Tuesday, January 31, 2012
House and Senate negotiators have reached agreement on a bill to provide the FAA with $15.9 billion in annual funding for the next four years, for a total of $63 billion. See Lawmakers Agree on a $63 Billion, Four-Year FAA Bill That Boosts Air Traffic Modernization, Associated Press, Jan. 31, 2012 (available here). While the full text of the legislation won't be released until tomorrow, key details have emerged. The NextGen air traffic modernization program will continue to be funded at $1 billion annually. Funding for the Essential Air Services program, which subsidizes air transport services to 150 rural communities, will be reduced to $190 million per year and no new communities will be allowed to enter the program. The key compromise on labor provisions reported last week increases the number of workers within a bargaining unit required to petition for union certification from 35 percent to 50 percent. Labor unions have announced their opposition to the provision, but at this point the bill is expected to pass. See Unions Denounce FAA Spending Bill Compromise, Want Senate to Reject It, Associated Press, Jan. 31, 2012 (available here).
Monday, January 30, 2012
Spanair, Spain's fourth-largest airline, abruptly shut down operations on Friday, prompting threats of legal action from the Spanish government concerning the thousands of passengers whose flights were canceled without warning. See Raphael Minder & Nicola Clark, Spain Threatens Fine After Airline's Quick Close, N.Y. Times, Jan. 30, 2012 (available here). Spanair's story typifies numerous trends playing out in the EU aviation market that can be expected to continue throughout the coming year: decreased state investment, increased foreign investment, consolidation and contraction. Spanair's collapse was largely precipitated by the withdrawal of state funding and Qatar Airways' decision not to invest in the Spanish carrier. See Manuel Baigorri, Steve Rothwell & Alex Webb, Spainair Collapse Puts Europe's State-Owned Airlines on Alert for Investors, Bloomberg News, Jan. 30, 2012 (available here). The financial crisis and EU competition rules against state subsidies are combining to leave Europe's less profitable small-to-midsize carriers in financially perilous condition. Spanair's dashed hope for a lifeline from Qatar exemplifies the Gulf carriers' new role as one one of the few viable sources of investment for these carriers, evident last month in Etihad's purchase of a 29 percent stake in Air Berlin. Among Europe's three large carriers IAG has been the most open about exploring takeover opportunities. Such opportunities should be plentiful as SAS, TAP, LOT and Aer Lingus have all reportedly made shares available. Finally, airlines unable to find investors may share Spanair's fate. Hungarian carrier Malev appears likely to be the next airline to follow Spanair and suspend operations. Monday the Hungarian government designated Malev as a strategically important company, a legal move that will prevent creditors from filing bankruptcy proceedings. Malev reportedly has until the end of the week to produce a liquidity management plan. See Gergely Szakacs, Hungary's Malev Airline Runs Out of Cash, Reuters, Jan. 30, 2012 (available here).
Friday, January 27, 2012
The European Commission has opened an antitrust investigation focused specifically on agreements between Air France-KLM, Alitalia and Delta on transatlantic routes, and has closed a broader investigation that had included fellow SkyTeam members Korean Air, Czech Airlines, Aeromexico and Continental. See European Commission Press Release, Jan. 27, 2012 (available here). The agreements in question were signed in 2009 and 2010 allowing the three carriers to coordinate on capacity, scheduling, pricing and revenue management and to engage in profit and loss sharing on EU-U.S. routes. The investigation is consistent with the EC's ongoing investigation of similar agreements between Star Alliance members Lufthansa and United and the EC's completed investigation into British Airways and American Airlines from the oneworld alliance which resulted in approval once the carriers agreed to certain airport slot concessions. See Aoife White, Air France-KLM, Delta, Alitalia Probed by EU Over Alliance, Bloomberg News, Jan. 27, 2012 (available here).
Thursday, January 26, 2012
The British parliament's Energy and Climate Change Select Committee has recommended that any foreign carriers that refuse to participate in the EU's emissions trading scheme should be grounded. See Mathew Carr, U.K. Lawmakers Threaten to Ground Non-Carbon Compliant Planes, Bloomberg, Jan. 26, 2012 (available here). The Committee's comments appear directed at U.S. carriers as the U.K. is the Member State designated for enforcement and allowance collection for U.S. airlines. This latest rhetoric provides yet another example of the intensity of opinion on both sides of this dispute, and offers some pushback by ETS defenders against recent criticism from the U.S., China, India and Russia. At this point it remains only rhetoric however, as U.S. carriers claim to be complying with the ETS and it is far from clear that the Committee's enthusiasm for a trade war on this issue is shared by the rest of the U.K. government or EU authorities who are presently facing a myriad of other economic concerns. Don't expect actual grounding of U.S. aircraft any time soon.
Wednesday, January 25, 2012
Recent talks between Japan and the U.K. on a bilateral aviation pact have produced an agreement to employ an open skies policy regarding flights to and from Narita International Airport. See Narita Part of U.K. Open-Skies Deal, Japan Times, Jan. 25, 2012 (available here). This reflects a continuation of recent trends by both countries. Japan signed open skies agreements with the U.S. in 2010 as well as Canada and Australia in October of 2011. The U.K. has made a concerted effort to expand its access to Asian markets, most notably through its wide-ranging 2007 open skies agreement with Singapore.
Tuesday, January 24, 2012
With FAA funding set to expire January 31, the House of Representatives approved a short-term extension that will keep FAA programs funded through February 17 to allow enough time to finalize a long-term funding bill. See House Approves Short-term Extension of FAA Programs for the 23rd Time, Long-term Plan Near, Associated Press, Jan. 24, 2012 (available here). This will be the 23rd short-term funding extension since 2007, a disgraceful state of affairs that impedes long-range planning. However, news broke last Friday of a compromise that reportedly will allow passage of a long-term funding bill in the coming weeks.
The remaining aviation rule changes issued by the U.S. Department of Transportation last April become effective today and Thursday. See Susan Todd, Airline Passengers to Get a Break on Baggage Costs and Other Fees, Star-Ledger, Jan. 24, 2012 (available here). The rules regarding tarmac delays and lost baggage compensation took effect last August. Today's rules require airlines to disclose baggage fees at the time of ticket purchase, provide prompt notification to passengers regarding delayed or canceled flights, and allow passengers to reserve a ticket for 24 hours or cancel a purchase within 24 hours without penalty if more than a week before the scheduled flight. The final rule change will take effect Thursday and will require airlines advertisements to include the actual price of the ticket including taxes, fuel surcharges and other fees. The text of the regulations are available here.
Monday, January 23, 2012
Last month International Airline Group (IAG), the parent company of British Airways and Spanish carrier Iberia reached an agreement with Lufthansa to acquire British Midland International (BMI). While the merger has to be approved by European Commission (EC) competition authorities, Virgin Atlantic, which made an unsuccessful bid for BMI, is pushing for British regulators to examine the effects of the deal on the UK domestic market as well. See Rob Gill, Virgin Atlantic Pleads for UK Authorities to Probe BA-BMI Deal, Air & Business Travel News, Jan. 16, 2012 (available here). The primary concern is that, if approved, the merger would increase IAG's control of slots at Heathrow airport from 44% to 53%. IAG has said it intends to use the new slots for long-haul routes, which would imply the merger is more likely to affect international rather than domestic markets, making EC regulators a greater obstacle than any potential review by UK regulators.
Friday, January 20, 2012
Congressional leaders have reportedly reached an agreement that will allow them to get past the impasse on union voting rules that was a major reason for the FAA shutdown last August. See John Crowley, Congress Reaches Breakthrough on U.S. Aviation Bill, Reuters, Jan. 20, 2012 (available here). The FAA has operated on short-term funding extensions for the past few years, seriously inhibiting the ability to plan for long-term projects such as the NextGen air traffic control system. The current funding extension ends January 31. This compromise provides optimism that a bill with long-term funding will be passed soon.
Wednesday, January 18, 2012
Reports today indicate that India's Aviation Ministry has recommended rule changes that would allow foreign airlines to purchase shares in Indian carriers. See Anurag Kotoky & Aniruddha Basu, India Moves to Let Foreign Airlines Invest, Reuters, Jan. 17, 2012 (available here). The Ministry's recommendation would permit foreign carriers to own up to 49 percent stake in an Indian airline, a significantly higher limit than the numbers reportedly under consideration a month ago. This would give foreign airlines the same investment rights as non-airline foreign investors. Foreign airlines are currently prohibited from making any investment in Indian carriers. The proposed change awaits approval by the Union cabinet before it can take effect, but industry observers and market investors appear optimistic about the measure's success. See Tarun Shukla & P.R. Sanjai, Cabinet to Take Up 49% Airline FDI, livemint.com, Jan. 18, 2012 (available here). While approving any foreign investment in its airlines is novel for India, the contemplated upper limit of 49 percent would nevertheless keep India firmly within the range of foreign ownership (i.e., less than a majority stake) permitted by the nationality rule in bilateral air services agreements.
Monday, January 16, 2012
U.S. and EU trade officials met last Friday and reached agreement on procedures for the next phase of the ongoing dispute over government subsidies provided to Airbus and Boeing. See Eric Morath, EU, U.S. Meet Over Airbus, Wall St. J. MarketWatch, Jan. 14, 2012 (available here). The U.S. alleges that the EU has not adequately complied with last year's WTO ruling on the subsidy dispute, while the EU contends it has fully complied. On friday, both parties agreed to wait for a WTO ruling on EU compliance before beginning proceedings for noncompliance damages. On Friday, the WTO also appointed an arbitrator for the eventual damages proceedings. A WTO appeals panel is currently reviewing the question of U.S. subsidies to Boeing. Should the ruling go against the U.S., Friday's agreement provides the U.S. with six months to demonstrate compliance with the ruling before noncompliance and damage proceedings take place in the same order as agreed upon for the Airbus proceedings.
Friday, January 13, 2012
Though a deal is likely months away multiple news outlets today reported that three entities are considering making a play for AMR. See Gina Chon, Susan Carey & Mike Spector, Rivals Eye American Airlines, Wall St. J., Jan. 13, 2012 (available here). Delta, US Airways and private equity firm TPG Capital are all reportedly evaluating an acquisition of the bankrupt carrier. According to the Wall Street Journal story, Delta believes it can make the concessions necessary for a merger to win approval by U.S. regulators. However, not all analysts believe such a deal could survive antitrust scrutiny and some have suggested that Delta's involvement may be intended to complicate other potential deals. See Mary Schlangenstein, AMR as 'Last Plum' Stirs Interest After Airline Ranks Cut, Bloomberg Business Week, Jan. 13, 2012 (available here). Additionally, a merger with Delta could face difficulties with foreign competition authorities as losing AMR to Delta's SkyTeam alliance would be a serious blow to oneworld, leaving only two viable international alliances. See Doug Cameron, Delta, AMR Might Not Clear Foreign Regulators, Wall St. J. Deal Journal, Jan. 13, 2012 (available here). A merger with US Airways would be a much easier decision for regulators given that US Airways is only the fifth-largest U.S. carrier (Delta is second, AMR third) and does not have any overlapping hubs.
Thursday, January 12, 2012
Earlier this week the European Commission announced that financing Hungary had provided to its flag carrier, Malév Hungarian Airlines, from 2007-2010 did not comply with the requirements of the Treaty on the Functioning of the European Union (TFEU). See European Commission Press Release, Jan. 9, 2012 (available here). Hungary has been ordered to recover the illegal aid from the airline, estimated to be approximately $350 million. See Kurt Hofmann, EC: Malev Must Pay Back Illegal State Aid, Air Transport World, Jan. 10, 2012 (available here). The aid would not have violated the EU's competition rules had the financing been granted on market terms available to a private carrier, or had the aid been accompanied by a restructuring plan that would have qualified the aid for the rescue and restructuring exemption. Unfortunately for Malév, the EC determined that neither of those conditions was satisfied.
Wednesday, January 11, 2012
India, like China, has asked its carriers not to cooperate with EU officials in the collection of emissions data required by the Emissions Trading Scheme (ETS). See India Protests EU Airline Emissions Tax, UPI, Jan. 11, 2012 (available here). One new twist to India's opposition, as contrasted with that of China or the U.S., is that Indian Environment Minister Jayanthi Natarajan, in a letter to EU Commissioner for Climate and Energy Connie Hedegaard, threatened that continued application of the ETS to non-EU carriers could negatively affect future climate change negotiations. Viewed in combination with threats by China to cancel purchases from Airbus and threats from the U.S. to issue retaliatory charges against EU carriers, ETS opponents appear willing to probe any conceivable EU pressure point that might give them the upper hand in this dispute.
Tuesday, January 10, 2012
Sabre Airlines Solutions released the results of its bi-annual survey of airline executives earlier today. See Sabre Airlines Solutions Press Release, Jan. 10, 2012 (available here). Executives named Fuel Prices as the top challenge that negatively impacts an airline's business revenues, followed by Government Regulations and Airport/Passenger Security. According to the press release, this is the highest Government Regulations has ever ranked in the survey results, a possible result of the attention given to the expansion of the EU ETS to the aviation sector as well as recent regulatory changes by the U.S. DOT. Concern about government regulations was reportedly highest in Asia-Pacific, Europe, Middle East and Africa.
Monday, January 9, 2012
According to an Obama administration official quoted in a Reuters article last week, the administration is considering taking retaliatory measures in response to the EU's imposition of ETS regulations on U.S. carriers. See John Crawley & Andrew Quinn, U.S. Weighs Retaliation Over Europe Aviation Law, Reuters, Jan. 6, 2012 (available here). While more attention has been given to the pending legislation that would prohibit U.S. carriers from complying with the EU scheme, any substantive U.S. response is likely to be carried out by the DOT and Secretary of State, presumably under the authority of International Air Transportation Fair Competitive Practices Act of 1974, currently codified in 49 U.S.C. § 41310. However, that statute applies to discriminatory practices, making its applicability to the EU ETS, which applies equally to all carriers, questionable. Thus, congressional legislation may be a necessary prerequisite to ensure the administration has the proper authority to act before going forward.
Wednesday, January 4, 2012
Cai Habo, deputy secretary-general of the China Air Transport Association (CATA), announced today that Chinese carriers will not cooperate with EU emissions officials and will not surrender the required emissions permits or pay the monetary penalties for non-compliance. See Jonathan Watts, Chinese Airlines Refuse to Pay EU Carbon Tax, The Guardian, Jan. 4, 2012 (available here). It remains to be seen how the EU will respond. Aside from the dramatic step of banning Chinese carriers from EU airports, it is not clear how the EU can force China to participate. Though the ETS is now in effect for airlines, at present EU officials are only calculating aircraft emissions; carriers will not receive the bill for this year's emissions until early next year. This mitigates somewhat the need for an immediate resolution to the standoff between the EU and China. However, EU officials will soon need to determine how far they are willing to go to ensure compliance, as legislation similarly prohibiting U.S. carriers from participating in the EU scheme is under consideration by the U.S. Senate.
Tuesday, January 3, 2012
As it is now 2012, the aviation industry is officially required to participate in the EU ETS. An article today from Reuters Africa suggests that patience will be necessary when attempting to evaluate the impact of this new regulation on the aviation sector. See Jeff Coehlo and Ben Garside, Legal, Economic Concerns Mute Aviation CO2 Trade, Reuters Africa, Jan. 3, 2012 (available here). According to the story some carriers have already begun purchasing permits, but many, especially non-EU carriers, remained cautious given the possibility of future legal challenges and diplomatic stand-offs over the scheme. The recent collapse of the price of permits as a result of ongoing economic troubles further complicates the decisions facing the newest ETS participants as to how best to proceed with their new obligations under EU law.