October 1, 2009
Lufthansa to Take Complete Stake in bmi
News outlets are reporting that Germany's Lufthansa will take full control of U.K. airline bmi when it purchases Scandinavian Airlines' 20% stake in the carrier. See Kaveri Niththyananthan & Dominic Chopping, Lufthansa Buys SAS Stake in BMI, Dow Jones Newswire, Oct. 1, 2009 (available here).
While it is far from certain what (if anything) Lufthansa will do with bmi, one of the key points to the story is that Lufthansa now controls bmi's 11% share of London Heathrow's highly coveted slots. This could be a boon for the Star Alliance which is looking at potentially fierce competition in the transatlantic market if U.S. regulators approve and grant antitrust immunity to American Airlines and British Airways as part of the oneworld Alliance's application. In previous bids for antitrust immunity, the issue of both carriers controlling a large share of Heathrow's slots had prompted the Department of Transportation to demand slot divestiture as a precondition for immunity. This was understandable since only American, along with United Airlines, had access rights to Heathrow. Even so, both BA and AA refused to surrender slots. Since the signing of the 2007 U.S./EC Air Transport Agreement, however, any airline from the U.S. can, in theory, access Heathrow so long as they acquire slots. This is still easier said than done. Some observers have expressed concern that should BA/AA receive antitrust immunity, the two airlines will effectively shut out competition into Europe's busiest airport. Whether that possibility is enough to stay the DOT's hand in granting immunization remains to be seen. Either way, with Lufthansa now controlling a fresh pool of slots, some concerns over competitive parity may be eased.
GAO on Aviation Security
The U.S. Government Accountability Office issued a new report today which may be of interest to blog readers. See Aviation Security: A National Strategy and Other Actions Would Strengthen TSA's Efforts to Secure Commercial Airport Perimeters and Access Controls, GAO-09-399 (Sept. 30, 2009) (available here). From the summary:
Incidents of airport workers using access privileges to smuggle weapons through secured airport areas and onto planes have heightened concerns regarding commercial airport security. The Transportation Security Administration (TSA), along with airports, is responsible for security at TSA-regulated airports. To guide risk assessment and protection of critical infrastructure, including airports, the Department of Homeland Security (DHS) developed the National Infrastructure Protection Plan (NIPP). GAO was asked to examine the extent to which, for airport perimeters and access controls, TSA (1) assessed risk consistent with the NIPP; (2) implemented protective programs, and evaluated its worker screening pilots; and (3) established a strategy to guide decision making. GAO examined TSA documents related to risk assessment activities, airport security programs, and worker screening pilots; visited nine airports of varying size; and interviewed TSA, airport, and association officials.
Although TSA has implemented activities to assess risks to airport perimeters and access controls, such as a commercial aviation threat assessment, it has not conducted vulnerability assessments for 87 percent of the nation's approximately 450 commercial airports or any consequence assessments. As a result, TSA has not completed a comprehensive risk assessment combining threat, vulnerability, and consequence assessments as required by the NIPP. While TSA officials said they intend to conduct a consequence assessment and additional vulnerability assessments, TSA could not provide further details, such as milestones for their completion. Conducting a comprehensive risk assessment and establishing milestones for its completion would provide additional assurance that intended actions will be implemented, provide critical information to enhance TSA's understanding of risks to airports, and help ensure resources are allocated to the highest security priorities. Since 2004, TSA has taken steps to strengthen airport security and implement new programs; however, while TSA conducted a pilot program to test worker screening methods, clear conclusions could not be drawn because of significant design limitations and TSA did not document key aspects of the pilot. TSA has taken steps to enhance airport security by, among other things, expanding its requirements for conducting worker background checks and implementing a worker screening program. In fiscal year 2008 TSA pilot tested various methods to screen airport workers to compare the benefits, costs, and impacts of 100 percent worker screening and random worker screening. TSA designed and implemented the pilot in coordination with the Homeland Security Institute (HSI), a federally funded research and development center. However, because of significant limitations in the design and evaluation of the pilot, such as the limited number of participating airports--7 out of about 450--it is unclear which method is more cost-effective. TSA and HSI also did not document key aspects of the pilot's design, methodology, and evaluation, such as a data analysis plan, limiting the usefulness of these efforts. A well-developed and well-documented evaluation plan can help ensure that pilots generate needed performance information to make effective decisions. While TSA has completed these pilots, developing an evaluation plan for future pilots could help ensure that they are designed and implemented to provide management and Congress with necessary information for decision making. TSA's efforts to enhance the security of the nation's airports have not been guided by a unifying national strategy that identifies key elements, such as goals, priorities, performance measures, and required resources. For example, while TSA's various airport security efforts are implemented by federal and local airport officials, TSA officials said that they have not identified or estimated costs to airport operators for implementing security requirements. GAO has found that national strategies that identify these key elements strengthen decision making and accountability; in addition, developing a strategy with these elements could help ensure that TSA prioritizes its activities and uses resources efficiently to achieve intended outcomes.
September 30, 2009
Regionalism in International Civil Aviation
Jason R. Bonin's article, Regionalism in International Civil Aviation: A Reevaluation of the Economic Regulation of International Air Transportation in the Context of Economic Integration (Sept. 2009), which is forthcoming in the Singapore Year Book of International Law, is available from SSRN here. From the abstract:
While the WTO Agreement liberalized trade in goods and services on a universal multilateral basis, hard rights in air services were excluded from this agreement. Indeed, the economic regulation of international air transportation still adheres to a relatively restrictive regulatory framework of bilateral treaties first developed in the 1940s. While the trend in international air transport regulation is to liberalize market access to foreign carriers, significant barriers still exist, among other things, in the form of restrictions on total market access and limitations on foreign ownership of airlines. This paper presents economic integration as one means to progressively “open up” the air services industry. Economic integration provides evidence of the political will to cooperate necessary to achieve further liberalization. Furthermore, such units provide important economic incentives to liberalize air transport. Finally, regional economic integration organizations may enhance the bargaining position against larger, more mature markets while protecting interests in “own” carriers. This paper examines the underlying economic reasons for air transport liberalization on the basis of regional economic integration. It further addresses the legal implications and constraints involved in establishing regional interests in air transportation, and highlights some policy considerations for “re-focusing” interests from states to regions.
September 29, 2009
IALI at the ABA Forum
Gabriel Sanchez, the International Aviation Law Institute's FedEx/United Airlines Resident Research Fellow, has made his Panel Paper for the 2009 ABA Forum on Air & Space Law Annual Meeting available for download on SSRN. See Gabriel S. Sanchez, An Overview of the Slot Challenge in the U.S. and EU (ABA Forum on Air & Space Law Panel Paper, Sept. 22, 2009) (available here).
September 28, 2009
Glenn Tilton at the ABA Forum
Last week Friday, Glenn Tilton, Chairman and CEO of United Airlines and current Chair of the Air Transport Association, addressed the 2009 Annual Meeting of the ABA Forum on Air & Space Law. See Glenn Tilton, Remarks to the ABA Forum on Air & Space Law, Chicago, IL (Sept. 25, 2009) (available here).
Tilton's speech focused on the inertia of U.S. lawmakers to craft a sustainable aviation policy--one which would open up the industry to foreign investment and modernize its infrastructure. Tilton criticized recent U.S. strides toward protectionism for the airlines by asking, "What are we protecting it from? Growth? Profitability? New jobs? Global competitiveness? These are protections we can do without."
Almost all of the points made in Tilton's speech will be familiar to those who have followed the struggles of the U.S. airline industry to survive and thrive under a suboptimal regulatory regime. "Familiar" doesn't mean "unimportant," however. Industry leaders have been pressing the U.S. to move toward authentic air transport liberalization for years, but to no avail. In a 2006 speech to a conference co-hosted by the International Aviation Law Institute (IALI), Tilton suggested that the Department of Transportation conduct a formal aviation policy review to bring the U.S. regulatory regime in line with a globalized world. See IALI & Chicago Council on Global Affairs, Sustainable Aviation Policies for America and the World, at 6, Synopsis of the Proceedings (Oct. 2006) (available here). Despite the need for new thinking concerning U.S. policy in this area, the DOT still relies on a statement issued 14 years ago. See 60 Fed. Reg. 21,841 (May 3, 1995).
What will it take for lawmakers in the U.S. to wake up to the turbulent times the airline industry finds itself in and make meaningful steps toward enacting progressive legislation which will give them the freedom to operate like any other global industry? Hopefully, Tilton's remarks won't fall on deaf ears this time.
U.S./Japan Open Skies?
A news report from late last week discussed the possibility of a possible U.S./Japan open skies agreement being reached as part of JAL's efforts to attract a substantial equity investment from either American Airlines or Delta Air Lines. See John Crawley, Alliances Take Center Stage in U.S.-Japan Aviation Talks, Reuters, Sept. 24, 2009 (available here). Earlier discussions of JAL's predicament and the place of U.S./Japan aviation talks in them may be found on the blog here and here.
The news story deserves praise for properly focusing the discussion on the alliance system and the future of antitrust immunity as part of the U.S. open skies policy. While not an "official" element of open skies, cf. In the Matter of Defining Open Skies, 3 Av. L. Rep. (CCH) ¶ 26,960, at 23,901 (Aug. 5, 1991), antitrust immunity has long served as the "bait" on which the U.S. has "hooked" open skies partners in the past (most notably the Netherlands, France, and Germany in the 1990s). During the Continental/Star Alliance antitrust immunity proceeding earlier this year, the Department of Justice downplayed the importance of antitrust immunity to U.S. international aviation policy. See Dkt. No. OST-2008-0234, Comments of the Department of Justice on the Show Cause Order (June 26, 2009). In a filing supporting the Continental/Star application, American Airlines responded directly to the DOJ's contention by highlighting that the Department of Transportation's use antitrust immunity as a means of enticing States to sign-on to open skies agreements "has gone a long way toward creating global competition by liberalizing markets and facilitating the emergence of broad networks capable of carrying passengers around the world." OST-2008-0234, Response of American Airlines, Inc. to Comments of the Department of Justice (July 6, 2009), at 3. It also rightly noted that open skies is an unfinished project as "[m]ajor markets remain closed--such as Japan, China, Russia and Brazil. Alliances will help open those markets to new competition--unless, of course, the [DOT] succumbs to pressure to turn back the clock." Id.
Thankfully, the DOT resisted the pressure to "turn back the clock" in approving (albeit with some caveats) the Continental/Star application. See "DOT Approves the Expanded Star Alliance." That doesn't necessarily mean it's moving forward, however. The pending oneworld Alliance application provides the DOJ with another opportunity to attack the alliance system, including providing it with antitrust immunity. The 2009 FAA Reauthorization Act, which would sunset all of the alliance's antitrust immunity, has been put on hold, but for how long? Japan, which has been historically adverse to open skies, will no doubt keep a close eye on regulatory developments in the U.S. before moving ahead on liberalizing its aviation market. If neither of its international carriers, JAL and ANA, are able to secure immunized membership in a major alliance, then a major incentive to sign an open skies bilateral will be gone. In that case, both Japanese and U.S. airlines lose out. As it stands, only United Airlines and Northwest have full access into the Japanese market. (See correction to news reports to the contrary here.) With open skies, any U.S. carrier ready, willing, and able to compete in the transpacific market could add Japan to its list of destinations. If the U.S. is still serious about creating competitive air transport markets around the world, liberalizing its aviation agreement with Japan is absolutely necessary.
September 27, 2009
Update From IALI
The Aviation Law Prof Blog has been silent for the last few days due to the International Aviation Law Institute's participation at recently concluded 2009 ABA Forum on Air & Space Law Annual Meeting here in Chicago, Illinois. Prof. Brian Havel, IALI's Director, served on the Organizing Board for this year's event while Gabriel Sanchez, the Institute's FedEx/United Airlines Resident Research Fellow, spoke on slot control in the U.S. and EU as part of the Forum's Young Lawyer's Panel. More updates on this year's Forum Meeting will be posted to the blog this week as part of our regular posting schedule.