Monday, March 1, 2010

The Nationality Clause Lives

If anyone was wondering whether or not nationality still matters to trade in international air services, Russia is willing to provide an answer. The Financial Times reported over the weekend that the geographic giant is threatening to revoke Austrian Airlines’s traffic rights following its acquisition by Germany’s Lufthansa. See Pilitia Clark, Russia Threatens Ban on Austrian Airlines, Fin. Times, Feb. 28, 2010 (available here).

Since 1947, almost all bilateral air services agreements mandate that only carriers which are “substantially owned and effectively controlled” by nationals of their respective home States are eligible for designation to operate international air service. This language, commonly referred to by aviation lawyers as the “nationality clause,” is one of the main barriers to crossborder consolidation in the airline industry. The European Union has had some success in recent years “exporting” its internal legal construct of “Community air carriers” in new and amended bilaterals with third party countries to allow nationals of any Member State to own and control airlines licensed within the EU’s jurisdictional territory. Russia remains an important holdout, however.

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