Aviation Law Prof Blog

U.S. to Hold Informal Subsidy Discussion with UAE, Qatar

The United States Department of State has begun leaking how it plans to respond to accusations by U.S. carriers that the so-called "gulf carrier" contingent of Qatar, Emirates, and Etihad are benefiting from government subsidies and obtaining an unfair competitive edge in Open Skies markets. The State Department plans to discuss the matter with representatives of Qatar and the United Arab Emirates (UAE) informally next month, but won't seek to renegotiate existing Open Skies agreements or freeze gulf carrier access to U.S. markets. The State Department reportedly met with the big three U.S. carriers and labor unions to inform them of their chosen course last Friday and was scheduled to meet with opposing interests such as FedEx, JetBlue and travel groups today. This is being spun as a victory by both sides, as the U.S. legacy carriers are encouraged to see some action taken while the remaining carriers are relieved that the government does not appear to be considering any action that would alter existing air services agreements.

China Debuts ARJ21

The Commercial Aircraft Corporation of China (Comac) celebrated today the successful operation of its first regional jet, the ARJ21, by Chengdu Airlines, between Chengdu and Shanghai. The flight represents a significant milestone for the Chinese government, which hopes to see Comac supply a significant share of the fleet for China's domestic aviation market, which is expected to be one of the world's fastest growing markets over the coming decade. More hurdles remain however, as alterations will need to be made before the aircraft can pass certification by U.S. or European authorities necessary for operation in those markets, and Comac remains behind schedule in its development of a larger aircraft suitable for long-haul operations.

Brexit

The consequences of last week's referendum, in which the United Kingdom voted in favor of leaving the European Union, will be a leading source of concern for the European aviation market for the foreseeable future. IATA already has a brief report available on the potential consequences for airline traffic and regulation. Other sources had earlier written about the potential consequences in anticipation of this possibility, and those analyses should prove useful now that the decision to leave has been made. Even when restricting one's examination solely to the consequences for the aviation sector, ignoring knock-on effects from developments in the currency markets or changes to customs policy, the potential complications arising from the referendum are enormous. The following, non-exhaustive list offers some quick thoughts on the most important legal and policy questions that will need to be resolved with regard to aviation:

• Traffic rights with the EU. The immediate assumption since last Thursday's referendum has been that the United Kingdom will want to maintain as much of its existing trade relationships with the EU as possible, but that the EU will be loathe to allow unfettered access to its markets without an agreement that also includes free movement of persons and labor, a concession that is likely to be highly politically problematic for the new UK government. Aviation is one area where an agreement may be reachable despite this impasse, as the EU has been willing to extend the liberal terms consistent with membership in the European Common Aviation Area (ECAA) to even those neighboring States with which the EU still has barriers to immigration. Unrestricted access to the EU market is of fundamental importance to British carriers, particularly EasyJet, which may seek to open European affiliates should European traffic rights be threatened. Of course, the competitive threat posed by British carriers may provoke greater resistance than is typical for expansion of the common aviation market to smaller, less threatening neighbors.
• Traffic rights with the rest of the world (particularly the U.S.). Of nearly equal importance will be the establishment of new Air Services Agreements with those non-EU countries with which the UK had been relying on it's membership in the EU as part of broader, multilateral agreements. The most prominent example being the US-EU Open Skies Agreement. Non-EU States such as Norway, have been allowed to sign on as parties to these agreements, so perhaps the UK's status with regard to these treaties could be reconfirmed relatively unchanged. If, however, a new agreement must be negotiated from scratch, access to Heathrow could reemerge as a source of conflict.
• Ownership and control - Community carrier clause. Perhaps more than even the full grant of all nine freedoms of the air, the creation of the idea of a "community carrier" reflecting the internal abolition of restrictions on airline ownership and control, has been the signature advance enabled by the integration of the European aviation market. British Airways' parent company, IAG, of course also owns Spain's Iberia. Airline ownership groups have grown quite adept in recent years at organizing their holdings to work around the industry's antiquated limits on cross-border ownership, but this is at least one more complication that will require attention.
• Participation in EASA and airworthiness certification. The UK is at present a member of the European Aviation Safety Agency (EASA), which consists of all EU Member States along with Switzerland, Norway, Iceland, and Liechtenstein. This relationship is an integral part of the UK's ability to administer a safe airspace. The UK Civil Aviation Authority relies on EASA's work when issuing airworthiness certificates to aircraft and the UK observes the so-called blacklist EASA produces for foreign carriers that fall short of compliance with international safety standards. Detaching itself from this relationship would require a significant expansion of resources and capacity for UK air safety administration.
• Participation in the Single European Sky (SES). Despite continuous delays, the Single European Sky initiative promises to eventually revolutionize the management and regulation of European airspace. As long as the UK remains in the ECAA, the consequences on SES should be minimized.

Brazil Moves to Allow Greater Foreign Ownership of Airlines

An astute commentator to yesterday's post pointed out that, like India, Brazil has also taken major steps this week toward removing barriers to foreign investment in airlines. A bill that would permit 100% ownership by foreign investors, including foreign airlines, passed Brazil's Chamber of Deputies earlier this week. Reportedly, the permission would be subject to a reciprocity requirement that Brazilian investors are offered the same opportunities.

India Allows Full FDI

Earlier this week, India announced that it will allow businesses in a number of sectors, including airlines,  to be 100 percent foreign-owned, with the caveat that foreign carriers will still not be permitted to own more than 49% of an Indian airline. Foreign investors seeking majority stakes will also have to work around restrictions in air services agreements which typically allow States to deny exercise of traffic rights by carriers with foreign ownership.

Final Small UAS Rule Released

The DOT and FAA announced today the release of the final rule for Small Unmanned Aircraft Systems. We'll provide more commentary tomorrow. The full 624-page rule can be read here. A 3-page summary has also been prepared. As expected, the rule only permits Visual Line-of-Sight operations, and only during daylight and under the 400-feet altitude limit. Commercial operations are permitted, including to transport objects, but are not permitted across State lines. Remote pilots must be at least 16-years old and certified by the FAA, but do not need to have a pilot's license as needed for manned aircraft.

India Removes '5' from '5/20 Rule'

India has finally announced long-anticipated changes to its aviation policy. Significantly, airlines will no longer be required to operate domestically for five years prior to serving international routes, though they still must deploy 20 aircraft or 20 percent of capacity, whichever is higher, on domestic routes. This essentially amends the infamous 5/20 rule, so that fleet size is the only threshold a new airline must cross before expanding to international operations. The change is expected to increase interest and investment by foreign airlines in locally-owned subsidiaries or partnership ventures. Other changes rumored to be under consideration such as privatization of Air India or auctioning of traffic rights are absent from the newly announced policy.

Alberta's Carbon Tax Limited to In-Province Flights

The Canadian province of Alberta will introduce a tax on carbon beginning in 2017. Policy details have emerged over the past few months, and we have now learned how the tax will be applied to aviation. With the likely intention of avoiding the arguments about extraterritoriality that embroiled the EU's attempts to incorporate aviation into its carbon scheme, Alberta has decided to only levy the tax on flights between Albertan cities, such as Calgary to Edmonton. This should eliminate the possibility of a legal challenge from Canadian carriers objecting to being charged for portions of flights over other Canadian provinces, arguments that would mirror those used by the U.S. carriers in their suit against the EU. Foreign airlines will not be affected by the tax at all, given the lack of cabotage rights necessary to fly between two Canadian cities. Alberta has, however, expressed a desire to link its carbon policy with other provinces that adopt similar measures, leaving open the possibility that the tax could eventually apply to flights between Alberta and, for example, British Columbia once its' planned carbon tax is in effect.