Monday, June 23, 2008

Announcement: New LL.M. Program for International Aviation Law

Beginning in January 2009, DePaul University College of Law will launch its new Master of Laws (LL.M.) in International Law program.  With concentrations in three key areas of global practice, including International Aviation Law & Policy, the DePaul international law program is designed for both experienced attorneys and recent law school graduates from United States and abroad. 

The International Aviation Law & Policy concentration requires the completion of three core courses totaling nine credit hours, three core aviation courses totaling nine more credit hours, and six additional credit hours drawn from the College's international law electives. 

Core Courses

  • International Business Transactions
  • International Trade Law
  • Public International Law

Core Aviation Courses

  • Public International Aviation Law
  • Private International Aviation Law
  • International Aviation Law & Policy Seminar

Potential Elective Courses (Availability Subject to Change Year to Year)

  • Comparative Law
  • Externship: International Aviation Law
  • International Antitrust & Competition Law
  • International Commercial Dispute Resolution
  • International Environmental Law
  • Law of the European Union
  • U.S. Customs Law & International Trade

Those interested in acquiring a brochure containing further details about the LL.M. program or wishing to have more specific questions answered are encouraged to contact the International Aviation Law Institute's FedEx/United Airlines Resident Research Fellow, Gabriel Sanchez, either by e-mail or telephone at 312-362-7315.   

June 23, 2008 | Permalink | Comments (1) | TrackBack (0)

Friday, June 20, 2008

United and Continental's New Alliance

Less than two months after merger negotiations were called off, Continental and United Airlines announced an alliance between the two which would allow for linking international networks, technology sharing, and honoring each other’s passenger benefits.  Under the new agreement, Continental will join the Star Alliance, the world’s largest alliance network, which was co-founded by United and includes notable foreign carriers such as Germany’s Lufthansa and Canada’s Air Canada. In order to take full benefit of alliance opportunities, the carriers will have to receive antitrust immunity from both the United States and the E.U.  Such immunity would allow for greater streamlining and collaboration, particularly on flight scheduling, marketing, and the choice of aircraft for particular routes.

Yesterday’s announcement, while no doubt a surprise in light of speculation that Continental was poised to announce a similar alliance arrangement with American Airlines, offers a few hints on the continued vitality of United Airlines.  Despite not being able to pull off a substantial merger either Continental or Delta Airlines, clearly they remain enough of a competitive force to attract a deal which won’t even begin to pay dividends for nearly a year or more.  (Before Continental can fully get on board, they must give nine months notice to their current alliance network, SkyTeam, and that will have to wait until the announced Delta/Northwest merger receives regulator approval.)  As many analysts have pointed out, this also brings the carriers one step closer to a full-on merger.  Should that go through, Continental and United would become the single largest carrier in the world—a prospect which may look less inviting in a market made volatile by spiraling fuel costs but may, in fact, prove opportune after the new alliance’s benefits are reaped.

With that said, it should not be forgotten that the alliance system is, in many instances, a necessary half-measure prompted by abiding ownership and control restrictions worldwide.  While the EU has indicated during both stages of the “Open Skies” negotiations with the U.S. that it would be more than willing to relax restrictions reciprocally, the U.S. has held fast to the current foreign investment cap of 25% voting stock, 49% total equity.  With mergers options essentially foreclosed at the international level, carriers like United and Continental are forced to look at a dwindling number of partners; assuming everyone is in the (relatively) same financially unstable boat, mergers appear not only risky, but outright dangerous.  On the other hand, cash-rich EU carriers such as Lufthansa and British Airways, both far better insulated from rising fuel costs due to the relative strength of the euro in relation to the dollar, could greatly expand the merger horizon by offering greater stability and expanded international access.  But dreaming of such things won’t make them a reality.  For U.S. airlines trying to survive today, they’ll take what they can get.

June 20, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 17, 2008

The Alitalia Saga Continues

The airline industry’s version of Nosferatu, Italy’s Alitalia, is back in the spotlight following the opening of the European Commission’s investigation into whether a €300-million loan constitutes illegal state aid. This new source of lifeblood may keep the carrier animated, but for how long? Most analysts had concluded that the collapse of KLM-Air France’s bid to purchase Alitalia amounted to the proverbial stake in the heart. Not so, said new Italian Prime Minister Silvio Berlusconi, who made the continuing operation and control of Alitlia by Italians one of the components to his political platform. If that wasn’t enough to raise eyebrows, a new wave of concerns came forth following the announcement that Antonio Tajani, a longtime political ally of Berlusconi, was tapped to become the new Transport Commissions for the European Union following former commissioner Jacuqes Barrot’s transfer to become the Commissioner responsible for Freedom, Security and Justice. Prior to his departure from transportation duties, Barrot had been highly critical of the Italian loan.

The obvious question which remains is how willing Tajani will be to strictly enforce EU competition rules against the stated agenda of his former cohort. In short, does he share in Barrot’s vision for robust enforcement against States which try to distort the market? In Europe, at least, there appears to be at least provisional satisfaction that Tajani can remain objective despite his ties to the current Italian government. The European Parliament gave a vote of approval today, satisfied with his repeated insistence that the treaties of the EU must be respected and that EU’s "one time, last time" rule with respect to airline bailouts—in this instance referring to Alitalia’s 2002 subsidy—will be maintained. During his grilling before the European Parliament, Tajani is reported to have stated: "I am not pocketable by any lobby." He went on to stress that Alitalia was no exception to the EU’s competition rules and that an investigation was already underway.

In the coming months, the European Commission will scrutinize whether or not the Italian government’s loan is or is not illegal state aid. The European Commission’s document, Guidelines for State Aid to the Aviation Sector, OJ C 244 (Oct. 1 2004), mandates that the Commission look into whether a government loan constitutes illegal state aid or if it is not, rather, equivalent to a regular investment transaction, the sort which a private stakeholder would make. In the matter of Alitalia, it will no doubt be difficult for the Italian government to claim that its substantial loan was the sort a private investor would make, given the carrier’s longstanding history of losing money and the fact that it relied on the government only six years ago to save it from insolvency. Given that the Commission is allowed to take into consideration market developments and the position of the airline vis-à-vis that market, Alitalia’s days as an outmoded, undisciplined, participant appear numbered. While the Commission has eighteen months to conclude its investigation, it will be interesting to see whether or not Alitalia, which reported a pre-tax loss of €215-million in the first-quarter, will even be around to see it.

June 17, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 12, 2008

No Quick Fix

Just a week after Irish low-cost carrier Ryanair’s CEO Michael O’Leary defiantly announced that it would risk its recent profit boost in the coming year by not raising prices in the face of soaring fuel costs, U.S. airlines are scrambling to find ways to cut costs. An article which appeared in yesterday’s New York Times reports that airlines “are power-washing jet engines more often to get rid of grime, carrying less water for the bathroom faucets and toilets, and replacing passenger seats with lighter models” in attempt to bypass substantially raising ticket prices. Even so, both American Airlines and Virgin America have announced they are raising prices. United Airlines has resigned itself to grounding 100 aircraft, reducing its capacity by 10%, laying off thousands of workers, and saying good-bye to its low-cost carrier subsidiary, Ted.

There is no doubt that all of the airlines in the U.S. need to take a hard look at their current practices in order to determine what fat (if any) remains to be trimmed.  Reducing capacity and getting the best performance out of aircraft through frequent cleaning and maintenance are two examples which are being embraced.  What no one wants to talk about too loudly is the reality that jobs may be cut, prices may go up, and consumers used to extra amenities may be in store for an increasingly “no frills” approach to air services.  Arguably, if the airlines could simply meet consumer demands for efficient, scheduled, transport, receiving a cup of soda rather than the whole can may not draw too much ire.  Unfortunately, that matter remains largely out of the hands of the airlines themselves.  Overcrowding at major airports coupled with the Federal Aviation Administration’s tortoise-like “improvements” to air navigation modernization will continue to leave passengers frustrated.  This unfortunate reality has ushered in numerous “doomsday prophecies” with news writers and “analysts”—many of whom keep themselves blissfully removed from the intricate series of complications crippling American’s aviation industry—salivating over the next opportunity to blast the aviation industry while making unspecified and largely irresponsible calls for re-regulation as the be all, end all “solution” to the present crisis.

A recent op-ed from Business Travel News set it sights on the pending Delta/Northwest Airlines merger.  The author decries the airlines’ citing of fuel prices as the primary motivator for the merger and instead rehashes the call for fiscal austerity as the only approach consistent with the free market ethos which has animated the industry since deregulation began in 1978.  Yes, tightening the belt and making capacity choices is part of doing business in a volatile market.  On the other hand, the author fatally undermines the integrity of his argument by failing to acknowledge that Delta, Northwest, and every other U.S. airline are bound to run up against antitrust criticisms for the simple fact that they are not allowed to merge with anyone but each other.  It is disingenuous, not to say highly inconsistent, to lob criticism at U.S. airlines for seeking mergers with each other in the name of keeping robust competition alive while idly passing by the current ownership rules and cabotage restrictions—both of which grossly undermine consumer choice and competition.

If there is a simple lesson to be drawn from the current woeful state of airline affairs (as distinct from the numerous complicated lessons which are still coming to light), it is that there is no correspondingly simple solution.  Dynamic factors, some of which remain well out of the control of the airlines themselves, are at work.  Fuel prices, of course, have and will continue to remain a source of consternation for the airlines; one which they will either deal with intelligently or suffer the consequences.  Longstanding and wholly outmoded government regulations, coupled with an archaic air navigation system, are something else altogether.  They are impediments to sustainability (to say nothing of growth) which are tolerated for reasons as politicized as they are unconvincing.  Given the centrality of frequent, reliable, and affordable air transport services to any economy not modeled on the Middle Ages, any and all government failures to provide the aviation industry with the best means to compete and provide service ought to become the focus of public scrutiny.  No, do not pass without notice the missteps of the airlines themselves; hold them accountable for any and all absences of market discipline.  But the narrow lines of analysis which practically channel William Ernest Hensley’s “Invictus,” that the airlines remain the sole masters of their fates, captains of their souls, are as stale and inappropriate for the times as that poem’s trite, Oxford-style Stoicism.

June 12, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 4, 2008

IATA on the Present Airline Crisis

The International Air Transport Association’s 64th Annual General Meeting and World Air Transport Summit held in Istanbul, Turkey brought little in the way of good news for the troubled airline industry.  With “optimistic” projections of a worldwide U.S.$2.3 billion loss the airlines in 2008 ($6.1 billion if the price of oil remains at $135 per barrel) and a 2% decrease in overall growth from 2007, IATA Director General and CEO Giovanni Bisignani called upon governments worldwide to “stop crazy taxation, change the rules of the game and fix the infrastructure.”  He went on further to iterate that “[r]e-regulation or re-nationalisation is not the right answer. . . . The Chicago Convention is not the problem. It’s the bilateral system that was designed for another age. The Freedoms of the Air are only restrictions on our business. Airlines cannot look beyond national borders to manage risk, access global capital or consolidate. To fight crises effectively, brands not flags must define our business.”

This call, while in some sense obvious to both airlines and analysts, may have a hard time finding resonance at the international level.  Though it is surely too early to make final predictions, the first round of second stage “Open Skies” negotiations between the U.S. and EU yielded little more than a continuing recognition that removing ownership and control rules would be a “hard sell” in the U.S.  Further, if any progress is made on this issue, it will still be a matter of years before the airlines can begin taking due advantage.  The hard question which must be asked is: Do the airlines have enough time?  Should progress towards a workable and, more importantly, effective second stage of “Open Skies” find itself hindered by policies of a new U.S. administration after November, no carrier in the U.S. may be safe from bankruptcy or worse.

In addition to Bisignani’s call, the airlines themselves unanimously adopted a six-point declaration on steps which must be taken by governments, airports, and labor if the airlines are going to survive the present financial crisis.  The declaration states:

  • Governments must eliminate archaic rules that prevent airlines from restructuring across borders.
  • In view of existing fees and charges, governments must refrain from imposing multiple and additional punitive taxes and other measures that will only deepen the crisis.
  • State service providers must invest to modernise air transport infrastructure urgently, eliminating wasteful fuel consumption and emissions.
  • Business partners, in particular monopoly service providers, must become as efficient as airlines are now.  If not, regulators must restrain their appetite with tougher regulation.
  • Labour unions must refrain from making irresponsible claims and join the effort to secure jobs in aviation and indeed in other industries.
  • In the interest of the global economy and the flying public, we urge authorities to enforce the integrity of markets so that the cost of energy reflects its true value.

On an interesting side note, despite the obvious sign of airline unity contained in the IATA declaration, Irish low-cost carrier Ryanair has held fast to its “only the strong survive” mentality.  Coming off of reports of a 481 million euro profit jump, Ryanair confidently believes that it can weather the current storm while its competitors crumble under the financial pressure.  Should oil prices remain at $135 per barrel, Ryanair’s CEO Michael O’Leary still believes the carrier would be able to break even.  When pressed whether the days of Ryanair’s cheap fares were numbered, he simply replied, “Bullshit.”

June 4, 2008 | Permalink | Comments (1) | TrackBack (0)