Mark Pestronk
Q: Our agency recently issued stock to a new investor who now owns one-third of the company. We received ARC approval of the change of ownership soon after we applied for it. A week later, we received a letter from United Airlines requiring us to submit a separate application to United. The United requirements are much more far-reaching than the ARC requirements; e.g., we must send copies of our tax returns. There is a very short deadline for submitting the application. What gives United the right to demand this information? Why does United do this? Do any other carriers require separate applications?
A: United can impose these requirements on you because United, like every carrier, has the right to prohibit you from selling United tickets for any reason or for no reason. As a corollary, United can condition its decision to do business with you on compliance with any requirements whatsoever.
On ARC's website, you can find the carriers that require separate change-of-ownership applications and the circumstances under which they require them. Pick a carrier and click on "Profile" for a popup showing the carrier's rules. No carrier requires them for every change of ownership, but the changes for which they are required are a bit quirky and quite discriminatory.
For example, "United Airlines has adopted the Specific Appointment method for new applicants and applicants undergoing a Type II or Type V Change of Ownership in the states of Arizona, California, Florida, New Jersey, New York, Texas, Virginia, Illinois and the District of Columbia. United Airlines...uses the General Concurrence method of appointing travel agents in all other states."
"General Concurrence" means that every agency approved by ARC is automatically approved by United, and "Specific Appointment" means that you have to apply separately to the carrier once ARC approves. A Type II change is defined by ARC as one where more than 30% of the stock is transferred to one or more new owners, and a Type V change is one where a nonappointed entity acquires the assets of an ARC agency.
So why does United pick on those eight states and the District of Columbia? My guess is that United has had bad experiences with defaulting agencies in those states. Delta's "profile" states: "Delta has adopted the Specific Appointment method for new applicants and applicants undergoing a Type II or Type V change of ownership in the states of California, Florida and New York."
British Airways (BA) "continues to appoint new agency locations and those undergoing Type IV or Type V ownership changes by specific appointment in the following areas: New York; New Jersey; California; Florida; Washington, D.C.; Virginia; Maryland, and Pennsylvania."
A Type IV change is one where a location of appointed agency A becomes a branch of appointed agency B, so it is hard to understand why BA singled out such a harmless change. Likely, BA also meant Type II.
Is such geographic discrimination legal? It certainly is, even assuming, hypothetically, that it is motivated by prejudice against minorities in certain geographic areas, as the civil rights laws do not apply to business-to-business transactions. So if your agency is located in one of the 10 named states or D.C., you need to plan on having to submit these applications when you sell your agency.