Patrick Murphy
Patrick Murphy had a long career working on aviation policy for the U.S. government, first at the Civil Aeronautics Board and then at the U.S. Department of Transportation, including stints as deputy assistant secretary for aviation and international affairs and acting assistant secretary. His experience included supervising regulatory decisions, directing international aviation negotiations and choosing which U.S. carriers would serve international routes. Now a partner in the Gerchick-Murphy Associates consulting firm, Murphy in May provided an insider's perspective on the European Union-United States "Open Skies" aviation treatyduring an Association of Corporate Travel Executives conference. He said "the most important" aspect of the new agreement is the right for any European Community airline to fly from anywhere in the 27-country bloc to the United States, and specifically pointed to Air France's new London Heathrow-Los Angeles route--a previously "unthinkable" development. Murphy also laid out the timeline for negotiations on the second stage, which began in May and, if unsuccessful, could unravel the progress of the first stage and lead to suspended traffic rights for airlines on either side by summer 2011. Excerpts of Murphy's answers to questions from ACTE attendees and The Transnationalfollow.
What is the likelihood that phase two will be successful?
In terms of meeting all five of the goals that stage two is about [further liberalization of traffic rights, including cabotage; additional foreign investment opportunities; effects of environmental and infrastructure constraints on traffic rights; further access to government traffic; and provision of aircraft with crews], the chances of reaching all those are close to zero. The biggest hang-ups will be cabotage (allowing a foreign airline to fly around inside the United States, and allowing U.S. airlines to fly around inside France or Germany, etc.) and allowing foreign investment to go too far. Maybe we can agree on a small opening of foreign investment, but allowing U.S. airlines or European airlines to be completely owned by citizens or airlines of the other countries--I am not sure the governments are ready to see their airlines absorbed. An example is Alitalia. The Italian government is now not ready for Air France to take over Alitalia, so you can imagine what would happen if the Americans showed up and said, "We'd like to buy them." Also, I don't see why we can't allow European airlines to fly U.S. government traffic, but that is going to be difficult, too. Does that mean failure? No. I think we might scale it back, and negotiators will make some progress on all these and declare it a success. In Slovenia, two new elements popped up on the table [during negotiations in May], one by the Europeans and one by the Americans. The Europeans said they want regulatory cooperation, meaning in all areas the two governments would work jointly: safety, security, antitrust ... The Americans said, "We think more countries need to get involved in this discussion. Maybe another 30 or 40 countries ought to be brought into this." Both sides are already trying to enlarge the agenda a little bit. These foreign ownership restrictions go back to the beginnings of aviation, to the 1930s. To break that, you'll need an extraordinary event. Perhaps the fuel crisis will be that extraordinary event. Enough bankruptcies and even the U.S. Congress will say, "Well, wait a minute. We said this can never happen (cabotage, foreign ownership) but the world is changing." I testified in the Senate [in early May] about the Delta-Northwest merger, and I had several U.S. senators saying it's time to re-regulate the airlines. I haven't heard that kind of talk in decades, so fundamental change might happen. Maybe the world will turn upside down, and something that looks impossible today might happen in two years.
Do you see an impact particularly with U.S. carriers and negotiated [government] contracts?
The agreement is allowing more code shares. We have already seen JetBlue code share with Aer Lingus and maybe Lufthansa. To the extent that there is more code sharing, foreign carriers can carry more of this government traffic. But the restrictions still are in place that foreign carriers can fly U.S. government traffic only if there is a code share in place with a U.S. carrier. That is what the Europeans want to eliminate. They want to bid directly. There are several U.S. cities with lots of government traffic that are also pressing for that change. Foreign airlines will tell certain cities, "We can't fly to your city because there is so much government traffic and it has to go on a U.S. carrier. We'd like to come to your city, but we need direct access to that traffic." I have been looking into the Fly America Actand it is very convoluted. I was told by a government contract official who is pretty well-placed that a lot of contracts that contractors have with the U.S. government do not require them to use U.S. airlines. For U.S. government employees, he claimed, there is tighter control. But he admitted that there are some holes in the net in terms of who they catch.
Are the negotiators on behalf of the United States really taking into consideration what Congress and [organized] labor are saying [about job losses, etc.], or are they really just taking the position of the DOT ?
The DOT and Department of State lead these talks. The people involved--career staff and political appointees--are very supportive of moving forward and have been for many years. The U.S. government really has been proactive in pushing the opening of international aviation to the point that DOT proposed to go to that step [of loosening foreign ownership restrictions] and Congress actually had to rein them in. DOT was ready to go as far as Congress would let them and was directed to go no farther. There is a lot of desire to get there. Congress is the roadblock. With the [presidential] election this year and the [fuel] crisis we are facing, will Congress soften? Who knows? But that is the problem--not with the departments or the negotiators.
Has there been any progress in the E.U.-U.S. negotiations since the May meeting in Slovenia?
Some people believe that not much will happen for a year or so, and then both sides will get down to business. The problem is, how do you distinguish between the effects of the agreement and the effects of the fuel spike? In the short term, the fuel spike is having more of an impact. In the long term, I suspect it will be the reverse.
What is the reason for South Africa not allowing Open Skies?
Many countries are very reluctant to go to Open Skies. Every one of the United States' 92 agreements around the world involves working with the country, letting them understand the benefits. Typically, there is a concern that their airline will be overwhelmed by the larger U.S. airlines. Countries are coming on to the [U.S.] agreement at a pretty good rate. I would expect South Africa to come along pretty soon. Except for a few holdouts, most are starting to understand this is the way to go. I always expected that Japan would be the last to come along. I think China will get there long before Japan.