The United States and European Union last month tentatively agreed to a regulatory framework for a new, liberalized air transport agreement. Years in the making, the deal could lead to significantly wider market access for airlines on both sides of the Atlantic, but complications in the transatlantic airline sector could derail its approval.
The deal "would authorize every E.U. and every U.S. airline to fly between every city in the European Union and every city in the United States," the U.S. Department of State said.
As early as October 2006, the first-stage agreement would eliminate restrictions on routes and flight frequencies, and grant "unlimited rights to fly beyond the E.U. and U.S. to points in third countries."
Under those terms, more airlines from both sides theoretically would compete at London Heathrow Airport, a privilege now enjoyed only by American Airlines, British Airways, United Airlines and Virgin Atlantic Airways.
U.S. Transportation Secretary Norman Mineta hailed "the text of a first-step agreement" as an "historic opportunity to increase travel, reduce fares, expand commerce and bring two continents closer together than ever before."
As the biggest achievement thus far in a years-long process
(BTN, Sept. 8, 2003), the pact commits both sides to "the highest standards of aviation safety and security" and calls for deeper cooperation in the areas of competition law and policy, government subsidies and support, environment and consumer protection. Negotiations on a second phase would be scheduled once the initial agreement is implemented.
A National Business Travel Association official said the Open Skies deal, increasing competition at airports on both sides, "is beneficial for buyers—our members—and consumers. It creates healthier marketplaces."
Meanwhile, it is not clear how other airlines would secure slots and space at London Heathrow. American Airlines and British Airways in particular repeatedly have made clear their unwillingness to relinquish any Heathrow assets
(BTN, Oct. 17).The first-stage agreement does not include U.S. cabotage for European carriers, meaning non-U.S. airlines still would not be permitted to fly paying passengers between two U.S. cities.
Despite the proposed timeframe, he agreement's approval by E.U. transport ministers representing the 25 E.U. member states—who are scheduled to meet this week—is contingent on the outcome of a current U.S. Department of Transportation proposal to ease foreign-ownership restrictions on U.S. carriers.
That proposal already has drawn opposition on both sides of the Atlantic since the Transportation Department issued a Notice of Proposed Rulemaking last month
(BTN, Nov. 14). British Airways, Continental Airlines, Virgin Atlantic Airways, the Professional Flight Attendants Association and others have faulted DOT for either skirting the legislative process, disadvantaging U.S. companies, preventing fundamental progress by leaving unchanged the actual caps on foreign voting interests or doing either too much or not enough to open London Heathrow to more competitors.
"We need to know which commercial opportunities such an agreement would offer our members, and whether the elements discussed in Washington are actually on solid legal footing," according to Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines.
PFAA legislative affairs coordinator Rob Laughlin was more blunt. "This NPRM would essentially bypass Congress and existing laws to institute fundamental changes on the U.S. aviation industry that would prove devastating to many Americans," he said in a DOT filing. Calling the proposal "an executive-branch, power-grab attempt to change longstanding federal laws," Laughlin suggested European investors could shift international routes from U.S. operators to foreign ones and shift aircraft orders from Boeing to Airbus.
While some said the proposal goes a step too far, others said it does not go far enough. Secretary Mineta previously asked the U.S. Congress to raise the permissible level of foreign ownership of voting stock in U.S. carriers from the present statutory ceiling of 25 percent to 49 percent, but the latest DOT proposal does not include such a revision.
"Right now, the U.S. proposal falls short of the legislative solution that could have delivered a very real transformational change to the restrictive ownership and control rules," said Andrew Cahn, BA director of government and industry affairs.
At press time, only a few comments on the NPRM officially had been posted to DOT's public records, though several members of Congress reportedly had already voiced objections. The NPRM remains open for public comment through Jan. 6.
Given the complex set of geopolitical restrictions on cross-border mergers in the aviation industry, many larger domestic and international carriers instead have pursued antitrust-immunized alliances. Two such requests now are pending at DOT.
An application from the Star Alliance in early November essentially would add LOT Polish, TAP Air Portugal and Swiss to a pre-existing alliance agreement in place between United and Austrian, BMI, Lufthansa and SAS. It covers scheduling, route planning, code and revenue sharing, pricing, marketing and distribution.
Members of rival SkyTeam—Air France, Alitalia, Czech, Delta, KLM and Northwest—in comments submitted in response to Star's request, said DOT first should rule on its antitrust-immunity request, which notably encompasses multiple U.S. carriers.
"The SkyTeam ATI applicants urge the Department to issue a decision in their pending matter, which will define U.S. policy with regard to full and effective global alliance participation by U.S. carriers, before entertaining this application by Star to add three more European ATI partners," SkyTeam wrote. SkyTeam's request initially was submitted in September 2004. DOT said it still is reviewing the application but has not publicly addressed it since Delta and Northwest filed for bankruptcy protection in September, and various parties, including competitors and the U.S. Department of Justice, voiced opposition
(BTN, Sept. 19).Meanwhile, a separate request between United and Star partner BMI for "indefinite" codeshare approval for flights beyond U.S. and U.K. gateways drew a rebuke from Continental, which told DOT that it and other airlines locked out of London Heathrow should first be granted "competitive access and commercially viable slots and facilities" at the airport before awarding indefinite codeshare authority to any U.K. carrier and its partners for services at London Heathrow.
In response to Continental's comments, United told DOT that "the London Heathrow access issue should have no bearing" on its request for indefinite codesharing with BMI, and also cited more than seven years of Continental codesharing with Heathrow competitor Virgin Atlantic.
Meanwhile, controversy again may be brewing for transatlantic passenger name record data transmission. Advocate General Philippe Léger of the European Court of Justice last month said agreements between European and U.S. authorities regarding such data transmission have no legal basis and should be annulled. The initial deal—between the European Commission and the U.S. government, later affirmed by the European Council of Ministers—was reached in May 2004
(BTN, May 18, 2004), despite European Parliament requests to refer the deals to the Court. The pact stemmed from heightened U.S. security efforts following the Sept. 11, 2001, attacks, and allowed U.S. Customs and Border Protection to continue accessing passenger name records of travelers arriving from the European Union. Parliament said the deal violated European privacy laws and vowed to force a judicial review.
The Court issued a reminder saying Advocate General opinions are "not binding," though its judges have a record of following them in the vast majority of cases. Those judges are expected to deliberate and issue a verdict some time next year.
Should the Court side with the Advocate General's opinion, the existing agreement would be outlawed and E.U. carriers could find themselves in a precarious position between U.S. demands and E.U. law. U.S. officials previously warned that failure to transmit passenger data could result in fines or possibly prohibitions on serving U.S. airports.