Tuesday, October 24, 2006
2006 Aviation Leadership Summit
On Thursday, October 19th, more than sixty-five global aviation policymakers and executives gathered in Chicago for the 2006 Aviation Leadership Summit entitled "Sustainable Aviation Policies for America and the World." The Summit was hosted by the International Aviation Law Institute at DePaul University and The Chicago Council on Global Affairs.
The morning began with an opening address by Mr. Glenn Tilton, Chairman, President and Chief Executive Officer of United Airlines. Tilton noted that after years of post-9/11 restructuring, the U.S. network airline industry is "[s]tabilized, but not healthy" while low-cost carriers continue to provide a large amount of competitive pressure on the network carriers. U.S. regulatory policy towards the airlines has failed to keep up with changes in marketplace and is based on a policy of "fragmentation" that stems from the belief that "the big airlines are - or will become - too big." Regarding the domestic airline market, Tilton stated that it does not make sense for the U.S. government to "put a ‘thumb on the scale’ for new entrants." Instead, the U.S. government should encourage consolidation among U.S. airlines while making policy changes such as requiring low-cost carriers to buy their own slots. Tilton also believes that U.S. network airlines are falling behind their foreign competitors because "antiquated restrictions on foreign investment" are inhibiting their "rights to grow their business abroad." Similarly, unless the U.S. government finds a way to break out of the restrictive bilateral system of allocating air rights, U.S. airlines will not be able to "expand globally, out of our mature domestic market, to where the growth opportunities are (e.g. India, China, etc.)." Tilton concluded by hinting that the U.S. Department of Transportation (DOT)should conduct a new formal aviation policy review, as "[t]he world of aviation has changed beyond recognition" since the DOT’s last formal aviation policy review in 1995.
Glenn Tilton’s address was followed by a keynote address from Ms. Marion Blakey, Administrator of the Federal Aviation Administration (FAA). Blakey outlined some of the steps that the FAA is taking to build the "NextGen" air traffic control system that will, by 2025, handle "two to three times the amount of traffic" that it does now. She stressed the FAA’s desire to embrace private sector partnerships for developing aviation infrastructure, such as the privatization plan the City of Chicago is developing for Midway Airport. The FAA is also working cooperatively with the European Union as it develops its next-generation SESAR program for air traffic control modernization, as well as with China as it "prepare[s] for the demands of an air traffic system that will rival our own in the next 20 years." Finally, Blakey noted that work on all of these projects will be inhibited unless Congress creates a revenue stream for the FAA that is related to its operating costs.
The opening and keynote addresses were followed by three discussion sessions entitled: 1) "Building A National Policy To Restore American Competitiveness In Air Transport," 2) "The Challenge of Removing Global Regulatory Barriers: Lessons From The 2006 Multilateral Negotiations," and 3) "Megatrends For Emerging Aviation Markets." The discussions during these sessions will be part of upcoming blog postings.
1) Mesaba Strike Injunction
According to an AP story by Joshua Freed: "A bankruptcy judge on Monday blocked a strike by unions at Mesaba Aviation Inc., clearing the way for the feeder for Northwest Airlines Corp. to impose pay cuts later this week."
2) Ryanair Takeover Bid For Aer Lingus
According to an AP story by Shawn Pogatchnik: "Budget airline Ryanair disclosed details of its hostile takeover plan for Irish rival Aer Lingus on Monday and told the carrier’s shareholders they stood to lose money if they didn’t accept the offer."
3) Antitrust Lawsuits - Hawaiian and Aloha vs. Mesa Air Group
According to a story in the Honolulu Star-Bulletin by Dave Segal: "Hawaiian Airlines, encouraged by a judge’s ruling earlier this month involving its lawsuit against Mesa Air Group, is seeking to throw out the remainder of an antitrust countersuit that Mesa has filed against Hawaiian."
Friday, October 13, 2006
According to an AP story today: "President Bush signed a law Friday that will eventually eliminate restrictions on long-haul flights from Dallas Love Field, Texas officials said. Though the limits won't be lifted until 2014, travelers will see an immediate effect. Southwest Airlines has said it would begin selling one-stop tickets -- called through-ticketing -- within days of the bill signing."
A recent AP story also noted that "[t]he Irish government is seeking talks with European Union antitrust authorities to discuss Ryanair Holdings PLC’s surprise takeover bid for Aer Lingus Group PLC..."
Friday, October 6, 2006
We would like to thank Conor McAuliffe for providing us with our latest guest blog. Conor is Managing Director - European Affairs for United Airlines.
When asked to write a blog about the state and future of the US-EU open skies negotiations, I had resigned myself yet again to attempting to conjure up an original thought on the importance of Heathrow access. But Michael O'Leary came to the rescue yesterday with an audacious bid to purchase long-term rival Aer Lingus codenamed ‘operation bargepole’. Nobody in Irish political, union or industry circles, either during the public flotation of the airline or since, imagined that O'Leary would have the pure chutzpah to try to purchase the national carrier.
It must have given O'Leary enormous satisfaction to wake Martin Cullen, the Minister for Transport, at 7 am yesterday to announce that he had bought 16 percent of Aer Lingus and intended to offer a premium to shareholders to gain 51 percent control of the airline. He even had the cheek to offer to buy the Irish government's share.
O'Leary is doing what he does best - sticking it in the government's eye. For some time now, he has run a media campaign depicting Bertie Ahern, the Irish Prime Minister and his cabinet ministers as ditherers because of their failure to improve the infrastructure at Dublin Airport. Now, O'Leary has the Irish government where he wants them - in the open market - and he intends to pursue them and his economic agenda there with characteristic vim and vigor.
Having floated a majority stake in the airline on the open market just days earlier in the interests of competition, the government reacted to O'Leary's gambit with contradictory bluster. On the one hand, Cullen stated that the bid demonstrates the wisdom of floating the airline. On the other hand, he opined that the bid is bad for consumers and competition. It appears that Irish government wants to take the "free" out of "market" and dictate who will accompany the national flag carrier to the ball. The appropriateness of the proposed takeover should be decided by the competition authorities and not the Irish government.
The unions are understandably apoplectic. O'Leary has made his contempt for unions well known. To them, he is the Kaiser Soze of the aviation industry. The unions claim that his bid underscores the folly of privatization in the first place and have called upon the government to reverse the process. But any attempt to buy back the stock may well be political suicide with an election pending in the next several months. It would demonstrate political weakness and cost the taxpayer dearly because O'Leary's bid has significantly increased the airline's stock price.
No doubt, Willie Walsh, CEO of British Airways, is having the last laugh. When he was the CEO of Aer Lingus, the government rejected his effort of a management buyout of the airline and forced Walsh and his associates to leave. Now perhaps the Irish government may well live to regret the decision if O'Leary succeeds in securing majority ownership and navigates the regulatory obstacles, including the European Commission's Merger Task Force approval process (or the Irish Competition Authority if the matter is referred to it).
I began by stating that O'Leary's bid rescued me from the thankless task of discussing Heathrow access. But perhaps O'Leary's attempt to purchase Aer Lingus may be as centered on Heathrow as the US-EU negotiations. Aer Lingus is the third largest slot holder at Heathrow and slots there have significant value. Additionally, it will not be lost on O'Leary, who operates from several hubs in Europe, that he can use the Heathrow slots for transatlantic services if the US and the EU ever manage to conclude an agreement. The agreement would replace the traditional nationality clause with a Community carrier clause, thereby enabling any carrier that is owned and controlled by Community interests to operate to the United States from any point in Europe. Thus, Aer Lingus under O'Leary and Ryanair ownership could operate transatlantic services from Heathrow. In that event, O'Leary rather than Walsh may enjoy the last laugh if British Airways is faced with vigorous, low cost competition from Ryanair on the transatlantic market that currently accounts for 75 percent of British Airways' profits.
The Irish government still owns 28 percent of Aer Lingus. One of the primary reasons that it maintained this stockholding is to ensure that the owners of Aer Lingus would continue to operate Heathrow-Dublin services. It is unclear whether EU rules governing "golden shares" would allow the government, as a minority stakeholder, to dictate the fate of Aer Lingus' Heathrow slots. What better person than O'Leary to invoke EU law on this matter and enlist the help of his good friends in the Commission?