Friday, March 23, 2007

U.S.-EU Open Skies Breakthrough and Tentative Approval of Virgin America License

The European Union’s transport ministers unanimously approved the first-stage U.S.-EU open skies agreement yesterday with two modifications: (1) that the agreement will not go into effect until March 30, 2008 (the start of the 2008 IATA summer scheduling period); and (2) if a second-stage agreement is not reached by the end of 2009, Member States may request the Commission to withdraw traffic rights granted by the first stage of the agreement.  For the official conclusions of the Council click here.  A more detailed overview of the terms and conditions of the agreement was released by Commission since the last blog posting, but does not take into account the changes requested by the Council.

A useful article from today’s Wall Street Journal lists the airlines that might potentially benefit or be harmed by the agreement.  Download wall_street_journal_michaels.doc  Another Wall Street Journal article from yesterday lists various airlines’ public responses and plans announced in reaction to the agreement.  Download wall_street_journal_airlines_reactions.doc  Given Continental’s strong opposition to the NPRM it was interesting to see that they were among the first to apply for new route authority (they would like to fly Houston-London Heathrow by summer 2008) in the wake of the agreement.  Click here for CO press release and full DOT filing.  On the European side, Aer Lingus announced that they would begin new service to San Francisco, Orlando and Washington-Dulles by the end of 2007.  Virgin Atlantic disclosed plans to start non-stop flights between New York and Paris, Frankfurt, Amsterdam and Madrid within two years and suggested that they are still interested in buying BMI to provide more feed to their long-haul network.  Finally, British Airways’ CEO Willie Walsh attempted to downplay the economic impact of the new agreement, while still calling on the UK government to use its right to terminate traffic rights if a second stage agreement does not yield "free access to each others' markets without restrictions and [make it] possible for a U.S. airline to be 100% owned by investors from the EU and vice versa."  Download dj_newswire_ba_stories.doc

The only group that could potentially muster any meaningful opposition to the agreement taking effect are Democratic elements of the House Transportation Committee (chaired by Rep. James Oberstar), who are feeling pressure from labor unions to oppose the deal.  Click here for AP story discussing this possibility.  Congress will more likely focus its efforts on keeping the second stage of the agreement from taking shape rather than attempt to pass legislation blocking parts of the first stage agreement. 

In a decision Wednesday that some critics contend was orchestrated to entice the UK to approve of the open skies agreement, the U.S. DOT tentatively approved Virgin America’s application for the economic fitness certificate the carrier needs to begin operations.  DOT press release and show cause order.  In a perfect example of unusual and inefficient consequences arising out of the "actual control" test, the DOT required the carrier (among other necessary reforms) to replace its CEO "who the record suggested might be ‘beholden’ to foreign interests under DOT precedent."  While the Institute supports the end result of the DOT’s analysis, their decision serves to highlight the continuing need for NPRM-like reforms to the DOT’s test for air carrier citizenship.

March 23, 2007 | Permalink | Comments (1) | TrackBack (0)

Wednesday, March 7, 2007

U.S.-EU Open Skies Agreement Follow-Ups

1) A Reuters story today suggests that the EU transport ministers must unanimously back the U.S.-EU open skies agreement for it to be approved when they meet on March 22.

2) A copy of the speech that UK Secretary of State for Transport, Rt. Hon. Douglas Alexander gave at a London aviation conference earlier this week (referred to in yesterday's blog posting) is available by clicking here.

3) Michael Levine wrote an interesting editorial piece in todays Wall St. Journal supporting the new U.S.-EU open skies agreement and advocating for the DOT's approval of Virgin America's operating certificate. Download mike_levine_editorial.doc

March 7, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 6, 2007

U.S. and EU Conclude New Draft Open Skies Agreement and Passenger Bill of Rights Legislation Introduced In U.S. House

U.S.-EU Agreement

Last Friday, the U.S. and the EU concluded a new draft open skies agreement.  The specific terms of what was substituted for the withdrawn U.S. NPRM on 'actual control' of U.S. air carriers are discussed in a recent EU press release.

An aviation conference that was held in London yesterday gave many of the parties involved in, or impacted by, the negotiation of the agreement the chance to give their opinion on the new agreement.  Not surprisingly, European Commission VP-Transport Jacques Barrot and U.S. Deputy Asst. Secretary for Transportation Affairs at the State Department John Byerly touted the benefits of the agreement for their respective constituents (Barrot speech and Byerly speech).  BA Chairman Martin Broughton said the draft agreement was based on a U.S. open skies model which was a ‘template designed to bolster U.S. interests’ that the agreement offered ‘minuscule concessions dressed up as significant breakthroughs’. Download martin_broughton_speech.doc

While the International Aviation Law Institute strongly supports the new draft agreement, there are many questions that have yet to be answered:

(1) Will the transport ministers from the 27 EU governments approve the agreement by unanimity when they meet on March 22 or will a qualified majority system need to be used?  If the agreement is approved by the Council it could potentially be signed at the April 30 U.S.-EU Summit.

(2) Is the UK government as sympathetic to the position of BA as Chairman Broughton seems to believe and will the economic impact on BA be as dire as the markets seem to think?

(3) Will the U.S. Congress weigh in on the deal?  Congress may not be able to veto the agreement per se as it is an executive agreement, but they could potentially enact legislation blocking one of the elements of the proposed deal.

(4) Are the new provisions stating that EU ownership of more than 50% of a U.S. carrier will not be presumed to violate the 'actual control' requirement (as long as foreign ownership of voting equity does not exceed 25%) and setting forth the terms by which U.S. and EU airlines may enter into franchising agreements meaningful enough changes to secure approval from the EU transport ministers?

(5) Will the EU transport ministers press for cabotage as they did in 2004?

(6) Is liberalized access to Heathrow meaningful for the U.S. if BAA is not able to free up more slots at the congested airport (currently operating at 98% capacity)?

We will be following these issues closely and will examine further developments in upcoming blog postings.

Passenger Bill of Rights

On March 1, as discussed in our previous blog posting, Rep. Mike Thompson (D-CA) introduced the "Airline Passenger Bill of Rights Act of 2007".  (full text of bill, outline of main provisions)   The Air Transport Association has come out against any legislative action on a passenger bill of rights arguing that inflexible government standards in this area may cause more harm than good (James May USA Today editorial).

March 6, 2007 | Permalink | Comments (0) | TrackBack (0)