January 15, 2010
A Second Stage Deal in 2010?
According to a new story out today, the United States and European Union are hoping to finalize a second stage air transport agreement in the first half of 2010. See Jay Boehmer, U.S., EU Seeking to Step Up Open Skies Talks, Bus. Traveller News, Jan. 14, 2010. From the story:
The United States and European Union are accelerating second-stage Open Skies negotiations in the hopes of finalizing an agreement in the first half of the year, though a number of key issues including foreign ownership remains in dispute, the chief U.S. negotiator told BTN last month.
. . .
"We're hastening the pace of negotiations," Byerly said. "We've declared, including President Obama and his EU counterparts at the most recent EU-U.S. summit, the wish and hope that we will complete the second-stage negotiations and have an agreement in 2010."
Byerly said the two sides have made progress on a number of issues, including safety, air traffic control, security and the environment, but sticking points remain, including the issue of foreign ownership. The first-stage agreement, enacted in 2008, maintained limits on foreign control of U.S airlines.
The story goes on to discuss that while the U.S. is open to discussing its 25% ceiling on foreign ownership of its airlines, cabotage remains off the negotiating table.
January 14, 2010
Toward Comprehensive Slot Rule Reform in the EU
Given the recent dispute concerning slots at London Heathrow airport as part of the oneworld Alliance's antitrust immunity application, blog readers may be interested in reading Gabriel S. Sanchez's Toward Comprehensive Slot Rule Reform in the EU, 9 Issues in Aviation L. & Pol'y 89 (2009) (available from SSRN here). From the abstract:
While the European Union’s liberalized common air transport market is often heralded as a great achievement, its potential remains stymied by the problem of scarce capacity at its airports. In order to mange this scarce capacity, the EU Member States rely upon a slot concept whereby air carriers are apportioned a temporal point of access to a specific airport’s gates and runways for the purposes of either landing or taking off. In order to better manage slot apportionment, a “code of conduct” was promulgated in 1993 which, among other things, set the terms for how Member States were to distribute slots and under what conditions an airline could be forced to forfeit a slot into a pool for redistribution. Under the so-called “use-or-lose” rule, a carrier must use an apportioned slot at least 80 percent of the time during a given commercial season in order to retain it for the following season. Though critics claim this rule has failed to reallocate enough slots to meet the demands of potential new entrants, it remains the only mechanism for slot surrender and redistribution.
This article examines the problem of slot allocation in the EU and the legislative efforts to address the issue. It reviews and criticizes the recent temporary suspension of a critical component of the EC slot rules and looks at how this inapt move could lead to meaningful and efficient slot reform. This article also suggests what that reform ought to look like, while not committing to any series of concrete rules.
An Intersection of Air & Space Law
A new article which may be of interest to blog readers is Michael C. Mineiro's An Intersection of Air & Space Law: Licensing and Regulating Suborbital Commercial Human Space Flight Operations, 22 ABA Air & Space Law. (2010) (available from SSRN here). From the abstract:
Imagine the excitement of traveling to the upper limits of the atmosphere, experiencing weightlessness and the beauty of mother Earth, and returning home to share your stories. Several companies in the United States are developing and actively marketing this experience and it is anticipated that in a few years and for a few hundred thousand dollars you will be able to purchase such a ride. But where man goes, so does law, and as lawyers our natural inclination is to ask how these activities are to be regulated.
This article examines the regulation of suborbital commercial human space flight in the United States, highlighting aspects of the U.S. regulatory regime, particularly the role of the Federal Aviation Administration (FAA). The European Union is now starting to look at developing its own regulations as well and this article illustrates how the EU approach may differ from that of the United States. The practical questions of future demand for legal services and upcoming legal challenges also are addressed.
January 13, 2010
BA Sweetens the Deal for JAL
British Airways may not be keen on surrendering slots to its competitors in order to win antitrust immunity from the Department of Transportation for its partnership with American Airlines, see Joint Applicants' Answer to the Department of Justice's Motion for Leave and Comments, at 8, Dkt. No. DOT-OST-0252 (Jan. 11, 2010) (available here), but it is are open to transferring some to JAL to keep the Japanese carrier in the oneworld alliance. See Kaveri Nithyananthan, British Air Offers JAL Heathrow Slots in Oneworld Deal, Dow Jones Newswire, Jan. 12, 2010. From the story:
British Airways PLC . . . said Tuesday it would provide Japan Airlines Co. Ltd. coveted slots at London's congested Heathrow airport as part of its offer to keep JAL in the Oneworld alliance.
The U.K. carrier has offered ailing JAL a deal with an incremental value of between $165 million and $240 million over three years to encourage the Tokyo-based airline to stay with the alliance.
A British Air spokesman said the deal includes establishing a joint business for flights between Japan and Europe, which would increase revenue-sharing opportunities and double the number of JAL codeshares on BA's European flights.
"We would aim for the joint business to come into effect from April 2011, subject to regulatory approval," BA's spokesman added.
Finding regulatory approval may be easier said than done for the oneworld Alliance. It's possible that the alliance is getting ahead of itself, envisioning a transpacific link-up before its transatlantic proposal gets off the ground. The DOT has yet to rule on its current application which was originally set to end last October and it's unclear what attitude the agency will take toward the U.S./Asia aviation market. The pending application filed last month by U.S. carriers United Airlines and Continental with Japan's ANA will provide a new test for the DOT's willingness to continue dispensing broad grants of antitrust immunity despite heavy criticism from the Department of Justice's antitrust division. The oneworld Alliance's best laid plans to keep JAL in its fold may be for naught.
January 12, 2010
Horan's Hard Look at the oneworld Application
Hubert Horan--a private aviation consultant and analyst who has provided commentary on airline alliances for this blog here, here, and here--recently issued his own series of criticisms concerning the oneworld Alliance's application for antitrust immunity from the Department of Transportation. See Hubert Horan, Supplemental Comments, Dkt. No. DOT-OST-2008-0252 (Jan. 8, 2010) (available here).
Horan's filing covers a number of areas not addressed in the Justice Department's recent series of criticisms. Specifically, Horan argues that oneworld's claim its alliance will produce $92 million in annual public benefits is deficient; that the consumer welfare benefits created by North Atlantic alliances were fully exhausted by the late 1990s; and that earlier economic studies which claim to demonstrate alliance benefits are either false or misleading. While Horan's remarks may not find favor with all of the blog's readership, they are an important contribution to the intellectual debate over the future of alliances and their immunization from U.S. antitrust law.
oneworld Replies to the DOJ
Yesterday, the oneworld Alliance issued its reply to last month's filing by the Justice Department which opposed any broad grant of antitrust immunity for the joint venture. See Joint Applicants' Answer to the Department of Justice's Motion for Leave and Comments, Dkt. No. DOT-OST-0252 (Jan. 11, 2010) (available here). In brief, the alliance partners reiterated their position that antitrust immunity is necessary for them to compete effectively in the transatlantic aviation market. From the filing:
The Joint Application will generate significant public benefits, and will not harm competition. On the benefits side, oneworld is currently the smallest branded alliance, and absent meaningful integration it will become increasingly marginalized as a competitive alternative to the larger and stronger Star and SkyTeam alliances. As for potential competitive harm, the overlap routes are some of the most competitive across the Atlantic, and the most likely to attract new entry. DOJ has failed to meet its burden of proof regarding harm, or to rebut the comprehensive evidence of public benefits satisfying the Department’s SkyTeam II and Star II precedents. The proposed alliance should be approved and immunized without further delay.
See id. at 55.
This is not the first time oneworld has attacked the DOJ's steadfast opposition to antitrust immunity for alliances. Last September, the alliance filed an advance rebuttal based on the criticisms the Department had levied against the Star Alliance application. See Joint Applicants' Motion to Leave to File and Supplemental Comments, Dkt. No. OST-2008-0252 (Sept. 8, 2009) (available here). Despite the Department of Transportation's October 31, 2009 deadline for an end to the oneworld proceedings, the DOJ delayed filing their comments in the case until just four days before Christmas. See Joint Application of American Airlines, Inc. et al., Comments of the Department of Justice, Dkt. No. OST-2008-0252 (Dec. 21, 2009) (available here). Though the DOT has officially closed further comments, it's unclear when they will render a final decision in the matter.
January 11, 2010
While the oneworld Alliance antitrust immunity application remains in limbo, Star Alliance partners United, Continental, and All Nippon Airways are looking to deepen their relationship with full immunity for the transpacific market. See Joint Application of All Nippon Airways Co., Ltd., Continental Airlines, Inc., and United Airlines, Inc., Dkt. No. OST-2009-0350 (Dec. 23, 2009). The carriers are reportedly confident that their application will win approval from the Department of Transportation before the United States and Japan finalize their open skies agreement this October. See Doug Cameron, Airlines Expect Antitrust Approval From Japan in 4 Months, Dow Jones Newswire, Dec. 24, 2009 (available here). That may be easier said than done. The oneworld application, as discussed previously on the blog, was supposed to have been concluded last October. The DOT has extended the filing deadline to today, but has not given word when it will render a final decision. Speed, one might say, is not of the DOT's essence.
Meanwhile, as Star's application sits before the DOT, the airlines are facing an uncertain regulatory climate in Japan. Unlike the U.S., Japan does not have statutory standards and procedures in place for immunizing alliances from its competition code. See id. In 2002, the Japanese Fair Trade Commission approved the merger of Japanese Airlines and Japanese Air System only after the two airlines agreed to freeze or reduce fares on certain routes and surrender slots at Haneda Airport. See Koki Arai, An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control, 4 J. Indus. Comp. & Trade 207 (2004). It will be interesting to see if similar conditions are imposed on the Star Alliance or if Japanese regulators will construct an analytical/remedial framework for alliances that is distinct from their merger review.