DOT Discusses Multinational Air Deals

<B>DOT Discusses Multinational Air Deals</B>

By David Jonas

<I>Chicago</I> - Secretary of Transportation Rodney Slater inked Open Skies pacts with Italy and Argentina and announced safety audits of foreign airlines that code share with U.S. carriers while hosting a conference here last month that focused on taking multinational aviation agreements to new heights.

The agreement with Italy came a few days following approval of the antitrust request by Northwest/KLM and Alitalia, and a few days before DOT handed out exemptions for Italian flights to American, Delta, Northwest and United. Northwest/KLM and Alitalia immediately announced new joint flights from Detroit to both Rome and Milan, and Delta said it will begin nonstop service between New York and Venice.

Meanwhile, U.S. Department of Transportation officials, transport ministers and directors general from 62 countries, as well as a who's who of airline chief executives gathered for DOT's Aviation in the 21st Century conference to discuss liberalization, aviation infrastructure and other issues that will shape the future of commercial aviation.

Much of the discussion focused on removing barriers to globalization, including the development of multilateral agreements to replace traditional bilateral ones and the elimination of foreign ownership regulations. Perhaps the most intriguing discussions on liberalization of the skies centered around regional Open Skies agreements, particularly the formation of a transatlantic common aviation area. The TCAA was proposed at the conference by Loyola de Palacio, vice president of the European Commission. "The development of regional open skies agreements eventually will lead toward global open skies," she said. "Because the United States and Europe are the two largest aviation markets in the world, they should be the trailblazers in generating regional agreements." De Palacio added that the TCAA should include a convergence of policies, including those that govern slots, CRSs, foreign ownership rules, anti-monopoly standards, safety and consumer protection.

Many delegates favored the proposal and showed support for broad liberalization to replace archaic bilateralism. "We are great believers in as much liberalization as we can manage collectively as quickly as we can," said American Airlines chief Don Carty, after his keynote speech. "But as governments move forward with these things, they have got to be sure there is a competitive balance. They cannot allow the transition to favor any one carrier or alliance."

International Air Transport Association director general Pierre Jeanniot urged prudence, including "non-discriminatory access to adequate infrastructure--without which further liberalization will fail."

Yeo Cheow Tong, minister for communication and information technology from the Republic of Singapore, agreed that liberalization is needed, but said, "Reaching a global agreement will not be easy," citing the years and sometimes decades needed to finalize bilateral agreements between only two countries.

KLM's chairman and CEO, Leo Van Wijk, further questioned the feasibility of regionalized agreements. "We have integrated one European currency and are talking about an integrated European defense system, but we can't integrate the one single sky?" He also advocated the EC mandate negotiations on the TCAA by March.

James Goodwin, chairman and CEO of United, also urged interaction between the world's governments on many issues, including competition, market analysis and "unnecessary restrictions on e-commerce and distribution systems."

Meanwhile, there was much discussion about relaxing rules on foreign ownership. Virgin Atlantic chairman Richard Branson said "any agreement must involve reform to antiquated foreign ownership rules." He also took the opportunity to pitch his new low-cost Australian airline, which recently received the go-ahead from the Australian government.

Indeed, Australia's transport minister Peter Harris said, "We take a unique position on this. A foreign entity can invest in a domestic Australian carrier, even up to 100 percent, as long as the government deems it to be in the public interest."

However, U.S. representatives were not as gung-ho on the idea. "U.S. carriers have national security obligations," said James Obestar, ranking member in the House committee on transportation and infrastructure. "If foreign ownership intercedes in that sort of commitment, that would be unacceptable."

Mortimer Downey, U.S. deputy secretary of transportation, said, "All countries limit foreign investment, some are more restrictive than others. The Administration has supported change and we would be willing to increase the amount of voting stock by foreigners if those countries would reciprocate. However, people still view airlines as creatures of their individual countries."

Responding to growing public concern over air safety and the emerging dominance of airline partnerships, Slater announced that U.S. carriers will be required to evaluate the safety of their foreign codeshare partners.

The safety audits, expected within 18 months, will be based on a checklist of Federal Aviation Administration standards. DOT will deny codeshare requests involving foreign airlines that fall short of these standards. Existing codesharing carriers will be subject to review every two years.

The announcement was particularly timely as U.S. carriers moved to align themselves with airlines around the world. Gary Wilson, chairman of Northwest Airlines, said the safety initiative is necessary. "When you are aligned with a group, you have to be concerned about the safety of everyone in that group," he said, adding that Northwest and its partners have internal joint committees to address such concerns.

In a declaration at the conclusion of the conference, the representatives of all countries involved in the Open Skies ministerial said, "As a new global industry evolves, an increasing number of challenges and opportunities are arising that cannot be addressed solely through bilateral exchanges of rights," and future meetings will address regional, multilateral and plurilateral systems.