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.

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The full text of the draft US-EU air transport agreement initialled on 2 March 2007 can be found annexed to a European Parliament document at:

Posted by: John Macilree | Mar 26, 2007 7:39:47 PM

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