Friday, March 28, 2008

Open Skies - Ready to Launch

News agencies all over the world are reporting on the historic U.S./EU Air Transport Agreement, dubbed "Open Skies," which goes into effect this Sunday.  Under the Agreement, the old restrictions on which airlines have access to the lucrative transatlantic route between the United States and Europe have been abolished.  Many commentators are hopeful that the Agreement will bring about greater choice for consumers and result in lower airline costs.  However, as the BBC News has correctly reported, the current cost of fuel is likely to offset these anticipated price reductions.  What the BBC failed to get right-and what should be made perfectly clear-is that the Agreement still maintains the old strictures on foreign investment.  Contrary to the BBC's claim that U.S. airlines will be able to buy up to 49% shares in their European rivals while foreign investment in U.S. airlines is capped at 25%, the Agreement provides that European investors can acquire 49% equity stock in U.S. carrier with the possibility of gaining more, subject to Department of Transportation approval.  The 25% limit applies only to voting stock.  Under the Agreement, the EU is permitted to impose a reciprocal 25% voting stock on U.S. investment-a much tighter cap than what existed prior to the Agreement.

News agencies have also picked up on the fact that a "second stage" of negotiations between the U.S. and EU is set to begin on May 15.  One of the key issues for those talks will be opening up foreign investment.  Jacques Barrot, the EU Transport Commissioner, has already vowed to suspend rights under the current Agreement if a satisfactory outcome on the matter is not reached by 2010.  According to Barrot, the next stage of negotiations "will aim to achieve full liberalisation in traffic rights, new possibilities for investments by European companies in the United States and for U.S. companies in Europe, measuring the effect on the environment and constraints on exercising traffic rights, access to transport programs financed by the U.S. government, and leasing aircrafts with crew."

As readers of the blog may recall, the International Aviation Law Institute, in cooperation with the International Institute of Air and Space Law at Leiden University, convened an experts' Working Group in Dublin, Ireland last November to begin discussing the "second stage" issues.  This fall, the Institute will provide a full treatment of the evolution, implications, and future of the new U.S./EU open skies agreement in Professor Brian Havel's new book, Beyond Open Skies.

March 28, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 26, 2008

Safety Issues

American Airlines announced today that it has grounded two-thirds of its MD-80 fleet, prompting 171 of its 2,200 daily flights to be canceled. Concerns over the connection of wiring within the aircraft spurred American to action. American Airlines is hopeful that the inspections, which only take a matter of hours, will be prompt and allow them to put the MD-80’s back into service. In an official statement, American noted that a Federal Aviation Administration audit led to concerns over the wiring. However, the decision to ground the planes was American's. This matter comes on the heels of public backlash against the FAA for lax inspections of Southwest Airline’s fleet. While that incident ultimately led to FAA issuing a stiff $10.2 million fine against Southwest, a Congressional investigation of the incident and the FAA’s handling of the situation is still on the horizon.

In addition to the current American Airlines situation, the FAA has also ordered the inspection of hundreds of Boeing 737 aircraft after concerns that a faulty bolt may be causing fuel leaks. The order includes both older and newer models of the aircraft, though at this time no action has been taken to ground any of the aircraft under inspection. Airlines have ninety days following the order’s effective date of April 8 to complete the inspections. While the FAA only has direct authority over U.S. airlines, it is likely that the order will be followed in other countries whose airlines utilize the Boeing 737.

March 26, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 25, 2008

Second Circuit to the Rescue

As expected, the Second Circuit Court of Appeals struck down New York State's Airline Passenger Bill of Rights Act.  In a unanimous decision, the court found the act expressly preempted by the Airline Deregulation Act of 1978.  Also of concern to the court was the potential of giving free reign to state regulation of the airline industry.  "If New York's view regarding the scope of regularity authority carried the day," so the court observed, "another state could be free to enact a law prohibiting the service of soda on flights departing from its airports, while another could require allergen-free food options on all outbound flights, unraveling the centralized federal framework for air travel."  The court was not unsympathetic to the aims of the New York statute: "Although the goals of the [statute] are laudable and circumstances motivating its enactment deplorable, only the federal government has the authority to enact such a law."

It remains to be seen what the next course of action may be on the part of New York State or consumer advocacy groups.  News outlets are already reporting that New York State attorney Andrew M. Cuomo is contemplating an appeal to the Supreme Court.  So far there is no word on what, if any, action federal legislators may attempt to take.

March 25, 2008 | Permalink | Comments (0) | TrackBack (0)

Netherlands Court Upholds Ticket Tax

Readers of the Aviation Law Blog may recall Frans Vreede’s guest post from February 5 on the Dutch Ticket Tax. In that post, Mr. Vreede set down an argument against the Netherlands’ imposition of a $67 per ticket tax on all departures bound for outside the territory of the European Union ($17 for those within). As Mr. Vreede’s post made clear, the tax may be in violation of Article 15 of the Chicago Convention and may also run afoul of the U.S./EU Air Transport Agreement. Despite this, a Dutch court in the Hague has rejected claims of the tax’s illegality.

Led by the Amsterdam airport Schiphol Group, the challenge to the new ticket tax fell to a narrow reading by the court. On a first sight reading of the case, the judge took Article 15’s omission of the word "tax" from the list of impermissible charges to be indicative of its inapplicability. The court failed to consider the purpose behind the article itself, i.e., as a prohibition to setting charges which have no relationship to the use of airports or their facilities. While the court’s decision marks an obvious setback for civil aviation in the Netherlands, an appeal to the country’s Supreme Court to review the decision’s merits is likely.

March 25, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 18, 2008

News on Open Skies

With the U.S./EU Air Transport Agreement (dubbed "Open Skies") set to come into effect in just under two weeks, rumblings of dissent and concerns over the Agreement's impact are already occurring.  According to an article which appeared in yesterday's edition of The Guardian, the International Air Transport Association's Chief Executive Giovanni Bisignani is claiming that continued government shielding of its flag carriers is "killing the aviation industry."  Bisignani specifically singled out the Open Skies Agreement as falling short of expectations given the foreign control restrictions it left in place.  He has even gone so far as to accuse Jeffrey Shane, U.S. Under Secretary of Transportation Policy, of being a "protectionist" due to the maintenance of the foreign investment caps under Open Skies.  This hostility towards U.S. policy is more than mere rhetoric.  As the article rightly points out, EU Member States may suspend rights under the Open Skies Agreement should the next stage of negotiations fail to yield satisfactory results.  While any suspension of rights is not likely to come into effect until 2012, the very possibility that EU Member States may ground flights from U.S. carriers undoubtedly adds a layer of necessity for both sides to reach a workable solution to the foreign investment problem.

With respect to the impact of Open Skies, both the European Commission and the U.S. Department of Transportation announced that it will launch a joint research project to examine transatlantic airline alliances.  Under the alliance system, carriers agree not to compete against each other on the same routes and also engage in code sharing.  This system of alliances, while unstable at times, has become a necessity for airlines in an era still plagued by restrictions on full-fledged mergers.  The future of these alliance networks will be a subject of great interest given the fact that Open Skies will undo current restrictions on the transatlantic route between the U.S. and EU, thus inviting further competition.

As for the transatlantic route itself, the Wall Street Journal is reporting that both United Airlines and American Airlines have responded by offering new services between the U.S. and London's Heathrow Airport.  United is offering a package deal on its new Denver to London Heathrow service while American has opted to pull its flights from Gatwick Airport and reroute them into Heathrow.  Still, passengers shouldn't get too excited about the possibility of further direct flights into Heathrow.  With the very slots available commanding high prices and government-imposed traffic caps, it remains unlikely that any but the largest carriers will be able to take full advantage of Open Skies' opportunities at Europe's busiest airport.

March 18, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, March 14, 2008

More on Passenger Rights

For those who have kept tabs on the bountiful supply of airline passenger rights legislation over the years, it should come as little surprise that these proposals can be linked to highly publicized debacles involving a minute number of aircraft being stranded for an outrageous period of time. Consider the "textbook case" of Northwest Airlines' stranding of a plane full of passengers for eight hours without food, water, or working toilets in 1999. That notorious incident gave rise to two federal bills: The Airline Passenger Bill of Rights Act of 1999 and the Airline Passenger Fairness Act of 2000. Calling for a wide-range of reforms, including compensating passengers left on the tarmac for more than two hours, the legislation was ultimately set aside in the face of the industry's attempt to self-regulate through the so-called "Customers First" commitment. Inevitably, more delays occurred and when they did, the media were front and center to "inform" the public how "insincere" the airlines really are when it comes to their customers.

As discussed on this blog yesterday, the airlines are now in a heated legal battle over New York's choice to circumvent the federal government's regulatory authority and enact its own passenger rights law. Should the airlines prove unsuccessful in their appeal of a lower court ruling which upheld the law (an unlikely, though not impossible, result), they will soon find themselves confronting a plethora of enactments across the United States with varying standards and penalties. While there is always the hope that cooler heads will prevail and a more coherent framework will be designed to meaningfully address the infrastructural problems which are at the heart of most delays, more public outcry fueled by media reporting may cut such efforts short.

Last week, American Airlines left seventeen aircraft on the tarmac for four hours or more at Dallas/Forth Worth International Airport. Back in January 2007, American had announced that it would abide by a new internal policy not to leave aircraft stranded on the tarmac for more than four hours. According to the consumer advocacy group The Coalition for an Airline Passengers Bill of Rights (CAPBOR), the incident last week was the sixteenth individual incident involving over seventy aircraft left stranded by American for four hours or more. American had initially adopted the rule in response to its stranding of 121 flights on December 29, 2006. The latest series of strandings at Dallas/Fort Worth prompted CAPBOR to decry any voluntary plan by the airlines to deal with delays as "a recipe for disaster," with American's plan in particular amounting to "nothing more than a PR strategy designed to fool the public and convince the government that mandatory guidelines are unnecessary."

In its defense, American Airlines issued an apology to all passengers involved and offered $500 travel vouchers good towards any future flight on the airline. The airline also noted that severe weather conditions had prompted the delays and that one of its jets had narrowly avoided catastrophe after slush and ice had been sucked into its engine. It remains to be seen what sort of mileage consumer groups such as CAPBOR will be able to get out last week's delays on their route towards more government involvement in the airline industry.

March 14, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 13, 2008

The Ongoing Battle Over Passenger Rights

In the United States, 2007 saw some notable contributions to the ongoing squabble over passenger rights on airlines. At the federal level, the Airline Passenger Bill of Rights Act was introduced. That act would have required airlines to provide food, water, and adequate restroom facilities to passengers in the case of delays. More controversially, it would have provided a right to deplane three hours after the aircraft's door is closed.

The latter proposal drew strong criticism from the airlines as being a catalyst for further delays. Should a passenger exercise the right to deplane, the aircraft would have to taxi back to the terminal, lose its position in line for takeoff, and further impede passenger traffic at its destination. The bill was merged into the much larger Aviation Investment and Modernization Act which, since its introduction in the Senate in August of 2007, has gone nowhere. The House has passed its own version of the omnibus legislation which inter alia reduces the categorical requirements of the original Passenger Bill of Rights Act, but still requires airlines to provide an Emergency Contingency Plan to the Secretary of Transportation which details how they will provide basic services and an option to deplane after "excessive delays." No substantial action has been taken by the Senate on the House version.

In the meantime, while federal legislation stalled, the State of New York took matters into its own hands by requiring airlines to provide amenities to customers during delays and establishing the Office of the Airline Consumer Advocate to monitor compliance. Under the law-which went into effect on January 1, 2008-air carriers are required to provide contact information for the Consumer Advocate to customers and may be hit with a fine as stiff as $1,000 per passenger for flights which do not comply. Citing preemption under the Airline Deregulation Act (ADA), the Air Transport Association of America (ATAA) filed suit in federal district court to invalidate the legislation. The Association's efforts were thwarted, however. The court reasoned that there is always a strong presumption against preemption except in instances where it is explicitly stated in the federal legislation. The court read the ADA's explicit requirement that "a State may not enact a law.related to the.service of an air carrier" as limited to matters of competition whereas the New York law was concerned with services for health and safety. Since health and safety fall within a State's historic police powers, the court did not find that preemption had occurred. In addition, the court further found that preempting the New York law would not advance the purposes of the ADA and that any concerns over diverse regulation were marginal at best.

Matters appeared bleak for the airlines. Following New York's victory, eleven states-including California, Pennsylvania, and Washington-have contemplated passing their own bill of rights for passengers. Last week, however, the airlines appeared to catch a break as the Second Circuit Court of Appeals seemed ready (based on the tone of judicial questioning, at least) to overrule the lower court and strike down the New York law on the previously cited preemption grounds. While a final ruling has not yet come down, the three-judge panel expressed concerns about a multitude of regulations popping up across the country. While their comments were not unsympathetic to the pro-passenger rights position, their focus on a need for uniformity and worries about preemption are likely to tip the balance toward the airlines. Not willing to see this as a total defeat, pro-passenger rights advocates are hoping that a reversal by the appellate court will spur federal lawmakers to pass their still-dormant passenger-friendly legislation.

March 13, 2008 | Permalink | Comments (0) | TrackBack (0)

Monday, March 10, 2008

Southwest's Woes

Southwest Airlines has been under fire from the Federal Aviation Administration and government leaders concerning aircraft safety. Following a $10.2 million fine which Southwest's Chief Executive said "felt unfair," Southwest's blog was quick to assure readers "that no one is more passionate about the safety of . . . Customers and Employees than we are" and that "the situation being reported in the media was never and is not now a safety of flight issue." And what is the "situation"? According to James Oberstar, Minnesota Democrat and Chairman of the House Transportation and Infrastructure Committee, forty-seven Southwest jets were in operation without proper fuselage inspections and seventy had not received rudder-control inspections. Southwest's response has been to consistently highlight its internal safety inspections and to note that the FAA approved Southwest's measures in inspecting its potentially compromised aircraft.

Obesrstar's ire is not limited to Southwest, however. In an official press release, he turned his attention to the FAA itself. Oberstar blasted the FAA for its "lax inspection procedures for commercial airlines." He went on to state that his Committee's investigation of the FAA had "uncovered a pattern of regulatory abuse and that "FAA inspectors have given up reporting failures by the carriers because there is such a cozy relationship between FAA management and airline management."

Over the weekend, The Wall Street Journal reported that the FAA penalty "threatens to be the biggest bruise ever to an industry brand synonymous with low costs, low fares and friendly, reliable service." The FAA is already organizing a special investigation team to audit the carrier's internal safety systems and maintenance oversight. The FAA officials previously responsible for overseeing the inspection of Southwest have been removed from their positions. Another potential source of damage to the reputation of both the agency and the airline is a "whistleblowers report" which alleges that written memos were circulating as early as 2003 warning that Southwest was not keeping up with its maintenance program. The report appears to sustain Oberstar's contention of "coziness" between the two bodies.

March 10, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, March 7, 2008

Airline Mergers and Politics

According to an article in today's Wall Street Journal, the impending merger of Aitalia with Air France-KLM may rest on the outcome of Italy's upcoming national elections.  With the center-right set on maintaining Italian control of the capital-starved carrier, Air France-KLM's commitment to inject 3 billion euros into it may be for naught.  Analysts are predicting that should Air France-KLM choose to abandon the merger Aitalia would be unable to sustain itself.  Other national interests revolving around Italy's combative labor unions also threaten the deal.  Union leaders have warned that the merger will mean a reduced presence for Aitalia at the Malpensa airport near Milan along with other downsizing measures.  No comments were offered by any union on whether or not downsizing would be a more desirable option than complete collapse.

On the other side of the Atlantic, Canada's federal government is considering raising its foreign-ownership limits for airlines.  This move comes after ACE Aviation Holdings Inc. announced that it would sell its 75% ownership interest in Air Canada.  Like the United States, Canada limits foreign ownership in its airlines to 25% of voting shares and 49% of the equity.  Industry analysts and scholars have commented that such limits have had an adverse impact on a number of carriers.  In response, Canada may raise the voting shares ceiling to as high as 49%.  This would mirror the ownership caps in India and China, though still come short of Australia and New Zealand's rules which allow for 100% foreign ownership of carries which exclusively offer domestic service.

March 7, 2008 | Permalink | Comments (0) | TrackBack (0)