Aviation Law Prof Blog

Members of U.K. Parliament Express Willingness to Ground Planes Over ETS

The British parliament's Energy and Climate Change Select Committee has recommended that any foreign carriers that refuse to participate in the EU's emissions trading scheme should be grounded. See Mathew Carr, U.K. Lawmakers Threaten to Ground Non-Carbon Compliant Planes, Bloomberg, Jan. 26, 2012 (available here). The Committee's comments appear directed at U.S. carriers as the U.K. is the Member State designated for enforcement and allowance collection for U.S. airlines. This latest rhetoric provides yet another example of the intensity of opinion on both sides of this dispute, and offers some pushback by ETS defenders against recent criticism from the U.S., China, India and Russia. At this point it remains only rhetoric however, as U.S. carriers claim to be complying with the ETS and it is far from clear that the Committee's enthusiasm for a trade war on this issue is shared by the rest of the U.K. government or EU authorities who are presently facing a myriad of other economic concerns. Don't expect actual grounding of U.S. aircraft any time soon.

Japan and U.K. Making Progress on Liberalizing Air Services Agreement

Recent talks between Japan and the U.K. on a bilateral aviation pact have produced an agreement to employ an open skies policy regarding flights to and from Narita International Airport. See Narita Part of U.K. Open-Skies Deal, Japan Times, Jan. 25, 2012 (available here). This reflects a continuation of recent trends by both countries. Japan signed open skies agreements with the U.S. in 2010 as well as Canada and Australia in October of 2011. The U.K. has made a concerted effort to expand its access to Asian markets, most notably through its wide-ranging 2007 open skies agreement with Singapore.

Yet Another Temporary FAA Funding Extension

With FAA funding set to expire January 31, the House of Representatives approved a short-term extension that will keep FAA programs funded through February 17 to allow enough time to finalize a long-term funding bill. See House Approves Short-term Extension of FAA Programs for the 23rd Time, Long-term Plan Near, Associated Press, Jan. 24, 2012 (available here). This will be the 23rd short-term funding extension since 2007, a disgraceful state of affairs that impedes long-range planning. However, news broke last Friday of a compromise that reportedly will allow passage of a long-term funding bill in the coming weeks.

New U.S. Passenger Protections Take Effect

The remaining aviation rule changes issued by the U.S. Department of Transportation last April become effective today and Thursday. See Susan Todd, Airline Passengers to Get a Break on Baggage Costs and Other Fees, Star-Ledger, Jan. 24, 2012 (available here). The rules regarding tarmac delays and lost baggage compensation took effect last August. Today's rules require airlines to disclose baggage fees at the time of ticket purchase, provide prompt notification to passengers regarding delayed or canceled flights, and allow passengers to reserve a ticket for 24 hours or cancel a purchase within 24 hours without penalty if more than a week before the scheduled flight. The final rule change will take effect Thursday and will require airlines advertisements to include the actual price of the ticket including taxes, fuel surcharges and other fees. The text of the regulations are available here.

Do UK Competition Authorities Need to Scrutinize IAG Purchase of BMI?

Last month International Airline Group (IAG), the parent company of British Airways and Spanish carrier Iberia reached an agreement with Lufthansa to acquire British Midland International (BMI). While the merger has to be approved by European Commission (EC) competition authorities, Virgin Atlantic, which made an unsuccessful bid for BMI, is pushing for British regulators to examine the effects of the deal on the UK domestic market as well. See Rob Gill, Virgin Atlantic Pleads for UK Authorities to Probe BA-BMI Deal, Air & Business Travel News, Jan. 16, 2012 (available here). The primary concern is that, if approved, the merger would increase IAG's control of slots at Heathrow airport from 44% to 53%. IAG has said it intends to use the new slots for long-haul routes, which would imply the merger is more likely to affect international rather than domestic markets, making EC regulators a greater obstacle than any potential review by UK regulators.

Compromise on Labor Provisions Could Lead to FAA Funding Bill

Congressional leaders have reportedly reached an agreement that will allow them to get past the impasse on union voting rules that was a major reason for the FAA shutdown last August. See John Crowley, Congress Reaches Breakthrough on U.S. Aviation Bill, Reuters, Jan. 20, 2012 (available here). The FAA has operated on short-term funding extensions for the past few years, seriously inhibiting the ability to plan for long-term projects such as the NextGen air traffic control system. The current funding extension ends January 31. This compromise provides optimism that a bill with long-term funding will be passed soon.

India Considering Allowing FDI Up to 49 Percent

Reports today indicate that India's Aviation Ministry has recommended rule changes that would allow foreign airlines to purchase shares in Indian carriers. See Anurag Kotoky & Aniruddha Basu, India Moves to Let Foreign Airlines Invest, Reuters, Jan. 17, 2012 (available here). The Ministry's recommendation would permit foreign carriers to own up to 49 percent stake in an Indian airline, a significantly higher limit than the numbers reportedly under consideration a month ago. This would give foreign airlines the same investment rights as non-airline foreign investors. Foreign airlines are currently prohibited from making any investment in Indian carriers. The proposed change awaits approval by the Union cabinet before it can take effect, but industry observers and market investors appear optimistic about the measure's success. See Tarun Shukla & P.R. Sanjai, Cabinet to Take Up 49% Airline FDI, livemint.com, Jan. 18, 2012 (available here).  While approving any foreign investment in its airlines is novel for India, the contemplated upper limit of 49 percent would nevertheless keep India firmly within the range of foreign ownership (i.e., less than a majority stake) permitted by the nationality rule in bilateral air services agreements.

 

Latest Updates on Boeing-Airbus Dispute

U.S. and EU trade officials met last Friday and reached agreement on procedures for the next phase of the ongoing dispute over government subsidies provided to Airbus and Boeing. See Eric Morath, EU, U.S. Meet Over Airbus, Wall St. J. MarketWatch, Jan. 14, 2012 (available here). The U.S. alleges that the EU has not adequately complied with last year's WTO ruling on the subsidy dispute, while the EU contends it has fully complied. On friday, both parties agreed to wait for a WTO ruling on EU compliance before beginning proceedings for noncompliance damages. On Friday, the WTO also appointed an arbitrator for the eventual damages proceedings. A WTO appeals panel is currently reviewing the question of U.S. subsidies to Boeing. Should the ruling go against the U.S., Friday's agreement provides the U.S. with six months to demonstrate compliance with the ruling before noncompliance and damage proceedings take place in the same order as agreed upon for the Airbus proceedings.

AMR Merger Speculation Heats Up

Though a deal is likely months away multiple news outlets today reported that three entities are considering making a play for AMR. See Gina Chon, Susan Carey & Mike Spector, Rivals Eye American Airlines, Wall St. J., Jan. 13, 2012 (available here). Delta, US Airways and private equity firm TPG Capital are all reportedly evaluating an acquisition of the bankrupt carrier. According to the Wall Street Journal story, Delta believes it can make the concessions necessary for a merger to win approval by U.S. regulators. However, not all analysts believe such a deal could survive antitrust scrutiny and some have suggested that Delta's involvement may be intended to complicate other potential deals. See Mary Schlangenstein, AMR as 'Last Plum' Stirs Interest After Airline Ranks Cut, Bloomberg Business Week, Jan. 13, 2012 (available here). Additionally, a merger with Delta could face difficulties with foreign competition authorities as losing AMR to Delta's SkyTeam alliance would be a serious blow to oneworld, leaving only two viable international alliances. See Doug Cameron, Delta, AMR Might Not Clear Foreign Regulators, Wall St. J. Deal Journal, Jan. 13, 2012 (available here). A merger with US Airways would be a much easier decision for regulators given that US Airways is only the fifth-largest U.S. carrier (Delta is second, AMR third) and does not have any overlapping hubs.

EC Finds Hungary Provided Illegal Aid to Malév

Earlier this week the European Commission announced that financing Hungary had provided to its flag carrier, Malév Hungarian Airlines, from 2007-2010 did not comply with the requirements of the Treaty on the Functioning of the European Union (TFEU). See European Commission Press Release, Jan. 9, 2012 (available here). Hungary has been ordered to recover the illegal aid from the airline, estimated to be approximately $350 million. See Kurt Hofmann, EC: Malev Must Pay Back Illegal State Aid, Air Transport World, Jan. 10, 2012 (available here). The aid would not have violated the EU's competition rules had the financing been granted on market terms available to a private carrier, or had the aid been accompanied by a restructuring plan that would have qualified the aid for the rescue and restructuring exemption. Unfortunately for Malév, the EC determined that neither of those conditions was satisfied.

India Encouraging Carriers Not to Comply with EU ETS

India, like China, has asked its carriers not to cooperate with EU officials in the collection of emissions data required by the Emissions Trading Scheme (ETS). See India Protests EU Airline Emissions Tax, UPI, Jan. 11, 2012 (available here). One new twist to India's opposition, as contrasted with that of China or the U.S., is that Indian Environment Minister Jayanthi Natarajan, in a letter to EU Commissioner for Climate and Energy Connie Hedegaard, threatened that continued application of the ETS to non-EU carriers could negatively affect future climate change negotiations. Viewed in combination with threats by China to cancel purchases from Airbus and threats from the U.S. to issue retaliatory charges against EU carriers, ETS opponents appear willing to probe any conceivable EU pressure point that might give them the upper hand in this dispute.

Survey Shows Increasing Industry Concern Over Regulations

Sabre Airlines Solutions released the results of its bi-annual survey of airline executives earlier today. See Sabre Airlines Solutions Press Release, Jan. 10, 2012 (available here). Executives named Fuel Prices  as the top challenge that negatively impacts an airline's business revenues, followed by Government Regulations and Airport/Passenger Security. According to the press release, this is the highest Government Regulations has ever ranked in the survey results, a possible result of the attention given to the expansion of the EU ETS to the aviation sector as well as recent regulatory changes by the U.S. DOT. Concern about government regulations was reportedly highest in Asia-Pacific, Europe, Middle East and Africa.

U.S. Considering Retaliatory Measures Against EU

According to an Obama administration official quoted in a Reuters article last week, the administration is considering taking retaliatory measures in response to the EU's imposition of ETS regulations on U.S. carriers. See John Crawley & Andrew Quinn, U.S. Weighs Retaliation Over Europe Aviation Law, Reuters, Jan. 6, 2012 (available here). While more attention has been given to the pending legislation that would prohibit U.S. carriers from complying with the EU scheme, any substantive U.S. response is likely to be carried out by the DOT and Secretary of State, presumably under the authority of International Air Transportation Fair Competitive Practices Act of 1974, currently codified in 49 U.S.C. § 41310. However, that statute applies to discriminatory practices, making its applicability to the EU ETS, which applies equally to all carriers, questionable. Thus, congressional legislation may be a necessary prerequisite to ensure the administration has the proper authority to act before going forward. 

Can China Refuse to Participate in EU ETS?

Cai Habo, deputy secretary-general of the China Air Transport Association (CATA), announced today that Chinese carriers will not cooperate with EU emissions officials and will not surrender the required emissions permits or pay the monetary penalties for non-compliance. See Jonathan Watts, Chinese Airlines Refuse to Pay EU Carbon Tax, The Guardian, Jan. 4, 2012 (available here). It remains to be seen how the EU will respond. Aside from the dramatic step of banning Chinese carriers from EU airports, it is not clear how the EU can force China to participate. Though the ETS is now in effect for airlines, at present EU officials are only calculating aircraft emissions; carriers will not receive the bill for this year's emissions until early next year. This mitigates somewhat the need for an immediate resolution to the standoff between the EU and China. However, EU officials will soon need to determine how far they are willing to go to ensure compliance, as legislation similarly prohibiting U.S. carriers from participating in the EU scheme is under consideration by the U.S. Senate.

Airlines Slow to Participate in EU Carbon Market

As it is now 2012, the aviation industry is officially required to participate in the EU ETS. An article today from Reuters Africa suggests that patience will be necessary when attempting to evaluate the impact of this new regulation on the aviation sector. See Jeff Coehlo and Ben Garside, Legal, Economic Concerns Mute Aviation CO2 Trade, Reuters Africa, Jan. 3, 2012 (available here). According to the story some carriers have already begun purchasing permits, but many, especially non-EU carriers, remained cautious given the possibility of future legal challenges and diplomatic stand-offs over the scheme. The recent collapse of the price of permits as a result of ongoing economic troubles further complicates the decisions facing the newest ETS participants as to how best to proceed with their new obligations under EU law.

Holiday Posting

Posting will be intermittent over the coming week, returning to a regular, daily schedule after the New Year. Best seasonal wishes to everyone.

Initial Reaction to the CJEU Opinion

Yesterday's opinion by the Court of Justice for the European Union (CJEU) [which was abbreviated in yesterday's post using the former acronym ECJ] affirmed Advocate General Kokott's advisory opinion with regard to the substantive legal questions at issue in the case. Consequently, our analysis of the Court's opinion remains consistent with our earlier posts in response to the October advisory opinion. Nonetheless, we offer a few brief observations:

• The CJEU was more clear and forceful than the Advocate General in its pronouncement that the EU is not bound by the Chicago Convention. While the Advocate General also concluded that the Chicago Convention does not bind the EU, she acknowledged that the participation of all EU Member States in the Convention merited at least some consideration, stating that "[The Chicago Convention] must nevertheless be taken into account when interpreting provisions of secondary EU law. As a consequence, the Advocate General went on to analyze the compatibility of the ETS with a number of relevant Convention Articles. The CJEU, by contrast, spent little time discussing the Convention, instead focusing almost exclusively on customary international law principles and the US/EU Open Skies Agreement. Anyone who is of the belief that the Chicago Convention should retain some legal significance within the EU would have to be even more disheartened by the CJEU's opinion than by that of the Advocate General. 
• The Court was apparently unimpressed by the arguments that the proposed application of the ETS would violate other States' sovereignty over their airspace or prohibitions against extraterritorial regulations. In the Court's view the regulations clearly only affect aircraft that are properly within the EU's territorial jurisdiction. The opinion included only one sentence on the question of whether that regulation had improper extraterritorial effects.
• Judging by the amount of attention devoted to each legal question and the clarity with which the question was answered, the Court appeared least sure of itself when addressing the question of whether the required surrendering of emissions allowances constituted an improper fuel tax. The Court concluded that the indirectness of the market-based mechanism by which the aircraft operators are charged saved the ETS from qualifying as a fuel tax, but it was much less dismissive than it had been with the other arguments.

Blog authors Brian F. Havel and John Q. Mulligan will provide an expanded analysis of the CJEU and Advocate General opinions in an article for the Spring 2012 issue of Air and Space Law. Details about the article will be forthcoming.

 

New Pilot Fatigue Rule

The FAA announced a final rule containing measures intended to protect against pilot fatigue. The FAA press release is available here, and the text of the rule can be found here.

ECJ Rules In Favor of EU ETS

Earlier this morning the European Court of Justice issued its ruling on the EU's aviation emissions plan, confirming the advocate general's opinion and pronouncing Directive 2008/101/EC valid. The text of the opinion is available here. More analysis to come.

Brief Thoughts on the UK Draft Civil Aviation Bill

Last month the UK Department for Transport released a Draft Civil Aviation Bill that would rewrite the regulatory framework for the UK aviation industry. The text of the Bill is available from the Department for Transportation here. The Department appears to have identified four objectives to be achieved through its proposed regulatory changes: transferring regulatory authority to the Civil Aviation Authority (CAA), shifting regulatory costs to the industry, providing greater flexibility to regulators and prioritizing consumer interests. When possible, we'll expand on these thoughts in a later post.