Thursday, September 10, 2009

Setting the Agenda for Aviation Policy

Last night, President Barack Obama addressed the nation on the contentious and highly politicized issue of reforming health care. Without weighing in on the substantive questions (which in any event lie outside the proper conceptual scope of this blog), it is at least fair to say that Obama has used the authority of his office to plant health care reform on the national agenda and that until he chooses--following victory, defeat, or stalemate--to remove it, it will continue to be a prime focus for punditry, legislative bickering, and even dinner table debates. The power of agenda-setting is not provided for in the Constitution. (In fact, the Constitution gives the chief executive very few direct powers of any kind.) See Gene Healy, The Cult of the Presidency (Cato Inst. Press, 2008).  It represents an organic development of the office.

For those of us who pay attention to the aviation industry, however, the President’s agenda-setting activities--if indeed we can identify any of them--have been pretty threadbare. To a large degree this is understandable. We are in the midst of the greatest economic downturn since the Great Depression. According to the eminent Seventh Circuit judge and uber-commentator Richard Posner, we are enduring an actual depression. See Richard A. Posner, A Failure of Capitalism (Harvard Univ. Press, 2009). U.S. policymakers are currently fixated, in addition to health care, on two major overseas conflicts. Getting traction for transportation policy issues at present is virtually impossible. Yet no robust economic recovery can occur if the United States embraces protectionism with respect to goods and services. Concerns have already been raised by trade officials and observers that the United States has unfairly subsidized its automotive sector, illegally reneged on commitments to open up trucking routes to Mexico under the North American Free Trade Agreement, and jeopardized its cosmopolitan trade instincts by inserting "Buy America" provisions into a $700 billion plus economic stimulus bill. See The Nuts and Bolts Come Apart, Economist, Mar. 26, 2009 (available here).

The air transport industry has had no less reason for concern. The 2009 FAA Reauthorization Act brims with protectionist provisions which sit like a black cloud over the ongoing "second stage" U.S./EC negotiations to expand the rights and opportunities granted to both parties' airlines under their 2007 Air Transport Agreement. As this blog has serially discussed, some of these provisions may prove to be a "bridge too far" and compel the EU Member States to suspend provisions from the first agreement. See, e.g., earlier posts here, here, & here.

Why has this happened? Arguably, if aviation is truly "off the agenda," shouldn't we at least be experiencing stasis right now? Why these legislative rumblings which will have detrimental effects on free trade in air services? The truth is that aviation is not off the agenda--not completely. It's simply been transferred from the conscious realm of newspaper headlines, CNN reports, and (non-aviation) blogs to sit behind a shroud of ignorance – the recondite realm of Congressional committees and subcommittees where the information costs to average Americans are high and patience for (or interest in) their protracted discussions is low. Rep. James Oberstar, Chairman of the House Transportation Committee, is a master within this mysterious realm. Taking full advantage of the aviation policy vacuum in the current administration, Rep. Oberstar seeks a new order of things: an end to global airline alliances; foreigners denied careers in the management of U.S. airlines; a halt to the open skies adventure. The potential consequences for the industry--and for consumers--are quite staggering.

In the late 1970s, President Jimmy Carter, by an act of sheer presidential political will, placed airline deregulation on the national agenda. For all of the important work Senator Kennedy and his subcommittee did on the shortcomings of the Civil Aeronautics Board or that Alfred Kahn accomplished as chairman of that agency, deregulation required the direct interest of the President before it could evolve into a legislative fact. Robust economic analysis and careful studies of intrastate air transport exposed a solid case for removing the deadweight of regulation. But intellectual speculation was nowhere near adequate to accomplish the change that economists and lawyers were proposing. A leader had to take the matter to the country. The Obama administration is allowing members of Congress to practice a retrogressive and mercantilist air transportation policy. If he seizes the agenda-setting power of his office, however, the President can champion airline deregulation on a global scale. But the power of his Presidency needs to be deployed. From Chicago’s President, a new Chicago Convention? Cf. Int'l Aviation L. Inst. & Chi. Council on Global Affairs, Sustainable Aviation Policies for America and the World (2006) (available here) (summarizing the proceedings of an aviation leadership summit where FedEx Senior Vice President and General Counsel Rush O'Keefe called for a new Chicago Convention).

September 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 9, 2009

New International Emissions Cap for Airlines

There are reports out today that the United Kingdom's Committee on Climate Change will announce that "[d]eveloped countries must ensure greenhouse gas emissions from aviation are no higher than 2005 levels by 2050."  See Fiona Harvey, Cap Airline Emissions, Says Body, Fin. Times, Sept. 9, 2009 (available here); see also Alex Morales, Airline Emissions Should Be Capped at 2005 Levels, Bloomberg, Sept. 9, 2009 (available here).  An agreement on such a cap would be part of the December U.N. climate talks to be held in Copenhagen. 

As it stands, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 10, 1997, 37 I.L.M. 22 (1998), designates the International Civil Aviation Organization as the proper international organ for dealing with international aviation emissions.  See id. art. 2(2).  The major public and private international air transport organizations, ICAO and the International Air Transport Association, support a global aviation emissions trading scheme to combat the purported problem.  Such a scheme must be properly designed, consensual, multilateral, and in lock-step with infrastructure enhacements, technological improvements, and research and development into alternative fuels. See ICAO, Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection, available in Assembly Resolutions in Force, ICAO Doc. 9848 (Oct. 4, 2004).  In late 2007, however, the European Community broke ranks with ICAO and has since put in motion a regulation to bring civil aviation into its own emissions trading scheme.  This unilateral action has potentially undermined ICAO's U.N.-designated role in this area. See Gabriel S. Sanchez, European Unilateralism, Nat'l L.J., Mar. 31, 2008 (available here).

What does this latest proposal say about ICAO's status in the area of aviation emissions?  If a new international agreement is brokered outside of ICAO, it would likely deal a terminal blow to the organization's legitimacy in handling this issue.  If the proposed cap is set in place, the airlines themselves will have to devise a way to scale back their emissions without undermining their competitiveness.  2050 is still four decades away; undoubtedly many carriers will hold to the promise of what "green technology" can bring.  Of course, cutting flights and, thus, cutting emissions isn't a problem at the moment.  With a worldwide drop in demand for air transport services, international airlines are simply flying less (8% less in the U.S. this year).  Rising fuel costs will undoubtedly result in higher air fares, thus keeping demand at bay even after the global economy recovers (whenever that is).  Still, governments could do more to help the airlines meet a new cap.  Even if a market-based program like a global ETS for aviation isn't put in place, States could do more to improve their air traffic management systems and therefore curtail wasteful emissions.  They could also take steps to allow crossborder airline mergers and allow the global marketplace to consolidate in proportion to actual consumer demand.  Let the fit survive and thrive.  That way, there will not only be less planes in the sky but less fuel inefficient ones as well.  Or, as has so often been the case with civil aviation, countries can impose further regulatory demands on the industry while still expecting frequent, inexpensive, and widespread service.  At some point--perhaps in 2050, perhaps sooner--this paradoxical approach to the airline industry will prove untenable.  By then it may be too late.

September 9, 2009 | Permalink | Comments (0) | TrackBack (0)

European Commission Cracks Down on Cartels

The Telegraph is reporting that a number of major airlines, including British Airways, Air France-KLM, and Qantas, are facing more than £1bn in fines and compensation claims for price-fixing on both cargo and passenger flights.  See Helia Ebrahimi, Airlines Face Fines After EU Ruling on Price-Fixing, Telegraph (London), Sept. 5, 2009 (available here).

According to the story the ruling will be accompanied by a new directive from the European Commission which will help facilitate potential victims of price-fixing cartels coming together in "class action" type litigation.  The heavy-handed enforcement and new legislation is intended to correct the perceived problem that the penalities for cartel behavior don't outweigh the benefit.  As the story notes, many airlines build price-fixing fines into their annual budgets while allegedly reaping whirlwind profits from the behavior.

September 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 8, 2009

Backgrounder on Airbus/Boeing WTO Dispute

With the release of its 1000-page report on State subsidies granted to the European aircraft manufacturer Airbus, the World Trade Organization is enjoying a degree of media attention it hasn't received since the breakdown of the Doha Round of Negotiations last year.  Hopefully, in the long run, this proves to be a good thing.  As discussed previously on the blog, the quarrel is far from finished.  Besides the high chance of an appeal to the ruling from the European Union, the issue over whether the U.S. granted its own illegal State aid to Boeing is still unsettled.  With the U.S. contemplating a new challenge to the EU's plans to inject fresh launch aid into Airbus, the dust may not settle for years. 

Blog readers looking to educate themselves further about the Boeing/Airbus dispute, the legal questions involved, and its political and economic ramifications should consult the following sources:

  • Boeing v Airbus: The WTO Dispute That Neither Can Win, Deutsche Bank Research (Feb. 1, 2007) (available here)
  • Robert J. Carbaugh & John Olienyk, Boeing-Airbus Subsidy Dispute: The Sequel, 4 Global Econ. J. art. 6 (available here)
  • James de Melo, Notes on the Boeing-Airbus Rivalry (Classroom Notes, Oct. 25, 2000) (available here)
  • John Newhouse, Boeing Versus Airbus: The Inside Story of the Greatest International Competition in Business (Knopf, 2007)
  • Nina Pavcnik, Trade Disputes in the Commercial Aircraft Industry, 25 World Econ. 733 (2002)
  • David Pritchard & Alan MacPherson, The Trade and Employment Implications of a New Aircraft Launch: The Case of the Boeing 7E7 (Canada-U.S. Trade Ctr. Occasional Paper No. 28, Dec. 2003) (available here)

September 8, 2009 | Permalink | Comments (1) | TrackBack (0)

Virgin America Responds to Alaska Airlines

A new, but not particularly surprising, chapter is unfolding in the ongoing regulatory saga over the nature of Virgin America's citizenship profile.  See earlier blog posts chronicling this adventure in administrative oversight here, here, and here.  In response to Alaska Airlines's renewed petition for the Department of Transportation to investigate Virgin America's ownership and take action to ground the carrier if it fails to meet domestic ownership criteria, see Renewed Motion of Alaska Airlines, Inc. for a Public Proceeding, Dkt. No. OST-2009-0037 (Aug. 21, 2009), Virgin is asking the agency to drop the inquiry altogether.  See Answer of Virgin America Inc. to Renewed Motion of Alaska Airlines, Inc., Dkt. No. OST-2009-0037 (Sept. 1, 2009).  According to Virgin America:

Alaska's renewed motion should be recognized and dismissed for what it is: political and public posturing designed to do nothing more than make a headline and attempt to harm a new competitor that has won numerous awards for its innovative and industry-leading service and product.  Indeed, given the lack of any new or substantive issues raised by Alaska or others, Virgin America respectfully requests that the Department close the docket on this matter and deny Alaska's multiple petitions.

Id. at 3.

It appears, from both Alaska's renewed petition and Virgin's reply, that much of their quarrel has to do with the nature of the proceeding itself.  Alaska is demanding transparency in the form of a full public inquiry whereas Virgin remains steadfast that such an inquiry is unwarranted in the present case and that there is no DOT precedent to support it.  See id. at 3-4.  As has been the case from the onset of this dispute, Virgin America insists that it meets the statutory requirement that at least 75% of its voting equity is owned and controlled by U.S. citizens.  See 49 U.S.C. § 40102(a)(15). 

September 8, 2009 | Permalink | Comments (0) | TrackBack (0)