United States foreign policy was characterized by consensus and cooperation on matters involving economic regulation during the first three decades following World War II. But such peaceful coexistence came to an abrupt end during the administration of Jimmy Carter, when confrontation was substituted for diplomacy as a catalyst for injecting free market economic theory into international aviation. In the late 1970s, domestic airline deregulation had lowered fares for many consumers, and increased load factors and profits for carriers. To the Carter administration, what had been good for domestic markets was perceived as desirable for international markets as well. The policy of the U.S. government quickly became one of exporting deregulation. That policy met fierce resistance abroad, for most governments emphasize the important role that their air carriers play in facilitating communications, trade, tourism, and national pride and prestige, as they "show the flag" around the world. As a consequence, most foreign airlines have long been viewed as "public utility" types of enterprises, with several obligations beyond those which would be provided in a "free" market. Hence, foreign air carriers have long been governmentally regulated, owned or subsidized. Many US flag carriers also opposed their government's policy on grounds that, whatever the benefits of domestic deregulation, they were not likely to be realized in an environment in which government ownership and subsidization dominated the economic environment. Many criticized the Carter administration's "open skies" policy as naive, in giving foreign airlines access to interior US cities in exchange for vague guarantees of pricing flexibility, free competition, and non-discrimination. And by the early 1980s, many were reeling from the economic turbulence created by the new regime. And so began the most intensive international conflict in the history of aviation. Foreign governments objected both to ends and means. US airlines objected on grounds that the Carter administration was giving away the store, in order to export an ideological belief in free market economics to an environment which was hardly "free." The Reagan administration has since retreated somewhat from these ambitious beginnings. And paradoxically, resistance to market theory in some nations has since weakened. This article will trace the metamorphosis of economic regulation in international aviation from its origins to the contemporary environment
