May 2, 2009
EU Moving Toward Suspension of "Use or Lose" Slot Rule
As discussed on the blog previously, the European Commission has forwarded a proposal to the European Parliament and Council to temporarily suspend Council Regulation 95/93's "use or lose" rule where a carrier must operate 80% of its slots during the period for which they have been allocated in order to retain them for the next equivalent period. Under the Commission's original proposal, COM (2009) 121 final (Mar. 10, 2009), "slot coordinators [at EU airports] shall accept that air carriers are entitled to the same series of slots during the summer 2010 scheduling season as were allocated to them during the summer 2009 scheduling season." In other words, the airlines would be allowed to drop below the 80% threshold without risking slot forfeiture. The Commission's proposal also seeks to use the so-called "comitology" procedure to allow it to extend the slot rule suspension into the winter 2010-11 season if the Commission unilaterally determines that such a measure is warranted by the ongoing economic crisis.
A number of industry stakeholders and observers were immediately critical of the measure, charging that it would economically harm EU airports due to a decrease in the number of flights operated and bar potential new entrants from capturing surrendered slots. Initially, the cries did not go unheeded. In its draft report on the Commission's proposal, 2009/0042 (COD) (Mar. 31, 2009), the Parliament's Committee on Transport and Tourism offered a substantial amendment to the Commission's suspension plan which would lower the operating threshold from 80% to 75% to accord with an estimated 5% decrease in passenger demand rather than suspend the rule altogether. The Committee also added the following:
If, for a series of slots, the air carrier does not meet the 75% threshold for the summer 2009 scheduling period, it will be entitled to this series of slots only if no other air carrier has applied to use it for the same route. If one or more other carriers have applied to use it for this route, the slot shall be allocated by auction to the carrier making the highest bid. Air carriers, including incumbent carriers, to which a series of slots is new allocated under this paragraph, must commit themselves to use it for that same route for at least the next two corresponding periods.
This tempered modification of the "use or lose" rule could have assuaged fears that the Commission is moving to protect incumbents, undermine competition, and pass costs onto the airports and consumers. Unfortunately, the measure was short lived. In the Parliament's approved first reading of the Commission's proposal, A6-0274/2009 (Apr. 24, 2009), the full suspension of the "use or lose" rule for the summer 2010 season is back in. What is noticably out, however, is the Commission's hopes to use the comitology procedure to allow further unilateral suspensions. Any future proposals to suspend the "use or lose" rule would have to go through the Parliament and Council in conformity with the so-called "codecision" procedure. Interestingly, the Parliament also adjusted the second recital of the Commission's proposal to urge that any future proposal to suspend or modify the "use or lose" rule "should be made only if it forms part of a proposal for a general revision of" Regulation 95/93. In the opinion of the Committee on Transport and Tourism's Rapporteur, "[Regulation 95/93] on slot allocation requires a general overhaul in the near future, which addresses, among other things, competition issues as well as questions of slot ownership, trading etc." Assuming that such revisions would ensure that market-based measures are used to more efficiently (re)allocate slots and alleviate the capacity crunch at EU airports, they would be most welcome.
May 1, 2009
What Is "Achievable" for the Second Stage?
Michael Goldman, a named partner at the Washington, D.C. law firm Silverberg Goldman & Bikoff, has issued a white paper at Air Transport World entitled, "Elections Do Have Consequences: The Case for a New US-EU Stage Two Agreement." The title is a curious one since the 2007 U.S./EC Air Transport Agreement explicitly contemplates negotiations for a second stage agreement; no "case" needs to be made for one. Cf. Air Transport Agreement, art. 21, 2007 O.J. (L 134) 4. Arguably, however, there remains plenty of room to agitate for the specific content of a second stage agreement. Goldman believes--no doubt quite rightly--that the chances for progress to be made on liberalizing the U.S.'s rules on foreign ownership and control of airlines are slim. That doesn't mean, according to Goldman, that all hope for the second stage is lost. According to Goldman, the second stage could still yield "breathtaking" results in the form of "a substantial expansion of [seventh] freedom traffic rights; arrangements for mutual recognition of each side's greenhouse gas emissions/cap and trade regimes; resolution of the contentious environmental dispute on regulation of aircraft noise near airports; and the harmonization of transatlantic security rules."
While all of these potential elements of a second stage agreement are worthy of reflection, Goldman's optimism that an expansion of seventh freedom traffic rights is "achievable" may be unwarranted. Goldman asserts that "a broad exchange" of seventh freedom rights will "provide for balance" between both sides. As it currently stands under the 2007 Agreement, the U.S. recognizes the internal EC construct of the "Community air carrier," meaning all EU carriers are eligible for designation by all Member States for seventh freedom passenger/cargo combination services from both EU and European Common Aviation Area States. See Air Transport Agreement, supra, art. 3(1)-(3). The 2007 Agreement also provides for unrestricted reciprocal seventh freedom all-cargo rights, except that the U.S.'s rights are limited to the Czech Republic, France, Germany, Luxembourg, Malta, Poland, Portugal, and the Slovak Republic. See id. Annex 1, sec. 3. These rights are in addition to the exchange of unrestricted reciprocal third, fourth, and fifth freedoms which have long been part of the U.S.'s "Open Skies" template. It appears that Goldman perceives the absence of reciprocal seventh freedom passenger/cargo combination services and truly unrestricted all-cargo sevenths for U.S. airlines as creating an imbalance. But is this view tenable or, rather, does this view have equal purchase on both sides of the Atlantic?
Aid for Airlines?
The Associated Press reported yesterday that U.S. Transportation Secretary Ray LaHood believes the Obama Administration will seek financial aid for U.S. airlines to assist them in making the necessary upgrades to their fleets for NextGen--the Federal Aviation Administration's plan to move from a radar-based to a satellite-based air traffic control system. The system, which is expected to cost at least $20 billion, isn't expected to be completed until 2025.
There is a not unreasonable tendency for brows to start perspiring when the words "aid" and "airlines" are used in the same sentence. Following the post-9/11 Air Transportation Stabilization Act which authorized the Government to guarantee loans to the airlines, concerns were raised that the legislation--though limited in scope--could prefigure reregulation. See Brian F. Havel & Michael G. Whitaker, The Approach of Re-Regulation: The Airline Industry After September 11, 2001, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¶ 10,051, at 4101. This time out, however, it appears that the aid will be targeted to assist in upgrading the country's woefully inadequate aviation infrastructure and not to assist the airlines through a tough operating environment.
For those either unfamiliar with the current air traffic control system or wishing to learn more, the men's lifestyle magazine GQ recently ran a story entitled "Traffic," detailing the system's daily operations and its antiquarian mechanisms.
April 28, 2009
At the conclusion of his recently published tract, A Failure of Capitalism: The Crisis of '08 and the Descent into Depression (Harvard Univ. Press, 2009), Judge Richard Posner identifies the present depression as "the product of a financial crisis that resulted from the confluence of two dangerous developments: low interest rates in the early 2000s and the deregulation movement, which began in the 1970s," id. at 315. On the latter development, it would seem that Judge Posner is repeating a certain prejudice which has captured part of the present political imagination: deregulation is intrinsically bad (if not evil) and thus to blame for the U.S.'s (if not the world's) present economic woes. However, 200 pages earlier in the book, Posner offers an important observation which lends credence to the view that it is not deregulation per se which is blameworthy, but a failure of some to make the necessary distinctions between the industries and sectors which have been subject to a rollback in regulatory oversight:
The roots of the failure [for government to prevent the economic crisis through stronger regulatory oversight of the financial sector] lay in a widespread dissatisfaction, beginning in the 1970s,with public-utility and common-carrier regulation, and other forms of economic regulation as well, including the regulation of banking and investment. The economists who inspired the deregulation movement were not macroeconomists and did not differentiate between banking and other regulated industries, such as railroads and airlines. They were not alert to the macroeconomic implications of competition in banking; and macroeconomists . . . thought that the problem of depressions had been solved.
April 27, 2009
Update From the Institute
With a number of projects coming to a close as the academic term ends at the DePaul University College of Law, the International Aviation Law Institute has had precious little time for blogging. Rest assured, however, that regular postings will resume this week. In the meantime, readers of the blog may wish to visit their local bookstore and purchase a copy of Judge Richard Posner's A Crisis of Capitalism: The Crisis of '08 and the Descent into Depression (Harvard Univ. Press, 2009). Judge Posner will launch a new blog atThe Atlantic, The Posner Economic Crisis Blog, to keep his work updated. For those who have (or plan to) purchase a copy of Prof. Brian Havel's Beyond Open Skies: A New Regime for International Aviation (Kluwer Law International, 2009), you will note from the book's Preface that the Aviation Law Prof Blog serves a comparable, but more expansive, function.