A.A.”) over foreign ownership of U.S. airlines, such structures must be designed accordingly. Amongst these restrictions, relevant regulations require that U.S. nationals control seventy-five percent (75%) of the voting interests, the president is a U.S. citizen, and the majority of the board consists of U.S. citizens. Indeed, the correct interpretation of “U.S. citizen” is a complex analysis that needs to be conducted with extreme care and diligence.
Despite such restrictions, there are various ways to engineer a joint venture structure to comply with the act. These avenues should be further studied and investigated considering all case-specific facts and circumstances.
Open Skies Agreement:
The lesser of the three options is entering into a code-share arrangement with an air carrier from a treaty county, or, in the alternative, making strides towards either joining or negotiating an air transportation treaty with the United States Government. Despite having over ninety (90) Open Sky Agreements with various countries in the world, only the following four (4) agreements have been deemed qualified by the United States under this exception. These are agreements between the United States and the European Union, the United States and Switzerland, the United States and Japan, and the United States and Australia.
As such, pursuing this option appears to be the weaker of the three avenues discussed in this document.
Conclusion:
Therefore, a foreign air carrier wishing to become a competitor in federally sponsored bids should engage an eligible U.S. air carrier (preferably a regional air carrier) for entering into a joint venture or a code-share arrangement. And in doing so, such air carrier must have competent counsel not only to scrutinize the details of this relationship for Fly America Act purposes.