Friday, December 18, 2009

Canada/EC Sign Aviation Treaty

Canada and the European Community officially signed their much-heralded air transport agreement today.  See Richard J. Brennan, Canada, EU Land Open Skies Deal, Toronto Star, Dec. 18, 2009 (available here).  The salient features of the agreement are outlined in the EC's official press release:

As from now all EU airlines are now able to operate direct flights to Canada from anywhere in Europe. The Agreement removes all restrictions on routes, prices, or the number of weekly flights between Canada and the EU. Other traffic rights will be liberalised gradually in parallel with the opening up of investment opportunities. The end product will be that EU undertaking or citizens will be able to freely invest in Canadian airlines and vice versa.

Furthermore, the agreement will help tackle common challenges, such as security or the environment. Both sides agreed to closely cooperate in order to mitigate the effects of aviation on climate change. In the field of safety and security, the agreement envisages mutual recognition of standards and one-stop security.  This will facilitate the operations for airlines and airports, and reduce inconvenience for passengers. The text provides for a strong mechanism to ensure that airlines cannot be discriminated against in terms of access to infrastructure or state subsidies. This approach will be a real novelty in international aviation.

See Press Release, Europa, EU and Canada Sign Air Transport Agreement, IP/09/1963 (Dec. 17, 2009) (available here).  The full text of the agreement, along with relevant background material, is available from the European Commission's Air Transport Portal here.

As discussed previously on the blog, while the agreement contains the seeds to grow into one of the most liberal aviation pacts in history, they've yet to germinate.  Like the U.S., Canada still maintains a tight 25% cap on foreign ownership of its airlines' voting equity and reserves domestic routes (cabotage) for its carriers alone.  Until Canada liberalizes its foreign investment and establishment rules for EC airlines, the potential of the agreement will not be actualized.  As it stands, while the EC has won Canadian recognition of its "Community carrier" construct whereby any airline licensed by a Member State may operate service between Canada and any point in the Community, they are not afforded fifth freedom rights.  Similarly, Canadian carriers do not have intra-Union fifth freedom rights.  So, for example, Air Canada could not operate service between, say, Toronto and London, then onward to Frankfurt.  Once Canada lifts its foreign investment cap to 49%, its airlines will have access to intra-Union fifths while both parties will have unlimited seventh freedom rights for their all-cargo carriers. 

After that, everything hinges on the willingness of both sides to take the radical legislative steps necessary to provide a full right of establishment for each other's airlines.  This would allow, for example, British Airways to operate a wholly-owned subsidiary in Canada ("Canadian Airways") with full access to cabotage routes.  The final phase of the agreement will be entered once both parties remove all restrictions on traffic and investment rights, thus setting the stage for a true crossborder airline merger (say, Air Canada and Lufthansa).  With no timetable established under the Canada/EC Agreement for accomplishing these lofty goals, however, it could be years, even decades, before its full possibilities are realized.

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