CORRECT HEADING

FEDERAL LAW REQUIRES that domestic airlines remain firmly under the control of U.S. citizens. Transportation Secretary Samuel K. Skinner skillfully enforced that law last week when he placed tough but prudent restrictions on foreign participation in the buy-out of Northwest Airlines.

The Transportation Department approved the sale of Northwest to Wings Holdings Inc., an investor group that includes KLM Royal Dutch Airlines. But the department, as a condition of its approval, ordered Wings to significantly

cut KLM's investment in the deal. While Mr. Skinner's decision should protect Northwest from foreign control, it also alerts overseas investors that this is not open season on the U.S. airline industry.Substantial foreign investment in U.S. airlines raises serious concerns. Foreigners on the board of directors of a U.S. carrier can undermine bilateral air route negotiations, especially since U.S. officials often share their negotiating strategy with domestic airlines. A large ownership interest by another airline also may diminish competition in markets both carriers serve. Moreover, it is hardly equitable to allow overseas investors to control U.S. carriers when those countries restrict foreign ownership of their airlines.

KLM was hardly a token player in this summer's buy-out of Northwest by a group led by Alfred Checchi. Mr. Checchi and associates paid $3.65 billion for Northwest, putting up $705 million in equity. KLM supplied $400 million, or 57 percent, of that equity, giving the Dutch airline enormous potential influence over Northwest's affairs.

U.S. law bars a foreign citizen from owning more than 25 percent of the voting stock of a domestic airline. KLM, with only 5 percent of the voting stock in Northwest, easily met this guideline. The law, however, also bars foreign "control" of a U.S. carrier without offering a precise definition of ''control." The department was diligent to look beyond voting rights and pose the real question: Will the airline remain under U.S. control?

Mr. Skinner expressed his skepticism last month, asking in a speech prompted by the Northwest deal, "What does the foreign airline think it is buying" when it puts up a majority of the cash for an acquisition?

The answer is control, or at least a measure of control. In addition to KLM's big equity stake, the company also was entitled to representation on Northwest's board and a financial advisory committee to oversee Northwest's affairs. As the Department of Transportation said in its decision, the original deal placed KLM "in a position to exert actual control . . . over Northwest."

The department ordered Wings to cut KLM's equity stake in Northwest to 25 percent within six months. Until then, KLM's interest above this level will be placed in a voting trust. KLM's representative on the Northwest board may not attend discussions of "the financial interest of KLM's operations" or of bilateral negotiations involving the Netherlands. KLM also must dissolve its

financial advisory committee.

That directive curtails KLM's influence. But it leaves fundamental questions unanswered. May the Northwest board member from KLM participate in discussions of Northwest's quarterly earnings - surely a matter affecting ''the financial interest of KLM's operations"? May he vote on Northwest's

plans for new routes in Asia or across the Atlantic that inevitably will compete with KLM's services? And what about Elders IXL Ltd., the Australian investment company that put up 11.3 percent of the equity to buy Northwest and controls 15 percent of its voting stock? The department found Elders' stake unobjectionable, arguing that it is merely a portfolio investor. That leaves Elders free to acquire interests in airlines abroad, creating precisely the same conflicts of interest present with KLM, without U.S. government objection.

Mr. Skinner did not explain why a 25 percent limit on KLM's share of Northwest's equity is more appropriate than a 20 percent or 30 percent ownership interest. That question is of more than passing interest for the participants in the pending $6.79 billion buy-out of United Airlines by a group including both the pilots' union and British Airways, which is putting up 78 percent of the equity. Although the secretary stressed that the Northwest ruling is not a precedent for other deals involving foreign investors, the department will be hard-pressed to justify less restrictive terms for the United sale.

Mr. Skinner has said repeatedly that he does not wish to discourage foreign investment in U.S. airlines. His decision in the Northwest sale, leaving KLM with a still-substantial $175 million stake in the U.S. carrier, puts U.S. policy on the correct heading. The Department of Transportation should now propose bilateral talks, starting with the European Community, to open the way for more liberal rules on foreign airline ownership and on domestic service by foreign carriers - in both directions.

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