Essay Bundle on Air Transport & Public Policy

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Column: Economic Oversight of Airports and Air Navigation Services

By Ruwantissa Abeyratne

Introduction
The ICAO Conference on the Economics of Airports and Air Navigation Services (CEANS)2 was held in Montreal from 15 to 20 September 2008. The main purpose of CEANS was to learn from the experiences of the commercialization and privatization processes of the airports and air navigation services industries and further develop and refine ICAO policies. There were three main areas of discussion at the Conference: economic oversight; performance management; and consultation among users. The Conference agreed to submit to the Council of ICAO crucial recommendations for international civil aviation which will take cooperation between the air transport, airport and air navigation services industries to a higher level and increase the efficiency and cost-effectiveness in the provision and operation of airports and air navigation services around the world. These recommendations are calculated to serve the aviation industry expeditiously in coping with the current challenges that air transport faces.

The current policies of the International Civil Aviation Organization3 on charges for airports and air navigation services stemmed from the recommendations of the Conference on the Economics of Airports and Air Navigation Services (ANSConf 2000) which were endorsed by the Council of ICAO4. ANSConf 2000, which was held in Montreal on 19-28 June 2000, came to the conclusion that the profile of basic cost recovery policy may need to be raised.5 It was recommended by the Conference that this measure could be adopted within the parameters of existing policy calling for revenues from charges levied on international civil aviation and would only be applied towards defraying the costs of facilities and services provided for international civil aviation. It was also recommended that revenues from other sources than charges on air traffic shall be taken into account before the cost basis for charges on air traffic is determined. ICAO advised the Conference that airports and air navigation services may produce sufficient revenues to exceed all operating costs and so provide for a reasonable return on assets to contribute towards necessary capital improvements. Of course, the governing principle would be that consultation with users shall take place before significant changes in charging systems or levels of charges are introduced.6

The baseline of ICAO’s policies on charges lies in Article 15 of the Convention on International Civil Aviation7, the basic philosophy of which is that every airport in a Contracting State which is open to public use by its national aircraft shall likewise be open under uniform conditions to the aircraft of all the other Contracting States. It also requires that uniform conditions shall apply to the use, by aircraft of every Contracting State, of all air navigation facilities, including radio and meteorological services,8 which may be provided for public use for the safety and expedition of air navigation9. Article 15 subsumes three fundamental postulates:

a) uniform conditions should apply in the use of facilities provided by airports and air navigation services;

b) aircraft operators should be charged on a non discriminatory basis; and

c) no charges should be levied for the mere transit over, entry into or exit from the departure of a Contracting State.

Current ICAO policy also recognizes that the financial situation of airports and air navigation services are in a constant state of evolution and the financial situation of the primary users, the scheduled airlines, generally fluctuates with the performance of national, regional and global economies.10 Accordingly, the ICAO Council recommends that States permit the imposition of charges only for services and functions which are provided for, directly related to, or ultimately beneficial for, civil aviation operations. States are therefore encouraged to refrain from imposing charges which discriminate against international civil aviation in relation to other modes of transport11.

ICAO’s policies are at best only authoritative in practice and, from a legal perspective, are rendered destitute of effect by the acknowledged lack of enforcement power afflicting them. In this context it is curious that, six decades after the establishment of ICAO some still refer to its powers and functions12. There are some others who allude to ICAO’s mandate. The fact is that ICAO has only aims and objectives, recognized by the Chicago Convention13 which established the Organization14. Broadly, those aims and objectives are to develop the principles and techniques of international air navigation and to foster the planning and development of international air transport. In effect, this bifurcation implicitly reflects the agreement of the international community of States which signed the Chicago Convention that ICAO could adopt Standards in the technical fields of air navigation and could only offer guidelines in the economic field.

This situation brings to bear the compelling need for ICAO to find some way of monitoring States with a view to encouraging them to put into practice its economic policies. This was precisely one of the aims of the ICAO CEANS Conference.

CEANS AND ECONOMIC OVERSIGHT
A Conference of ICAO on the Economics of Airports and Air Navigation Services (CEANS), which was held in Montreal from 15 to 20 September 2008, agreed to submit to the Council of ICAO crucial recommendations for international civil aviation which will take cooperation between the air transport, airport and air navigation services industries to a higher level and increase the efficiency and cost-effectiveness in the provision and operation of airports and air navigation services around the world. These recommendations are calculated to serve the aviation industry expeditiously in coping with the current challenges that air transport faces.

Furthermore, it was the view of CEANS that the recommendations will make ICAO’s policies on charges, which regulate the relationship between airports and air navigation services providers (ANSPs) on the one hand, and airlines and other airport and airspace users on the other, more authoritative in practice. The enhanced cooperation suggested by these recommendations would strengthen policies on States’ economic oversight responsibility, requirements on implementation of performance management systems by all airports and ANSPs, and the establishment of a clearly defined, regular consultation process by all airports and ANSPs. At the same time, they recommend that States enshrine the main principles of non-discrimination, cost-relatedness, transparency and consultation with users in their national legislation, regulations or policies as well as all air services agreements between States15.

One of the fundamental premises addressed by CEANS is that the protection of users against the potential abuse of dominant position by airports and air navigation services providers is the primary responsibility of the State and could be discharged by the exercise of economic oversight. It was suggested during the discussions that such oversight could be effectively carried out by diligent monitoring by a State of the commercial and operational practices of service providers.

The ICAO Perspective
The ICAO Secretariat, in submitting its views on economic oversight to the Conference, commenced with the fundamental postulate that the State is ultimately responsible for protecting the interests of users through economic oversight defined the term “economic oversight” as monitoring by a State of the commercial and operational practices of service providers16. It was suggested that economic oversight may take several different forms, from a light-handed approach (such as the reliance on competition law) to more direct regulatory interventions in the economic decisions of service providers. It is interesting that the Secretariat took a direct and clear position that States may perform their economic oversight function through economic regulation, either through legislation or rule-making, and/or the establishment of a regulatory mechanism17.

It was also argued that the objectives of economic oversight could include: ensuring that there is no abuse of dominant position by service providers; ensuring non-discrimination and transparency in the application of charges; providing incentives for service providers and users to reach agreements on charges; ensuring that appropriate performance management systems are developed and implemented by service providers and assuring investments in capacity to meet future demand. The priority for each objective may vary depending on the specific circumstances in each State, and there should be a balance between such public policy objectives and the efforts of the autonomous/private entities to obtain the optimal effects of commercialization or privatization.

The Conference was advised that there were already several modalities in Doc 908218, paragraph 15 of which recommends that States establish an independent mechanism for the economic regulation of airports and air navigation services. This provision suggests that such a mechanism would oversee economic, commercial and financial practices and its objectives could be drawn or adopted from, but need not be limited to certain principles19. The Secretariat also drew the attention of the Conference to the Manual on Air Navigation Services Economics20 and the Airports Economics Manual21 which suggest such modalities of economic oversight as a) application of competition law; b) fallback regulation, whereby regulatory interventions are limited to situations when the behaviour of the regulated entity breaches publicly-stated acceptable bounds; c) institutional arrangements such as requirements on consultation with users (often supplemented by arbitration/dispute resolution procedures), information disclosure, and a particular ownership, control and financial structure; d) a third-party advisory commission, whereby a group of interested parties reviews pricing, investment and service levels proposals; e) contract regulation, whereby the State grants a contract, or concession, to provide airport or air navigation services under certain conditions; f) incentive-based or price-cap regulation; and g) cost of service or rate of return regulation.

Other views
During CEANS, one delegation suggested that regional organisations can provide the necessary resources for States that do not have their own capacity to adequately perform economic oversight functions. It recommended that there should be mechanisms for ICAO to work with such regional organizations through the development of guidance material. Another delegation put forward the view that there was a compelling need for regulatory interventions to be measured and applied in a manner proportionate to the specific circumstances. Yet another delegation underscored the need for economic regulation and urged States to implement the ICAO Assembly Resolution A 36-1522 regarding economic regulation of international air transport.

Delegates were unanimous in the view that economic oversight of airports and air navigation services is a necessary State responsibility with the promotion of an appropriate balance amongst safety, security and facilitation, environmental and economic issues. The overall package of economic instruments should provide net economic benefits for all developing countries and preferential measures for the Least Developed Countries in particular. There was also the view of one delegation that the role of the States in economic oversight in the form of legislation or through the establishment of an appropriate regulatory mechanism to resolve the issues on the increase of the cost of aviation fuel was vital while another stressed that applying similar forms of economic oversight to airports and ANSPs ignores the differences between the two types of service providers, in particular their divergent degree of competition. 

Therefore, it was contended that the proposed amendment of Doc 9082 should be consistent with the underlying assumption that airports do not per se have a dominant market position. The suggestion was also made that any regulatory interventions should be kept at a minimum, be subject to a cost-benefit analysis, and ensure sufficient investment to meet future demand.

Conclusions of the Conference
There was discussion during CEANS where some delegations suggested that, in order to “give teeth” to ICAO policy, there be a recommendation in Doc 9082 to the effect that amendment to Doc 9082 should be incorporated by States in their national legislation. It is submitted that such a measure would tantamount to treading uncharted and dangerous ground. While it is one thing to assert that the only way that ICAO policies could be implemented is for States to opt incorporating such principles in their legislation, it is something quite different to recommend that States go ahead and do so.

As a necessary compromise and in order to reach a balance, the Conference broadly recognized the need for economic oversight in the increasingly commercialized and privatized environment for airports and air navigation services. It considered a number of suggestions that were made by the delegates for improving the proposed new text for Doc 9082. The following conclusions were reached by the Conference:

a) States should bear in mind that economic oversight is the responsibility of States with the objectives, inter alia, to prevent the risk that a service provider could abuse its dominant position, to ensure non-discrimination and transparency in the application of charges, to encourage consultation with users, to ensure the development of
appropriate performance management systems, and to ascertain that capacity meets current and future demand, in balance with the efforts of the autonomous/private entities to obtain the optimal effects of commercialization or privatization;

b) States should select the appropriate form of economic oversight according to their specific circumstances, while keeping regulatory interventions at a minimum and as required. When deciding an appropriate form of economic oversight, the degree of competition, the costs and benefits related to alternative oversight forms, as well as the legal, institutional and governance frameworks should be taken into consideration;

c) States should consider adoption of a regional approach to economic oversight where individual States lack the capacity to adequately perform economic oversight
functions; and

d) ICAO should amend Doc 9082 to clarify the purpose and scope of economic oversight for airports and air navigation services with reference to its different forms and the selection of the most appropriate form of oversight23.

Conclusion
The main purpose of CEANS was for ICAO member States to discuss revisions to existing policy and guidance material on the economics of airports and air navigation services and to request the Council to incorporate such revisions in Doc 9082. The ICAO Council, at its eleventh meeting of the 185th Session on 14 November 2008, took up for consideration the CEANS Report and approved all the recommendations contained in the Report. Accordingly, the ICAO Secretariat will proceed to produce a new version of Doc 9082.

It is expected that these new revisions would assist States in ensuring improved performance of airports and air navigation service providers and ensure transparency and consultation in the implementation of ICAO policy in their territories.

1 The author is a senior official at the International Civil Aviation Organization. He has written this article in his personal capacity and views herein should not be attributed to his position at the ICAO Secretariat.
2 CEANS was attended by 520 delegates from 104 States and 19 international organizations.

3 ICAO is the specialized agency of the United Nations handling issues of international civil aviation. ICAO was established by the Convention on International Civil Aviation, signed at Chicago on 7 December 1944 (Chicago Convention). The overarching objectives of ICAO, as contained in Article 44 of the Convention is to develop the principles and techniques of international air navigation and to foster the planning and development of international air transport so as to meet the needs of the peoples for safe, regular, efficient and economical air transport. ICAO has 190 member States, who become members of ICAO by ratifying or otherwise issuing notice of adherence to the Chicago Convention.

4 See Report of the conference on the economics of airports and air navigation services: air transport infrastructure for the 21st century. Montreal, 19-28 June 2000. Doc 9764, ANSConf 2000. ICAO: Montreal, 2000. For a discussion on ANSConf 2000 see Ruwantissa I.R. Abeyratne, Revenue and Investment Management of Privatized Airports and Air Navigation Services: a Regulatory Perspective, Journal of Air Transport Management, Vol.7; 2001: p. 217-230.
5ANSConf-WP/4 at para. 5.1.
6Id. para. 5.3. ICAO’s recommendations to ANSConf 2000 were both timely and practical, given the evolving fabric of economic forces which now govern airports and air navigation services. The recommendations also stimulate some reflection on the complexities of financing principles now applicable to the services provided by airports and air navigation services providers. In substance, the issue of costing and pricing of services would be dependent upon underlying practices and economic factors as the bunching of aviation and non aviation revenues and their effect on the overall pricing policy relating to airports and air navigation services and a significant paradigm shift from Article 15 of the Chicago Convention.
7 Convention on International Civil Aviation, signed at Chicago on 7 December 1944, ICAO Doc 7300/9 Ninth Edition: 2006.
8Article 28 of the Chicago Convention calls on each Contracting State, so far as it may find practicable, to provide airport and air navigation facilities, in accordance with the standards and practices recommended or established in pursuance of the Convention.
9 Article 15 also provides that any charges that may be imposed or permitted to be imposed by a Contracting State for the use of such airports and air navigation facilities by the aircraft of any other Contracting State shall not be higher: as to aircraft not engaged in scheduled international air services, than those that would be paid by its national aircraft of the same class engaged in similar operations; and as to aircraft engaged in scheduled international air services, than those that would be paid by its national aircraft engaged in similar international air services.

10 ICAO’s Policies on Charges for Airports and Air Navigation Services, ICAO Doc 9082/7, Seventh Edition: 2004, paragraph 7 at p. 3.
11 Id. Paragraph 8. Paragraph 9 that follows states that the Council is concerned over the proliferation of charges on air traffic and notes that the imposition of charges in one jurisdiction can lead to the introduction of charges in another jurisdiction.
12 David MacKenzie, ICAO, A History of the International Civil Aviation Organization, University of Toronto Press: 2008, Preface at 1.
13 Supra, note 6.
14 Id. Article 43. This article provides that an organization to be named the International Civil
Aviation Organization is formed by the Convention. It is made of an Assembly, a Council, and such other bodies as may be necessary.
15 Other essential features of the recommendations of the Conference are: more flexibility for commercialized airports and ANSPs in setting charges; support for separation of regulation from service provision; the application of good governance through best practices; and the efficient and cost-effective implementation of the global Air Traffic Management (ATM) concept.
16 Economic Oversight, CEANS-WP/4, 16/4/08
17 Id. 1.
18 Supra, note 9.
19 The principles alluded to in paragraph 15 are: ensure non-discrimination in the application of charges; ensure there is no overcharging or other anti-competitive practice or abuse of dominant position; ensure transparency as well as the availability and presentation of all financial data required to determine the basis for charges; assess and encourage efficiency and efficacy in the operation of providers; establish and review standards, quality and level of services provided; monitor and encourage investments to meet future demand; and ensure user views are adequately taken into account.
20 Manual on Air Navigation Services Economics, Doc 9161/3, Third Edition, 1997.
21 Airport Economics Manual, Doc 9562, Second Edition: 2006.
22 A 36-15, Consolidated Statement of continuing policies in the air transport field, Assembly Resolutions in Force, Doc 9902, at III-I.
23 Draft Report on Agenda Item 1.1., Economic Oversight, CEANS-WP/73, 16/9/08, Draft Report on Agenda Item 1.1.

Book review: The Impact of EU Law on the Regulation of International Air Transportation

Dr. Martin Bartlik wrote this book in 2007, a year that is marked by a number of fascinating developments in international civil aviation. As far as his study is concerned, the EU-US air transport agreement came into effect on 30 March 2008, marking a new era in international aviation relations. On the intra-Community side, proposals are underway for the establishment of a new, integrated internal market regulation, which will replace the regulations that have served so well during the past 16 years.

Transatlantic Open Aviation Area: A Template for a Globalised Civil Aviation Industry?

Open-SkiesCivil aviation is one of the major carriers of globalisation; it helps businesses to cross the state boundaries; it reduces the time for travelling and fosters migration. In other words, civil aviation brings speed and connectivity into human life. Despite today’s free market trend which is supported by the computer and internet, this highly technology intensive civil aviation industry is crippled by the series of rules and regulations. It is because; the civil aviation industry is not a normal business industry by any means rather it is a highly politicised industry which involves state sovereignty, national security and high level of diplomacy.

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Book Preview Policy Opportunities Civil Aviation

By Daan de Jong, Bram Kaashoek & Willem-Jan Zondag

Early 2008, the Aerlines Magazine Foundation will publish its first book that addresses important contemporary policy areas of today’s air transport industry. The book contains contributions from a number of highly respected experts on the field who share their expertise. To give you a glimpse on the content of this book, we herewith provide you with a short introduction.

2.6 – Aircraft Noise – Disturbance, Perception and Policy Implications at Regional Airports

By Callum Thomas, Janet Maughan, Paul Hooper and Ken Hume

thomasThe disturbance caused by aircraft noise is the single most important local impact arising from airport operations. It has the potential to constrain airport growth, thus limiting potential social and economical growth in the Region. Thomas et al analyze the perception of aircraft noise disturbance and discuss policy initiatives deployed by the ICAO and the EU to control the nuisance.

1.3 – The EU – U.S. Aviation Agreement

By Peter van Fenema

fenemaThe Open Skies Agreement of 1992 between the US and theNetherlands provided Dutch airlines with unprecedented operationaland commercial possibilities. KLM Royal Dutch Airlines, by teamingup with Northwest and using the latter’s extensive domestic network,was able to open up the US market for its customers worldwide. Theremaining US competitors refrained from starting new services to orthrough the Netherlands, primarily because of the absence of aninteresting third and fourth freedom market.  The fact that the USgovernment had planned to use this novel air agreement, includingalliance approval and antitrust immunity, to pry open the Europeanmarkets of real importance for its carriers had never been a secret: itdid not prevent either the smaller European Open‐Skies partnersfrom grabbing this golden opportunity, or Germany, one of the UStargets, from joining the party in 1996. Fifteen years and someseventy‐five bilateral Open Skies agreements later, the internationalairline industry, on its way to ‘normalization’, witnesses anotherlandmark agreement that will now commit 27 EU member states andthe US to unprecedented liberalization. What are its possible effects, and what are the remaining challengesfor a small EU member state, like the Netherlands, and for its airline KLM?

The EU–US agreement: new rules of the game
After the EU–US aviation agreement was signed in March 2007, anumber of interesting initiatives and events could be noted:
– Virgin Atlantic announced that they were seriously consideringopening transatlantic operations from Paris, Frankfurt, Amsterdam and Madrid within two years; in a similar move, British Airways chose Brussels, Madrid and Paris to operate from,starting next summer (with a new subsidiary appropriately named “OpenSkies”);
– US carriers like Continental, Northwest and Delta, which have sofar been excluded, under Bermuda II, from operating on thelucrative US ‐ London Heathrow (LHR) route, announced plans tocommence services between their respective US hubs and thatairport as soon as possible, i.e. with effect from Summer 20081.
– British Airways threatened that, in the absence of furtherliberalization (re in particular, intra‐US cabotage and investmentin US airlines) by 2010, it would ask the British government touse its right under the agreement to suspend US traffic rights.

And a US government official later responded with an ominous“make my day!” ‐ type of gut reaction.2From an aeropolitical point of view, the Virgin Atlantic and BritishAirways plans, as mentioned above, are the most interesting post–agreement initiatives: as a result of the inclusion of the ‘Communitycarrier’‐concept in the agreement, any EU carrier is now allowed tooperate between any EU member state and the US. That is, provided that it complies with the prevailing national rules regarding‘establishment’.  This is a far‐reaching and major accomplishment for several reasons.Based on the ECJ ‘open skies’ judgments of 5 November 2002, theEuropean Commission and the individual member states have madeefforts since mid‐2003 to convince third countries to replacetraditional ownership and control clauses in the bilateral agreementsby the Community carrier clause. The results have been mixed:though the Commission was able to conclude ‘horizontal agreements’with 32 third countries (amending close to 500 bilateral agreements),and individual member states added a further 53 such countries(amending more than 100 bilateral agreements)3, so far, important aviation nations such as Brazil, South Africa, Japan, South Korea,China, India, Russia, Canada and the US had been conspicuouslyabsent from the list of convert‐countries.  The Commission has not only opened up, in one stroke, a $ 22 billionmarket (in annual revenues) to full competition for its constituentswith the US agreement, but it has also given the Community carrierconcept an added respectability that is difficult to ignore.This is good news for Air France and KLM. The US was originallywilling, on aeropolitical grounds, i.e. the existence of Open SkiesAgreements with the Netherlands and France respectively, to acceptthe status quo in the exercise of traffic rights under thoseagreements. However, KLM’s Community carrier status is now firmlyembedded in the EU–US agreement, which provides a legal basis forits acceptance and for the unencumbered exercise of all availabletraffic rights from whichever country in Europe it operates.Does that mean that life has become easier for Dutch governmentwhen negotiating with the important aviation countries mentionedabove (and with any other countries that have not yet embraced theCommunity clause or accepted the KLM Air France corporategovernance structure on aeropolitical or other grounds)? Fact of the matter is, of course, that the latter continue to have every right tochallenge KLM’s nationality under their bilateral agreements with the Netherlands: the US acceptance of the Community carrier concept is,legally speaking, none of their concern.4  Rather, when referring above to the agreement and the Communitycarrier concept as ‘difficult to ignore’, we have both the competitiveand psychological impact thereof in mind, in a way and to an extentcomparable to – and possibly exceeding – the effects of the originalUS Open Skies Agreements on global competition and theaeropolitical responses thereto (and v.v.). The EU–US agreementpromises sharply increased competition through the quasi‐totalcommercial and operational flexibility of the EU and US carriers in theNorth‐Atlantic market, with ensuing benefits for airlines, customersand economies as identified in recent comprehensive studies.5That, in turn, may, at first, lead to protectionist knee‐jerk reactionsfrom countries whose airlines feel    threatened by the increasedcompetitive power of the European airlines concerned.6But, as ambitious and dynamic economic powerhouses such as China andIndia begin to see the necessity of opening up the transport market,one may expect an increasing interest in similar ‘liberalization’ dealsas the one the US and the EU have just concluded, for the simplereason that the requirements of the national economy leave nochoice. And the Community clause will unavoidably be part of thedeal.In the mean time, there are a number of remaining challenges andopportunities for EU and US carriers:
– BA and Virgin are expected to preemptively ‘gobble up’ as manyattractive LHR slots as possible before EU or US newcomers gettheir pick7;
– Air France and KLM may consider combined or separatetransatlantic operations from LHR, but will be faced with morepressing demands for LHR slots from their US alliance partnersNorthwest and Delta, both ‘fit, willing and able’ and ‘post‐Chapter 11’ lean and low‐cost, to start their own operations,which may also carry the KLM and Air France codes8;
– European low‐cost carriers (LCCs) that are already established inand operating from a number of EU countries to third countrydestinations will consider the economic and competitiveprospects of applying their formula to transatlantic operations,preferably from EU countries with attractive markets and,preferably, weak national carriers, such as Italy9.The position of the Netherlands and KLMAn interesting question is, of course, what effects the above‐mentioned developments will further have on a small EU memberstate, like the Netherlands, and on its ambitious airline, and whatchallenges may lie ahead.First, an influx of other Community carriers into the Netherlands – USmarket is unlikely because of the limited size of third/fourth freedomtraffic and the dominance of hub‐carrier KLM.Second, Northwest’s transatlantic operations to/from LHR and othermajor European cities will be of direct financial benefit to KLMthrough the joint venture sharing arrangements between the twoairlines.10

Third, so far, the Dutch government and KLM have been able to getthe merger with Air France accepted by third countries withoutsubstantial financial or aeropolitical sacrifices. It may be expectedthat the increased respectability of the Community carrier conceptwill make their negotiations easier rather than more difficult.Fourth, given only the remote chance that 2ndstage EU–USnegotiations will produce a satisfactory outcome in 2010 (in view ofthe US presidential elections and strong domestic opposition tochanges in US law to accommodate EU priorities), the Netherlandsand other member states will have to decide whether aconfrontational approach, as suggested by the UK and possiblyembraced by the European Commission, will be in their interestand/or in Europe’s interest.  How much importance should the Dutch government and KLM attachto intra‐US cabotage and/or increased investment possibilities in UScarriers? And what about more access to ‘Fly America’ (USgovernment travel) than KLM, through code‐sharing with Northwest,already has? Are these issues indeed priority issues? On the otherhand, if the US would indeed be unfit, unwilling or unable, in thenegotiations to come, to contribute to meaningful progress, should itbe allowed to get away with that?

It is argued that the more immediate challenges for Europeanaviation lie elsewhere, i.e. in the non‐traffic rights sphere and onlypartly reflecting agreed EU‐US priorities11. Suffice it here to name themost threatening ones that affect the competitive position of EUairlines vis‐à‐vis their American and Asian counterparts:
– the inclusion of aviation in the European emission tradingscheme planned to go into effect in 2013,
– a fragmented European air traffic management system,
– new national taxes on aviation, and
– capacity/noise limitations at Schiphol airport (and otherEuropean airports) Fiscal, environmental and infrastructural issues are thus replacingtraffic rights and other liberalization items as the real stumblingblocks that stand in the way of a global level playing field. In thatrespect, aviation is gradually turning into an almost ‘normal’ industry.

1. American Airlines became the first US carrier to receive a novel ‘open skies’Certificate from the DOT, which automatically includes all future Open Skiescountries/destinations that become available for US carriers, including, of course, theEU, see DOT Order 2007‐4‐2 (Order issuing certificate), served April 3, 2007; the otherUS carriers are expected to receive comparable Certificates
2 EALA, 19thAnnual Conference, Dublin, 9 November 2007.
3 See “Bilateral ASA brought into legal conformity since ECJ judgments on 5 November2002 (updated 30.11.2007)” plus additional info at Air Transport Portal of theEuropean Commission – international aviation – horizontal agreements – latestdevelopments,http://ec.europa.eu/air_portal/international/pillars/developments/index_en.htm(accessed 24‐01‐2008)
4 And, in that sense, to suggest that the EU–US agreement has made internationalairline mergers easier or more feasible, without referring to third countries’ positionsor possible reactions, would seem a simplification not reflecting the reality of bilateralaviation relations, see The economic impacts of an open aviation area between the EUand the US, Final Report [prepared for European Commission, DG TREN], Booz AllenHamilton (January 2007), Chapter 8.2 ‘Mergers and acquisitions’ at 172‐173, andExecutive Summary: “An OAA includes the removal of investment constraints betweenthe parties and so leads to the possibility of airline mergers and acquisitions within andbetween the EU and US.” at vi.5See above Report, which refers to the 2002 Study of the Brattle Group, also preparedfor the European Commission.6E.g. with the airlines of the U.K.(!), Ireland, Spain, Greece and Hungary, until thesigning of the agreement the only remaining non – open skies EU member states, nowalso ‘fit’ for an alliance with US carriers (e.g. AA‐BA), inter‐alliance competition on the North‐Atlantic will further toughen and the survivors will be leaner and stronger andmore formidable competitors in the global market place.7The European Commission is expected to propose a Regulation in 2008 which allowsfor secondary trading of slots thus introducing the discipline of the market – and themight of the highest bidder – into the distribution of slots  8In fact, in summer 2008, KLM and Northwest plan to jointly operate services betweenLondon Heathrow (LHR) and Minneapolis/St Paul, Detroit and Seattle respectively,using KLM slots at LHR. Air France and Delta last year announced daily LHR – LosAngeles operations on Air France slots at LHR.
9 Immediately after the conclusion of the agreement, Ryanair’s CEO stated hisintention to start a new LCC, incl. business class (!), for flights between variousEuropean and American cities. In October 2007, Ryanair announced that discussionswere taking place with local US authorities with a view to start Dublin – Long Island(New York) operations as of Summer 2008.10The EU – US agreement has also improved the chances for the SkyTeam partners,incl. in particular Northwest and Delta, to get a final go‐ahead from the US DOT for full fledged network coordination and commercial cooperation, further strengthening their competitive position vis‐à‐vis other alliances.
11 For the 2ndstage negotiations, the Commission listed the following priority items:facilitating foreign investment, further liberalization, environmental and infrastructureconstraints, further access to Fly America and wet leasing.

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