Monday, February 15, 2010

The Aeropolitics of the oneworld Order

Negotiators from the United States and the European Commission are meeting in Madrid today to continue work on the "second stage" to the 2007 U.S./EC Air Transport Agreement.  See Pilita Clark, Investors Focus on Open Skies Talks in Madrid, Fin. Times, Feb. 15, 2010 (available here).  The new round of discussions comes on the heels of the U.S. Transportation Department's Saturday announcement that it had tentatively approved the oneworld Alliance's antitrust immunity application.  Sweeping immunity for the alliance, which includes the United Kingdom's British Airways and Spain's Iberia, had been opposed by lawmakers, the Justice Department, and rival carrier Virgin Atlantic before the DOT the tentative order.  While interested parties still have 45 days to file additional comments, it's unlikely the DOT will retract the immunity.  To do so could spell disaster for the ongoing U.S./EC second stage talks.

When the initial 2007 Agreement was finalized, both the U.K. and Spain protested that the U.S. came out with the better deal.  The U.K. in particular was dismayed that access to London Heathrow--one of the world's busiest airports--would be open to all U.S. airlines while BA would remain foreclosed from deeper investment opportunities in American carriers and cabotage rights.  In an effort to appease the U.K., the EC demanded a a strict timetable to improve the 2007 Agreement and reserved for itself the right to suspend any or all provisions of the first accord if they are dissatisfied with the progress of negotiations by November of this year.  See 2007 U.S./EC Air Transport Agreement, art. 21, 2007 O.J. (L 134) 4.  While some, such as chief U.S. negotiator John Byerly, have expressed skepticism that either side would open an aviation trade war by suspending parts of the 2007 Agreement, the U.S. may be taking the threat seriously. 

The timing of the DOT's antitrust immunity decision for oneworld cannot be ignored.  Since it remains highly unlikely that the U.S. will accede to U.K.-backed demands for investment rights and cabotage, immunizing an alliance which has the potential to substantially benefit both BA and Iberia could be the DOT's way of softening the disappointment.  Both Spain and the U.K. have to be aware that any move to suspend parts of the 2007 Agreement will likely be met by a rescission of oneworld's antitrust immunity.  Though not mandated by statute, the DOT has long required a liberal air services agreement to be in place before dispensing immunity.  Cf. Joint Application to Amend Order 2007-2-16, at 50, Dkt. No. DOT-OST-2008-0234 (July 23, 2008) (citing the DOT "consistently . . . predicat[ing] its willingness to approve and grant antitrust immunity for alliances on the effectiveness of an open skies agreement in the relevant markets").

The DOT is no stranger to playing aeropolitcs with controversial decisions.  In March 2007, just two days before the European Council of Ministers was scheduled to vote on whether or not to accept the first U.S./EC Air Transport Agreement, the DOT granted operating authority to Virgin America--the U.K.-based Virgin Group's affiliate carrier--despite a 2006 finding that it had failed to meet U.S. citizenship purity requirements of being 75% owned and actually controlled by Americans.  See Jeff Bailey & Nicola Clark, An American Version of Virgin Atlantic is Tenatatively Approved for Service, N.Y. Times, Mar. 21, 2007, at C3; Dan Reed & Ben Mutzabaugh, Virgin America Gets Provisional OK to Operate in USA, USA Today, Mar. 21, 2007, at 2B; see also Order to Show Cause, Dkt. No. OST-2005-23307 (Dec. 27, 2006) (denying Virgin America's first attempt to secure operating authority).

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