March 28, 2008
Open Skies - Ready to Launch
News agencies all over the world are reporting on the historic U.S./EU Air Transport Agreement, dubbed "Open Skies," which goes into effect this Sunday. Under the Agreement, the old restrictions on which airlines have access to the lucrative transatlantic route between the United States and Europe have been abolished. Many commentators are hopeful that the Agreement will bring about greater choice for consumers and result in lower airline costs. However, as the BBC News has correctly reported, the current cost of fuel is likely to offset these anticipated price reductions. What the BBC failed to get right-and what should be made perfectly clear-is that the Agreement still maintains the old strictures on foreign investment. Contrary to the BBC's claim that U.S. airlines will be able to buy up to 49% shares in their European rivals while foreign investment in U.S. airlines is capped at 25%, the Agreement provides that European investors can acquire 49% equity stock in U.S. carrier with the possibility of gaining more, subject to Department of Transportation approval. The 25% limit applies only to voting stock. Under the Agreement, the EU is permitted to impose a reciprocal 25% voting stock on U.S. investment-a much tighter cap than what existed prior to the Agreement.
News agencies have also picked up on the fact that a "second stage" of negotiations between the U.S. and EU is set to begin on May 15. One of the key issues for those talks will be opening up foreign investment. Jacques Barrot, the EU Transport Commissioner, has already vowed to suspend rights under the current Agreement if a satisfactory outcome on the matter is not reached by 2010. According to Barrot, the next stage of negotiations "will aim to achieve full liberalisation in traffic rights, new possibilities for investments by European companies in the United States and for U.S. companies in Europe, measuring the effect on the environment and constraints on exercising traffic rights, access to transport programs financed by the U.S. government, and leasing aircrafts with crew."
As readers of the blog may recall, the International Aviation Law Institute, in cooperation with the International Institute of Air and Space Law at Leiden University, convened an experts' Working Group in Dublin, Ireland last November to begin discussing the "second stage" issues. This fall, the Institute will provide a full treatment of the evolution, implications, and future of the new U.S./EU open skies agreement in Professor Brian Havel's new book, Beyond Open Skies.
March 26, 2008
American Airlines announced today that it has grounded two-thirds of its MD-80 fleet, prompting 171 of its 2,200 daily flights to be canceled. Concerns over the connection of wiring within the aircraft spurred American to action. American Airlines is hopeful that the inspections, which only take a matter of hours, will be prompt and allow them to put the MD-80’s back into service. In an official statement, American noted that a Federal Aviation Administration audit led to concerns over the wiring. However, the decision to ground the planes was American's. This matter comes on the heels of public backlash against the FAA for lax inspections of Southwest Airline’s fleet. While that incident ultimately led to FAA issuing a stiff $10.2 million fine against Southwest, a Congressional investigation of the incident and the FAA’s handling of the situation is still on the horizon.
In addition to the current American Airlines situation, the FAA has also ordered the inspection of hundreds of Boeing 737 aircraft after concerns that a faulty bolt may be causing fuel leaks. The order includes both older and newer models of the aircraft, though at this time no action has been taken to ground any of the aircraft under inspection. Airlines have ninety days following the order’s effective date of April 8 to complete the inspections. While the FAA only has direct authority over U.S. airlines, it is likely that the order will be followed in other countries whose airlines utilize the Boeing 737.
March 25, 2008
Second Circuit to the Rescue
As expected, the Second Circuit Court of Appeals struck down New York State's Airline Passenger Bill of Rights Act. In a unanimous decision, the court found the act expressly preempted by the Airline Deregulation Act of 1978. Also of concern to the court was the potential of giving free reign to state regulation of the airline industry. "If New York's view regarding the scope of regularity authority carried the day," so the court observed, "another state could be free to enact a law prohibiting the service of soda on flights departing from its airports, while another could require allergen-free food options on all outbound flights, unraveling the centralized federal framework for air travel." The court was not unsympathetic to the aims of the New York statute: "Although the goals of the [statute] are laudable and circumstances motivating its enactment deplorable, only the federal government has the authority to enact such a law."
It remains to be seen what the next course of action may be on the part of New York State or consumer advocacy groups. News outlets are already reporting that New York State attorney Andrew M. Cuomo is contemplating an appeal to the Supreme Court. So far there is no word on what, if any, action federal legislators may attempt to take.
Netherlands Court Upholds Ticket Tax
Readers of the Aviation Law Blog may recall Frans Vreede’s guest post from February 5 on the Dutch Ticket Tax. In that post, Mr. Vreede set down an argument against the Netherlands’ imposition of a $67 per ticket tax on all departures bound for outside the territory of the European Union ($17 for those within). As Mr. Vreede’s post made clear, the tax may be in violation of Article 15 of the Chicago Convention and may also run afoul of the U.S./EU Air Transport Agreement. Despite this, a Dutch court in the Hague has rejected claims of the tax’s illegality.
Led by the Amsterdam airport Schiphol Group, the challenge to the new ticket tax fell to a narrow reading by the court. On a first sight reading of the case, the judge took Article 15’s omission of the word "tax" from the list of impermissible charges to be indicative of its inapplicability. The court failed to consider the purpose behind the article itself, i.e., as a prohibition to setting charges which have no relationship to the use of airports or their facilities. While the court’s decision marks an obvious setback for civil aviation in the Netherlands, an appeal to the country’s Supreme Court to review the decision’s merits is likely.