chapter  2
36 Pages

Development of the airline nationality concept

The combination of the cosmopolitan message included in the Chicago Convention and traditional aero-nationalism gave rise to a novel outcome. Airline nationality has significantly contributed to the prevalence of state ownership in the airline industry. Bilateral air services agreements lock airlines into artificial, administratively created markets, whereas airline nationality laws require that the international airline markets be served by domestically-owned and controlled airlines. The Chicago bilateral system advocates a classical concept of an airline as a single enterprise or separate legal entity. Such a concept is increasingly outdated, and this alone may prevent airlines from developing the more flexible governance structures normally adopted in international business. The governance culture of the industry has influenced the adoption of non-commercial corporate governance patterns at the level of air carriers. In order to portray the non-commercial character of airlines' corporate governance, this pattern should be contrasted with the Organisation for Economic Co-operation and Development (OECD) model of good corporate governance.