Flags of Convenience
A flag-of-convenience airline is a carrier that is established in a country other than the home country of its majority owner(s) in order to avoid regulations of the home country. Flags of convenience are often used to decrease labor costs and undercut established markets.
Two examples are Norwegian Air International (NAI) and Norwegian Air UK (NAUK), which are both subsidiaries of Norwegian Air Shuttle (NAS). While NAS is headquartered in Norway, NAI and NAUK have been established in Ireland and the UK, respectively, in order to take advantage of these countries’ less-restrictive labor and regulatory laws. By flagging in Ireland, for instance, NAI expects to be able to use flight crews employed under contracts governed by the laws of various Asian countries, including Singapore and Thailand. This scheme runs counter to not only the letter and spirit of the U.S.-EU Air Transport Agreement, but to the public interest as established in the U.S. aviation statutes.
The flag-of-convenience business model has been responsible for the destruction of the American maritime shipping industry. In 1955, U.S.-flagged vessels carried 25 percent of the world’s tonnage with 1,072 ships. Today, U.S. carriers account for just two percent of world tonnage with 167 ships. That falloff is a direct result of forum shopping, a process where ship owners opt to register and “flag” their vessels in a country that offers the most business-favorable laws governing their crews, taxes, and other aspects of their business. The U.S. airline industry employs more than 151,000 workers who support its international operations. Collectively, these workers earned $11.3 billion in wages in 2015. U.S. airlines’ international operations contribute about $95 billion per year to the U.S. economy. Foreign flag-of-convenience air carriers put those jobs and their economic benefits at risk.
NAI and NAUK are just the first examples of what could be dozens of flag-of-convenience operations in the international airline marketplace. The Department of Transportation and Congress must take immediate steps to prevent the proliferation of this job-killing business model.
- The new administration should immediately move to revoke, suspend, or modify the DOT’s decision regarding Norwegian Air International and revoke or suspend the foreign air carrier permit.
- Congress should clarify that flag-of-convenience airlines are not in the U.S. public interest by immediately passing the Flags of Convenience Don't Fly Here Act (H.R. 2150).