Monday, December 22, 2008
Last Friday, President-elect Barack Obama named Illinois Republican Congressman Ray LaHood to head the U.S. Department of Transportation. LaHood has been characterized "as a pragmatist" with a "determination to get things done while not getting bogged down in ideology." The Air Transport Association, in a prepared statement, noted that LaHood "has a well-deserved reputation for his even-handed, thoughtful and deliberative approach to complex issues" and that it "look[s] forward to working closely with Secretary LaHood on critical issues affecting airlines, their customers and the nation, most importantly revitalization of the aviation infrastructure, prudent and equitable action on the reauthorization of the Airport and Airway Trust Fund and how to best utilize the airlines’ potential to generate the economic growth that the Obama administration is intent on developing."
Revitalization of aviation infrastructure should be at the top of an ever-growing list of U.S. air transport policy objectives. With the nation feeling the brunt of Winter storm weather and increased travel for the holidays, the delays caused by an antiquated air traffic control system are ever more acute. A fundamental overhaul of the system will go much further to alleviating the problem of major delays than the poorly-conceived "passenger rights" legislation New York attempted to put into effect earlier this year and which the Second Circuit wisely struck down. A "Passenger Bill of Rights" packed full of penalties for delays and cancellations--still touted by some at the federal level--would only add cumbersome costs to the airlines, costs which will inevitably be passed onto cash-strapped consumers. If confirmed, hopefully Secretary LaHood will quickly apply a necessary tranche of Obama's rumored $600 billion stimulus package to this serious problem.
Two blog commentaries from The Economist on President-elect Barack Obama's economic team nominees-- Hilda Solis for Secretary of Labor and Ron Kirk for U.S. Trade Representative--are less than enthusiastic (see here and here). Why? Both are under a heavy cloud of suspicion that they will put protectionism for labor before free trade policies which will offer much broader benefits. Will this concern for the few over the interests of the many spill over into the new administration's aeropolitical relations as well? Given labor's consistent stance against progressive liberalization of foreign investment and cabotage rights, this pro-labor mentality could prove to be a dark omen for the ongoing air transport negotiations between the United States and European Union.
Friday, December 19, 2008
The Wall Street Journal reported yesterday that the merger talks between British Airways and Australia's Qantas collapsed after just two weeks of negotiations. While both sides are blaming each other for premature leaks which seriously impeded the negotiations process, the paper listed "the ownership split of the combined business, the lack of obvious cost savings beyond those already achieved under the two airlines' code-sharing agreement, the need for a complex dual-listing structure to satisfy national ownership restrictions, worries over BA's giant pension deficit and . . . its separate ongoing merger talks with Iberia" as obstacles to the deal.
The breakdown of negotiations strikes a minor blow to those who were hoping to see some concrete progress made on overcoming the longstanding nationality restrictions on airline ownership and control. However, early reports indicated that the Australian Government was never keen on handing majority ownership of Qantas over to British Airways in the first place. For starters, it would have meant a forfeiture of the airline's traffic rights to and from Japan due to the nationality restriction contained in the two countries' bilateral air services agreement. It would also have likely compromised other international traffic rights conditioned on ownership "purity." Also, the plain fact that the merger would have meant Australia's oldest and most venerable carrier was in the hands of the British would be, perhaps, more than a few Australians could stomach.
It will be interesting to see what, if any, impact the breakdown has on the continuing negotiations between the European Union and Australia for a comprehensive air services agreement. According to the European Commission, "[t]he negotiations will go beyond the 'open skies' approach." Whether that means real opportunities for foreign ownership and control of each sides' carriers by the other or more hortatory language which points to some unspecific future point where that may be possible (see, e.g., the recently concluded EU/Canada Air Transport Agreement) remains to be seen.
Thursday, December 18, 2008
Irish low-cost carrier Ryanair won a noteworthy victory over the European Commission today as the European Court of First Instance (CFI) annulled the Commission's 2004 decision which had deemed the advantages authorized by Belgium's Walloon Region and Brussels South Charleroi Airport (BSCA) to the airline to be illegal State aid.
The dispute arose out of separate agreements Ryanair struck with the Walloon Region and BSCA (a public sector company controlled by the Region) in 2000 for a substantial reduction in landing charges, compensation for any profit loss arising out of subsequent changes to airport charges, contributions to cover the costs of Ryanair establishing its base at Charleroi Airport, and reduced fees for ground handling services. In return, Ryanair agreed to maintain two to four aircraft at Charleroi and maintain three rotations a day per aircraft for fifteen years. Following a number of complaints, the Commission launched an investigation into each agreement separately and found that they amounted to illegal State aid under Article 87 of the EC Treaty. In rendering its decision, the Commission determined that the Walloon Region had acted as a public authority in reaching its agreement with Ryanair. That finding foreclosed the application of the so-called "private investor principle" whereby the Commission, through a complex economic analysis, would have had to determine whether or not the arrangement was State aid by comparing it the behavior a private market actor would likely engage in under similar circumstances. The State acting in its capacity as a public authority can never be compared to a private actor in the market, however. The Commission thus ordered Belgium to recapture the aid granted to Ryanair--leading the carrier to challenge the legality of the Commission's decision in court.
The CFI's decision, available online here, took exception to the Commission's choice to view Ryanair's two agreements separately. In the CFI's view, since the BSCA is economically dependent on the Walloon Region, the Commission should have viewed them as a single entity for the purposes of assessing whether or not they behaved as rational market actors in granting the various concessions to Ryanair. Furthermore, the CFI disagreed with the Commission that the Walloon Region was exercising its public authority powers when reaching its agreement with Ryanair. This means that the Commission should have applied the private investor principle when it made its decision. Due to what the CFI found to be a clear error in law on the part of the Commission, the 2004 decision is annulled.
Ryanair may have a reason to smile for a moment, but it may be short-lived. The Commission is continuing to investigate similar arrangements made between Ryanair and regional airports all over the European Union. While the CFI found an error in law in this particular case, no doubt the Commission will take greater care in how it renders future State aid decisions involving regional airports. The Commission also has two months in which to challenge the CFI judgment before the European Court of Justice. Whatever the final outcome of the case proves to be, there appears little reason to expect the Commission to keep itself out of the economic arrangements of low-cost carriers and public regional airports. Given the benefits strong carriers can bring to Europe's underutilized regional airports and the reality that many of the EU's mainline ports are at capacity and thus unable to provide cost-effective options to low fare airlines, it would seem the Commission should be encouraging this market development. Unfortunately, pressure from flagship airlines and longstanding airports leery of a little competition seems to be animating the Commission's concern more than development and efficiency.
Friday, December 12, 2008
The European Commissioner responsible for Transport, Antonio Tajani, has established an e-mail address where passengers flying to and from the European Union can acquire information about how to exercise their rights under Regulation 261/2004. So far the link on the Commission's Air Transport Portal only takes you to an online form for making general enquiries. No mention is made about how many months it will take them to get back to you.
Yesterday's blog post concluded with a brief remark on the possibility of U.S. airlines falling in line behind the automakers if the global economic crisis proves too damaging. News that the bailout bill died in the Senate Thursday (see The Economist's story) has been topped with new reports that the White House is contemplating using funds from the Wall Street bailout package to help prop-up "The Big Three" (see the latest stories from The Wall Street Journal and The New York Times here and here). It will be interesting to see what (if any) future action Congress will take on behalf of the automakers once President-elect Obama (and a Democrat-dominated Congress) takes office next month. As The Economist mentions, "[h]is statements on the issue have so far been rather gnomic." This leaves lingering questions over whether he'll start a soup line for America's failing businesses or simply let the market do its (occasionally dirty) work. The airlines may still have someone to hold their hats out to.
Thursday, December 11, 2008
The International Air Transport Association reported on Tuesday that U.S. air carriers could post a very modest $300 million profit while the world's other regions will likely endure $2.5 billion in losses. The losses will be nowhere near as severe as $5 billion IATA expects the global industry to lose this year. A substantial drop in fuel prices and a 10% domestic capacity reduction accounts for the comparatively sunnier outlook for U.S. carriers next year. More gloomy was the outlook for air cargo, which already experienced a 7.9% decline in October.
In a speech delivered at IATA's 2008 Global Media Day, IATA Director General and CEO Giovanni Bisignani once again decried the slow pace of liberalization for the global air transport industry. The longstanding system of bilateral agreements which have ordered international aviation for six decades "denies airlines the basic freedoms to access markets and global capital or to merge or consolidate," said Bisignani. He continued: "Industry losses clearly show that airlines feel the recession like any other business. But we don’t have the commercial tools that other industries take for granted to manage through it."
To anyone who has followed the strange tale of modern aviation, this is old news. But "old" is hardly synonymous with "unimportant." The problem is that Bisignani's cries aren't being heard or, rather, heeded by the right ears. It goes without saying that the European Commission is looking for robust liberalization in its various aviation agreements with partners such as the U.S. and Canada, along with Australia and New Zealand. But are those partners on board with the idea? As mentioned on this blog earlier in the week, the U.S. appears as recalcitrant as ever when it comes to foreign ownership of its carriers and cabotage rights. The Canadian Government, despite the encomia heaped by the European Commission on its newly-inked Canada/EC Air Transport Agreement, has made no clear-cut statement that it intends to move foreward anytime soon on raising its foreign investment cap for airlines, to say nothing about allowing European nationals to own and control them. Even Australia, which has shown far more liberality with its air transport sector than most, has indicated reserve over the possibility of allowing British Airways to merge with Qantas. Doing so would mean a potential forefeiture of Qantas's right to conduct international services to Japan since the two countries' bilateral arrangement contains a so-called "nationality rule," namely that at least a 51% stake in Qantas must remain in Australian hands.
Given the financial turmoil in which global aviation finds itself, what are the alternatives? Nobody knows for certain how long the current recession will abide and once it clears, where will fuel prices be again? U.S. carriers, which took the brunt of the 2008 downturn, cannot endure these conditions indefinitely. How long before they join the automakers and get in line for a bailout? And what will be the ramifications of that? We could see a rapid dismantling of the business freedoms and consumer benefits which came out of the 1978 Airline Deregulation Act. We could also very well see the EU, provoked by a U.S. retreat in market medievalism, prove chief U.S. negotiator John Byerly wrong by indeed doing the "nutty" thing and "tak[ing] down the whole transatlantic [aviation] structure."
A full program and select presentations from the EU/U.S. Forum on Liberalisation and Labour is now available through the European Commission's Air Transport Portal here. In the Commission's words, the forum "forms part of an initiative to facilitate discussion between stakeholders and decision-makers on labour issues linked to the first stage [U.S./EC Air Transport Agreement] and the ongoing negotiations on a comprehensive second stage aviation agreement. The event was intended to provide the participants with a common understanding of the labour laws and employee concerns that have a bearing on the agreement and its future evolution."
Wednesday, December 10, 2008
The first issue of Issues in Aviation Law and Policy (IALP) published under the auspices of the International Aviation Law Institute at DePaul University College of Law is now available. Formerly published by CCH/Wolters Kluwer since April 2001 in looseleaf format, IALP is now available as a more portable and readable perfect-bound journal. What has not changed is the core concept that animated the launch of IALP eight years ago--to present articles and commentaries by leading policymakers, officials, analysts, academics, and industry leaders who have the experience and expertise to brief readers on the challenges confronting global civil aviation today and in the future. Contributors to Volume 8, Issue 1 include:
- Brian F. Havel, Associate Dean and Professor of Law, DePaul University College of Law and Director, International Aviation Law Institute
- Michael E. Levine, Distinguished Research Scholar and Senior Lecturer, New York University School of Law
- Robert L. Crandall, Former Chairman and CEO, AMR Corporation and American Airlines
- Erwin von den Steinen, Independent Policy Analyst and author of National Interest and International Aviation (Kluwer Law/Aspen Publishers, 2006)
- Ambassador Donald T. Bliss, U.S. Permanent Representative on the Council of the International Civil Aviation Organization
- Michael S. Jacobs, Professor of Law, DePaul University College of Law and Co-Director, International Aviation Law Institute
- Randy Bennett, Former Director of the Office of Aviation Analysis, U.S. Department of Transportation
- Patrick Murphy, Principal at Gerchick Murphy Associates and former Deputy Assistant Secretary of Transportation for Aviation
- Douglas M. Marshall, Professor and Director of Program Development, UAS Center of Excellence, Department of Aviation, John D. Odegard School of Aerospace Scinces, University of North Dakota
- Gabriel S. Sanchez, Adjunct Professor, DePaul University College of Law and FedEx/United Airlines Resident Research Fellow, International Aviation Law Institute
Those interested in subscribing to IALP are encouraged to contact Stephen Rudolph, the Institute's Executive Director, at 312-362-5769 or by e-mail. A comprehensive two-volume looseleaf archive of the first seven years of IALP is also available. Contact Mr. Rudolph for further details.
Until the text of the newly-initialed EU/Canada Air Transport Agreement is posted online, readers may be interested in some of the less-than-boisterous feedback the agreement is already receiving in the press. As any schoolboy who has ready his Aristotle knows, potentiality is not actuality. A bleak economy and the protectionist sentiments it is expected to generate may have the final say.
"Canada-EU Open Skies Deal Under a Dark Cloud" from the Star notes that "industry observers warn that a slumping global economy will prevent airlines from taking full advantage of the new freedoms in the near term."
"Rules Relaxed, But Will It Open Up the Skies?" from the Globe and Mail reports that "industry analysts agreed that the deal sounds fine on paper but cautioned that, in reality, most airlines are scaling back and not adding overseas routes, citing weakened travel demand. The world's airline industry remains protectionist, and allowing full-fledged competition within Canada isn't in the cards, analysts say."
Tuesday, December 9, 2008
The European Union and Canada have just reached an historic agreement on air transport services. The new agreement, which is expected to come into effect during the first half of 2009, will grant parties' carriers the unlimited freedom to operate direct services between any point in Europe and any point in Canada. It will also grant more freedoms for carriers on both sides to enter into code-share arrangements with other airlines.
More intriguing than what the agreement immediately grants is what it promises for the future. Following the first phase of new rights in 2009, the agreement envisages three additional phases of liberalization which will ultimately allow each parties' investors to set up and control new airlines in each others' markets and full cabotage rights. Though there is no set timetable in the agreement for the implementation of these phases, the second phase--which will begin once Canada allows European investors to own up to 49% voting equity in its carriers--will give Canadian cargo carriers full seventh-freedom rights. The Canadian Government has already been under pressure from Air Canada to raise the foreign investment cap from its current 25%. Now the EU has given it a further incentive to do so.
For more information on the new agreement and its history, visit the European Commission's Air Transport Portal here.
Monday, December 8, 2008
While a number of commentators have adopted the approach of Chicken Little when it comes to the possibility of European Union Member States suspending rights under the 2007 U.S./EC Air Transport Agreement should the U.S. fail to relax its foreign ownership rules for airlines or grant cabotage rights to EU carriers as part of the second-stage negotiations to expand the first Agreement, the U.S.'s chief negotiator is more circumspect.
John Byerly, the U.S. Department of State's Deputy Assistant Secretary for Transportation Affairs, was reported by Air Transport World last week as calling it "nutty to think we're [U.S. and EU] going to take the whole transatlantic [aviation] structure down because one side doesn't get its way." Byerly's remarks contrast those of Daniel Calleja, Director for the European Commission's Air Transport Directorate, who stated that the second-stage negotiations "have to succeed by 2010." "Success," from the EU perspective, has been conceived of in terms of foreign ownership and cabotage since before the 2007 Agreement was even finalized. How likely is it that the EU will be willing to accept another delay on these issues, especially in light of the fact that the U.S. has not proffered any comparably enticing alternatives?
Byerly, it seems, is banking on the fact that the EU isn't up for a game of aeropolitical hardball and that a trade war over transatlantic air services at this point in time would be disastrous for both sides. Even if that is true for most EU Member States, the United Kingdom--spurred largely by lobbying from British Airways--has not backed off its commitment to suspend the U.S.'s recently-acquired traffic rights if the U.S. doesn't open its airlines up to substantial foreign investment. Due to the importance of London Heathrow as the primary air gateway into Europe, the UK wields considerable clout; its unilateral suspension alone could seriously impact U.S. carriers. The question the U.S. may need to ask is whether the UK might be disinclined from such rash action if, for example, the proposed deepening of the oneworld alliance between American Airlines and British Airways is granted approval and antitrust immunity from the U.S. Department of Transportation. Considering the role this repeatedly proposed (and repeatedly thwarted) alliance has played in the oftentimes tense aeropolitical relations between the U.S. and UK, it's possible that the U.S. may finally tolerate the venture in order to appease this key (and openly disgruntled) air services trading partner. Whether that and other air alliance approvals will be enough for the rest of the EU remains to be seen.