February 19, 2010
No Second Stage Agreement Yet
The latest round of second stage talks between the United States and European Community which began in Madrid on Monday failed to produce concrete results. See Doug Cameron & Carolyn Henson, EU, US Fall Short on New Open-Skies Deal, Dow Jones Newswire, Feb. 18, 2010 (available here). Though both sides cite "progress" being made this week, time may be running out.
By the timeline established by their 2007 Air Tansport Agreement, both parties have the right to suspend some (or all) of the rights granted under it if no second stage accord is struck by this November. See U.S./EC Air Transport Agreement, art. 21(3), 2007 O.J. (L 134) 4. The suspension won't come into effect immediately, however. Any notice of suspension "shall take effect no sooner than the start of the International Air Transport Association (IATA) traffic season that commences no less than 12 months after the date on which the notice of suspension was given." Id. Since the IATA traffic seasons begins in October and March of each year, a November 2010 suspension notice could not take effect until March 2012. That would leave 17 months for negotiations to continue before any traffic rights are impaired. Would that provide enough time for both sides to finalize an agreement before an air services trade war begins?
February 18, 2010
Havel on oneworld Order
Professor Brian Havel, Director of the International Aviation Law Institute, was featured in Main Justice's story on the recent tentative order from the Department of Transportation granting the oneworld Alliance antitrust immunity to cooperate on marketing, scheduling, and revenue sharing for transatlantic air services. See Aruna Viswanatha, DOT Snubs DOJ in Approving Airline Alliance, Main Just., Feb. 15, 2010 (available here). From the story:
This weekend’s ruling is subject to a comment period, and observers expect the Justice Department to weigh in again. Additional comments could pressure the DOT to impose stricter conditions, said Brian Havel, a professor at DePaul College of Law and director of the International Law Aviation Institute, in an e-mail to Main Justice.
. . .
When American Airlines and British Airways previously sought antitrust immunity for a joint venture in 2001, the DOT had asked the airlines to surrender 16 slots per day. “The DOT’s request that oneworld surrender Heathrow slots is little more than a bone they are tossing to the DOJ,” Havel said. “The DOJ brought up slot surrender in its public comments, but was likely envisioning something more comprehensive.”
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).
AA/JAL Seek Antitrust Immunity
Last Friday, on the eve of the oneworld Alliance receiving tentative approval and antitrust immunity for its transatlantic joint venture, alliance partner American Airlines applied for further antitrust immunity to deepen its cooperative relationship with JAL in the transpacific market. See Joint Application for Antitrust Immunity, Dkt. No. OST-2010-XXXX (Feb. 12, 2010). From the filing:
This proposed alliance will create metal neutrality between two of oneworld’s core transpacific members – American and JAL. These agreements will provide for revenue sharing and closer integration, giving oneworld the ability to offer consumers an effective competitive alternative to Star and SkyTeam in Asia, and will maximize the benefits that the US-Japan Open Skies Agreement will make possible. American and JAL will implement their bilateral alliance agreement immediately upon approval, and will implement the JBA within 18 months of the Department’s final order granting antitrust immunity consistent with the precedent set in [the DOT's immunization order for the SkyTeam Alliance].
Approval of the Joint Application will facilitate the implementation of a new US-Japan Open Skies agreement, will link two complimentary networks and give oneworld its first truly integrated transpacific hub network to compete with Star and SkyTeam, and involves overlaps on just three city-pairs accounting for less than a million bookings per year where there will be no less than two nonstop post-transaction competitors on each route.
Interestingly, AA and JAL are seeking to consolidate their docket with the recently opened United Airlines/Continental/ANA application for a similar immunization grant. Both parties appear to be hoping that their applications will be approved before October when the U.S./Japan open skies deal is supposed to come into effect. That may be wishful thinking, particularly in the case of AA/JAL. With the Japanese carrier in the midst of bankruptcy, it will be difficult for the DOT to undertake a thorough market analysis of its planned arrangement with AA until after JAL's reorganization is complete. That could take years. On the other hand, the DOT may feel pressured to sidestep such an analysis altogether. Failure to bestow antitrust immunity on AA/JAL could sour aeropolitical relations with Japan--an unwelcome prospect given the time and energy expended by U.S. negotiators to establish an open skies agreement in the first place.
February 14, 2010
DOT oneworld Order Available
The Department of Transportation's tentative order granting approval and antitrust immunity to oneworld Alliance members American Airlines, British Airways, Iberia, Finnair, and Royal Jordanian "to more closely coordinate international operations and launch an integrated joint venture in transatlantic markets" is now available online. See Show Cause Order, Dkt. No. DOT-OST-2008-0252 (Feb. 13, 2010) (available here). Interested parties have 45 days in which to final answers to the order with 15 additional days reserved for replies.
Though it's unlikely the DOT will substantially modify the immunity order despite the criticisms the decision is sure to draw from Virgin Atlantic and the Department of Justice, the DOT may be persuaded to require additional conditions for the immunity, including further slot divestitures and carve outs. Blog readers may recall that following the DOT's tentative antitrust immunity order for the Star Alliance last April, objection s from the DOJ prompted the Department to impose limited carve outs in the final order. See previous blog posts here and here.