Wednesday, July 20, 2011

Ownership and Control in Australia's Air Services Agreements

Blog readers may be interested in Auguste J. Hocking's new article, Ownership and Control in Australia's Air Services Agreements: Further Reform Needed for Genuine Commercial Freedom?, 36 Annals Air & Space L. __ (available from SSRN here).  From the abstract:

Australian bilateral air services agreements, like those all around the world, invariably contain an airline nationality clause. Most such clauses restrict designation to airlines, “substantially owned and effectively controlled,” by the state of designation and/or its nationals. A key feature of the bilateral regulatory framework, ownership and control clauses work to restrict the benefit of an air services agreement to the signatory states and lock out third parties. Uncontroversial and rarely problematic in the days of the government-owned flag carrier, the requirement is now a serious obstacle to meaningful liberalisation in the commercial aviation sector.

The free flow of capital is axiomatic of globalisation. Commercial decisions can be taken with relative freedom from artificial nationality distinctions. Rationalisation along efficiency lines, accordingly, is the norm in global markets. The airline business, however, is treated differently. Ownership and control restrictions isolate the airlines and curtail the ability to access capital, consolidate across borders and establish in new markets. Prospective efficiency gains are forgone. Many suggest, on reasonable grounds, that the future health and prosperity of the industry and the broader marketplace is dependent on relaxation of these restrictions. Commercial aviation, they posit, should be treated, “just like any other business”.

Australia considers itself at the forefront of liberalisation initiatives. It is party to 3, "open skies," agreements, one of which comprises the Single Aviation Market with New Zealand, and is presently, it is reported, negotiating a further substantive agreement with the EU. Foreign ownership restrictions for Australian airlines have been progressively reduced and, most notably, 100% foreign ownership is permitted for domestic airlines. However, like many other nations, Australia is still bound by traditional ownership and control restrictions in many of its approximately 70 bilateral agreements. Reform on a point has been slow and, as this paper will argue, further action is needed.

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