July 2, 2009
A Global Blacklist for Unsafe Airlines?
A number of news sources, including the Financial Times and The Daily Telegraph, are reporting that European Commisioner for Transport Antonio Tajani is calling for a global blacklist of unsafe airlines following the crash of a Yemeni passenger jet which is responsible for the deaths of up to 152 persons. According to the FT story, Dominique Bussereau, France's Transport Minister, told her country's parliament that "the government would 'fight' for a worldwide blacklist system to ensure passengers did not fly in 'rubbish planes.'"
As most of the stories concerning the call point out, the European Community established its own blacklist regulation in late 2005 following a series of high-profile crashes involving carriers from Egypt, Columbia, and Cyprus. See Council Regulation 2111/05, 2005 O.J. (L 344) 15. Under the Regulation, the EC may impose an operating ban on foreign aircraft which fail to meet "relevant safety standards," i.e., "international safety standards contained in the Chicago Convention [on International Civil Aviation] and its Annexes as well as, where applicable, those in relevant Community law." Id. art. 2(j). As some critics have opined, however, this proviso, which accords "relevant Community law" equal footing with the Chicago Convention's "international safety standards," appears incongruous with the latter's mandate for reciprocal recognition of its State parties' airworthiness certificates so long as they adhere to the Convention's safety standards. See [Chicago] Convention on International Civil Aviation, Dec. 7, 1944, art. 33, 15 U.N.T.S. 295; cf. id. arts. 12 & 37.
It's unclear at the moment how the EC plans--if there indeed are concrete plans--to pursue its call for a global blacklist. International initiatives, such as the International Civil Aviation Organization's Universal Safety Audit and the International Air Transport Association's Operational Safety Audit, already exist to monitor and support safety transparency. A global blacklist forged outside of the context of the Chicago Convention and without ICAO will likely draw criticism similar to what has already been levied against the EC. Whether that would translate into an actual legal challenge to the blacklist is also uncertain. Assuming the U.S., Canada, and Australia would join the EC's call, the pressure for the rest of the world to fall-in and comply will be immense. But blacklists are not panaceas for slack airline safety. Airlines denied meaningful market access will lose substantial revenues and may continue to fail to properly invest in maintaining and updating their fleets. What, then, becomes of those consumers who must continue to rely on these unfit carriers for domestic transport?
July 1, 2009
WSJ on the DOJ's Opposition to Star
The July 2 edition of the Wall Street Journal has a brief, but acute, commentary on the Department of Justice's recent filing opposing any grant of broad antitrust immunity by the Department of Transportation for Continental Airlines to join the Star Alliance. Aptly titled "Airline Case Shows U.S. Antitrust Stance," writers Susan Carey and Elizabeth Williamson link DOJ Antitrust Division Chief Christine Varney's tough stance on corporate mergers and cooperative arrangements with Justice's call for the DOT to only grant Star limited immunity.
Alliances and Antitrust Immunity: A Brief Reading List
In light of the recent news concerning the Justice Department's strong opposition to the expanded Star Alliance receiving broad approval and antitrust immunity, blog readers may be interested in consulting the following articles on airline alliances and the Department of Transportation's immunization powers:
Patricia M. Barlow, Aviation Antitrust--International Considerations After Sunset, 12 Air L. 68 (1987);
Jerry L. Beane, The Antitrust Implications of Airline Deregulation, 45 J. Air L. & Com. 1001 (1980);
Jan K. Brueckner, International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity, 85 Rev. Econ. & Stat. 105 (2003);
Darren Bush, Mission Creep: Antitrust Exemptions and Immunitied as Applied to Deregulated Industries, 3 Utah L. Rev. 761 (2006);
James L. Devall, American Airlines/British Airways: An Alliance That Was Not Meant to Be?, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¶ 10,101, at 4151 (2002);
Brian F. Havel & Andrew C. Eastmond, The Path to Open Skies: Transcending Global Alliances, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¶ 25,051, at 13,101 (2002);
Rutger Jan toe Laer, Kick-Starting Cross-Border Alliances: Approval and Clearance; The Past, Present, and the Future, 32 Air & Space L. 287 (2007);
Michael E. Levine, Commentary, Airline Alliances and Systems Competition: Antitrust Policy Toward Airlines and the Department of Justice Guidelines, 45 Houston L. Rev. 333 (2008);
James Reitzes & Diana Moss, Airline Alliances and Systems Competition, 45 Houston L. Rev. 293 (2008); and
W. Tom Whalen, A Panel Data Analysis of Code-Sharing, Antitrust Immunity, and Open Skies Treaties in International Aviation Markets, 30 Rev. Indus. Org. 39 (2007).
Emissions Trading and U.S. Aviation
Late last week the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009, H.R. 2454, 111th Cong., by a narrow margin of 219 to 212. The Act mandates a 17% reduction in carbon dioxide, methane, and other greenhouse gas emissions from their 2005 levels by 2020. What will be the potential impact on aviation? According to a story from Air Transport World (available here), the Air Transport Association estimates a $5 billion rise in airline fuel costs in 2012, reaching $10 billion by 2020. In a statement to House Speaker Nancy Pelosi, the ATA stressed the importance of modernizing the U.S.'s outmoded air traffic management system as the surest means to reduce aviation emissions. See Letter from James C. May, President and CEO, Air Transp. Assoc., to Nancy Pelosi, Speaker of the House of Rep. (June 25, 2009) (available here). The ATA also reminded Speaker Pelosi that under the terms of the Kyoto Protocol, the International Civil Aviation Organization has been charged with "com[ing] up with a unifrom global [green house gas] emissions scheme for aviation." Id. Therefore, Congress should structure its emissions reduction measures "in a manner that places the regulation of [green house gas] emissions from U.S. aircraft under the global framework ICAO is developing." Id.
Interestingly, Section 276 of H.R. 2454 contains express language that the U.S. should continue to only work with ICAO, but foreign governments in general, to establish a coherent international framework to address aviation emissions. The section reads:
It is the sense of Congress that the United States should--
(1) continue to actively promote, within the International Civil Aviation Organization, the development of a global framework for the regulation of greenhouse gas emissions from civil aircraft that recognizes the uniquely international nature of the industry and treats commercial aviation industries in all countries fairly; and
(2) work with foreign governments towards a global agreement that reconciles foreign carbon emissions reduction programs to minimize duplicative requirements and avoids unnecessary complication for the aviation industry, while still achieving the environmental goals.
This is not surprising. The U.S. in particular was highly critical of the European Community when it absconded from its international commitments in 2007 by entering a reservation to the latest ICAO resolution calling upon "States to refrain from environmental measures that would adversely affect the orderly and sustainable development of civil aviation" and "to continue to cooperate closely with international organizations." See ICAO, Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection, app. A, Assemb. Res. A36-22 (2007), compiled in Assembly Resolutions in Force, at I-54, ICAO Doc. 9902 (Sept. 28, 2007). See also id., app. L; but see app. A, at A-1 (noting Portugal's reservation, on behalf of the EC, to the quoted part of the resolution). Despite continuing protest, the EC is still committed to unilaterally bringing all civil aviation into its emissions trading scheme in 2012. See Council Directive 2008/101, 2009 O.J. (L 8) 3. While EC officials have stated that they would exempt American carriers from the scheme should the U.S. implement comparable measures to reduce aviation emissions, it remains unclear whether H.R. 2454 will satisfy.
June 30, 2009
The Economic Impact of Regulation
According to the business news website StreetInsider, airline stocks have been adversely impacted by the recent filing from the Department of Justice on the pending application for Continental Airlines to join the Star Alliance with full antitrust immunity. This comes after all major U.S. carriers save Southwest Airlines experienced double-digit falls last month in their stock value. It will be interesting (and perhaps disconcerting) to examine the numbers once the Department of Transportation issues its final order on Star's application. Undoubtedly the decision will signal investors as to the likelihood of American Airlines receiving final approve and immunity for its pending hook-up with British Airways and Iberia as part of the oneworld alliance. A final decision from the DOT on that application is expected by the end of October.
More on the DOJ/Star Alliance Fallout
Today's Wall Street Journal has a good story on the Department of Justice's opposition to Continental Airlines joining a Star Alliance fully immunized from U.S. antitrust law. A few points from the story worth considering:
"The Justice Department . . . technically has no authority over international aviation agreements, but it typically weighs in on such DOT rulings. In this case, however, it waited nearly two months after the comment period closed before registering its opinion with the DOT on Friday."
"The Justice Department's objections also could signal problems for a separate application for antitrust immunity by members of the oneworld group of carriers[.]"
"Unions representing United pilots and flight attendants also have signaled their opposition, contending the antitrust immunity would lead to the outsourcing of U.S. jobs."
The story which is beginning to unfold is that of interagency meddling and labor, which is currently enjoying the inflation of its political clout under the Democrats' regime, attempting to hold the alliance proceedings hostage out of malcontent. A recent letter from United's flight attendants to the DOT "call[s] on the Administration to enact durable and meaningful provisions designed to insure an equitable measure of protections for workers" as part of the Star application. See Press Release, Association of Flight Attendants-CWA, Flight Attendants Press DOT for Job Protections in UAL/CAL Alliance (June 30, 2009) (available here). What these "durable and meaningful provisions" should look like is left unsaid. What also seems to be left out of labor's concerns is any genuine reflection on what a highly restricted alliance could mean for United and Continental's market share. If potential job losses are their real concern, they would do well to stay out of the way and let the airlines freely compete on a global level.
As for the interagency issue, there is no question that the DOJ's Antitrust Division is looking to take a hard line on enforcement and consumer protection. See, e.g., Christine A. Varney, Assistant Attorney General, U.S. DOJ Antitrust Division, Vigorous Antitrust Enforcement in This Challenging Era, Remarks to the U.S. Chamber of Commerce (May 12, 2009) (available here). But even so, as the WSJ story correctly highlights, they are not the agency apportioned by statute to approve and, potentially, immunize intercarrier agreements involving foreign air transportation; the DOT is. It's no secret the DOJ has been less-than-thrilled with the DOT's immunization powers. In the words of former Assistant Attorney General Anne K. Bingaman: "It is not necessary for code share partners to receive antitrust immunity for any agreement that would not violate antitrust laws; and conduct that would violate antitrust laws should not be permitted, much less immunized." Consolidation and Code Sharing: Antitrust Enforcement in the Airline Industry, Address to the ABA Forum on Air and Space Law, Washington, D.C. (Jan. 25, 1996) (available here). In the 13 years since this protest was made, Congress has not seen fit to divest the DOT of its broad immunization powers, nor has it made the move to allow airlines to consummate crossborder mergers. This latter fact is telling about why airlines have sought the "pseudo-merger" benefits of alliances, especially in a commercial environment where consumers have come to expect and rely upon the route networks alliances provide. See Michael E. Levine, Commentary, Airline Alliances and Systems Competition: Antitrust Policy Toward Airlines and the Department of Justice Guidelines, 45 Houston L. Rev. 333 (2008). If the U.S. has finally reached that "absolute moment" in the history of airline regulation where antitrust immunity appears as nothing other than a dark artifice whose purpose and logic have been extinguished by the light of authentic liberalization, then let the citizenship purity rules for airline ownership be vanquished and the noble knights of competition protection at the DOJ stand guard. If not, then these knights serve as nothing more than Praetorians of protectionism with the DOT's antitrust immunity power the only shield between them and the freedom of the airlines to operate international services efficiently and effectively in a globalized world.
June 29, 2009
DOJ Contra Star Alliance
When it was first discussed on the blog that the Department of Justice's Antitrust Division would, in the words of U.S. Attorney General Eric Holder, "have some input" into the pending final order for Continental Airlines to join the Star Alliance with antitrust immunity, some concern was raised that the DOJ would suggest "carving out" certain routes covered by the alliance's carriers from immunization. This seemed problematic, especially since the Department of Transportation, the administrative agency exclusively endowed by statute with the power to approve and immunize intercarrier agreements involving foreign air transportation, see 49 U.S.C. §§ 41308-09, had found that standing carve outs for the Star Alliance (specifically the Chicago/Frankfurt and Washington/Frankfurt markets) were no longer necessary. See Dkt. No. OST-2008-0234, Order 2009-4-5 (Apr. 7, 2009), at 10-11. It now appears that the DOJ disagrees with that line of thinking and disagrees vehemently.
According to a 55-page submission filed last Friday, the DOJ is requesting the Transportation Department "deny the broad requested immunity [for the expanded Star Alliance] and instead grant a more limited immunity." See Dkt. No. OST-2008-0234, Comments of the Department of Justice on the Show Cause Order (June 26, 2009), at 2 (available here). This "more limited immunity" should, according to the DOJ, "carve out the transatlantic and transborder markets where competitive harm is most likely to occur, maintain existing carve outs, and limit immunity to transatlantic markets." Id.at 36. Thus, in addition to retaining the carve outs the DOT had indicated it was willing to eliminate, the DOJ is urging that ten additional routes be added and that the carve outs not be restricted to only certain fare classes on these routes. See id. at 39-40. The DOJ's submission also recommends that any antitrust immunity offered to Star be strictly limited to the transatlantic market on fear that global immunity "would eliminate competition" and "increase the risk of spillover effects" in the U.S. domestic market with respect to Continental and United's operations. See id. at 42.
While further analysis on the blog of the DOJ's submission is forthcoming, it should be noted that the DOT is under no statutory obligation to adhere to the Justice Department's suggestions. On the other hand, with the Senate Judiciary Committee clearly standing behind DOJ's involvement (see earlier discussion on the blog here) and the House having already passed a version of the 2009 FAA Reauthorization Act which would sunset all antitrust immunity for international alliances, the DOT may find the political pressure too strong to resist. Indeed, resistance may quickly lead to Congressional action rescinding or, at the very least, tightly conditioning the agency's longstanding approval and immunization powers altogether.