Historic Aviation Talks
By Russ Bailey and Seth Rosen
Air Line Pilot, October 2003, p. 18
The year is 2010…
• On the website of Manchester United, a Chicago-based airline wholly owned by a British sports/transportation conglomerate, is this solicitation: "Wanted: Pilots. Must hold EU- or U.S.-issued ATP certificate."
|Several of the items on the negotiating agenda will require ALPA’s attention. Foremost among these are ownership and control of airlines, market access (e.g., Seventh Freedom or cabotage), and aircraft leasing.|
• SunSki, a new Polish-certificated airline, begins operations to the United States. The airline’s U.S. operations are exclusively between Miami and Caribbean and Latin America vacation destinations. All of SunSki’s pilots are European citizens and hold European pilot certificates.
• The National Mediation Board has released a major U.S. carrier and its pilots from mediation and started the 30-day "cooling-off period." The airline announces that if the pilots strike, it plans to operate its full international schedule using aircraft and crews leased from European airlines.
Farfetched? Perhaps, but well within what would be permitted by the proposals likely to be presented by the European Union in the upcoming air transport service negotiations between the EU and the United States. On October 1–2, the United States and the EU will sit down in the Loy Henderson Auditorium of the U.S. State Department to kick off negotiations over air transport services. The talks are slated to address a broad range of issues including ownership and control of airlines, market access (i.e., routes, capacity, traffic rights), aircraft leasing, safety, security, competition, and state aid.
Thus, the talks raise the prospect of changes to the international regulatory structure as significant as those made to the U.S. domestic regulatory structure by the Airline Deregulation Act of 1978. While the pace of the negotiations and the depth to which various issues will be plumbed are still to be revealed, they are likely to affect what happens in air service negotiations throughout the world. They are also likely to require ALPA’s sustained and focused attention for a number of years as the effect on pilots and key labor-related issues may be significant.
European Commission seeks "mandate"
Since the Chicago Convention of 1944, negotiations, usually conducted on a bilateral basis between countries, have established international air service rights. However, in the early 1990s, the Member States of the European Union moved toward creating a common market for their airlines. At the same time, the European Commission, which can be viewed as the administrative arm of the EU, began to seek a "mandate"—i.e., authority—from the Member States to negotiate air service agreements on their behalf. The Member States are currently Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
In 1996, the European Council—the heads of state, or their designees, of the EU Member States—gave the European Commission a limited mandate to negotiate with the United States over matters such as ownership and control, competition, leasing, and environmental matters. But as that limited mandate did not include authority to negotiate over key issues such as traffic rights, carrier designation, and pricing, the United States informed the Commission that the United States did not believe that negotiations based on the partial mandate would be fruitful.
In December 1998, the Commission, to advance its efforts to gain a full mandate, brought suit against eight Member States in the European Court of Justice. The Commission claimed that the liberal air services agreements that these Member States had individually signed with the United States were unlawful under the treaty that established the European Community as well as under a number of specific regulations that had been promulgated pursuant to that treaty. The cases centered on two key issues: (1) Does the EU (acting through the Commission), rather than the individual States, have the authority to negotiate and conclude air service agreements with other countries? (2) Are the nationality clauses in the bilateral agreements at issue inconsistent with the EU law on the right of establishment?
The European Court issued its ruling on the Commission’s claims on Dec. 5, 2002. With respect to the first question, the Court upheld the Commission’s claim only in part. The Court held that the Commission did not have general authority to conclude air service agreements with other countries without a specific grant from the European Council. But the Court did rule that the Commission had exclusive authority over external aviation relations pertaining to those matters concerning which the EU had issued regulations.
In particular, the Court found that because the EU had passed regulations with respect to both fares on intracommunity routes (e.g., Paris–Frankfurt) and computer reservation systems, the provisions in the various bilateral agreements on these two subjects infringed upon the Commission’s exclusive authority.
More important was the Court’s conclusion with respect to the nationality clauses contained in the bilateral air service agreements. Those clauses state, in pertinent part, that one party to a bilateral agreement may refuse to provide the benefits of the bilateral to any airline that is not owned and controlled by the other party or its nationals. Thus, under the U.S.–Germany bilateral, the United States need accept only carrier designations by Germany when the designated carriers are owned and controlled by Germany or its nationals. The European Court concluded that these nationality clauses violated the provision in the European Community Treaty that provides nationals of any EU Member State the right to establish and operate businesses in any other Member State. In other words, the court ruled that every EU airline is entitled to set up a subsidiary and operate out of other EU Member States just as if it were a national of that state, e.g., Lufthansa could establish a subsidiary airline in France and have it operate as a French airline or Lufthansa could simply buy and operate (or merge with) an existing French airline.
After the Court’s ruling, the Commission took an aggressive stance as to what that ruling meant. Among other things, it issued a communication suggesting that the 15 Member States should exercise their right to terminate their air service agreements with the United States. It also took a very broad view of the right of establishment and suggested that a European airline that had a business establishment of any sort, e.g., a sales office, in another Member State should be able to exercise traffic rights between that State and a third country on the same terms as airlines of that other State.
The Commission’s aggressive posture appears to have retarded, rather than advanced, its effort to obtain a mandate, as the European Council withheld the mandate at meetings in December 2002 and in March. But on June 5, the Council finally authorized the Commission to negotiate an air service agreement with the United States.
Precisely what is in the Commission’s mandate is not clear because the mandate has not been made public. But both the European Council and the Commission have made announcements that give a fairly good indication of the substantive and procedural elements of the Commission’s charge.
According to a press release that the Council issued in conjunction with its decision authorizing the Commission to negotiate with the United States, an aim of those negotiations is achieving agreement establishing an "Open Aviation Area" that would replace the existing bilateral agreements. The release went on to give examples of a number of matters that would be included in the negotiations: ownership and control of airlines, leasing, harmonization of competition rules, and "institutional arrangements." A press release that the Commission issued the same day mentioned traffic rights, routes, capacity, frequency, slots, fares and safety, and security standards as topics to be addressed. The need to change the existing nationality restriction was identified as being of "fundamental importance."
The negotiating process
On June 26, the White House announced that the United States will engage in aviation talks with the EU. Both before and after the White House announcement, U.S. government aviation negotiators met with their European counterparts to work out an initial schedule and agenda for the talks.
The initial round of talks will be held in Washington on October 1 and 2. A second round is scheduled for the second week of December in Brussels.
The U.S. team will be led by John Byerly, the deputy assistant secretary for transportation affairs at the State Department, and Paul Gretch, the director of the Department of Transportation’s Office of International Aviation. A number of experts from both departments will support them. In addition, representatives of the Air Transport Association, the Airports Council International, the National Air Carriers Association, and individual airlines and airports will attend the talks. ALPA will represent the AFL-CIO at the table, as it has in many air service negotiations over the past two decades.
The European side will be led by Michel Ayral, the director of air transport of the Directorate General of Energy and Transport of the European Commission. Assisting him will be not only aviation experts from the Commission, but also a special committee that the European Council appoints.
Each of the 15 current Member States will be represented at the table as may each of the 10 States that are scheduled to join the EU in May 2004—Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. European Airlines and airports will also be present. The European Cockpit Association and the European Transport Workers Federation will likely represent European airline employees’ interests.
The substantive issues
The agenda for the first round of talks lists all the issues that the European Council and the Commission listed in their June 5 press release as well as many more, including codesharing, airport-user charges, ground handling, government procurement ("Fly America"), state aid, consumer protection, environmental consequences, and social implications.
The Commission has stated that a primary objective is bringing the current bilateral agreements into compliance with European law. That means addressing the existing provisions on intra-Europe pricing and computer reservation systems—which should be relatively straightforward matters. It also means addressing the existing nationality clauses—a matter requiring more-diplomatic dexterity. Because of the existing clauses, European airlines cannot merge and cannot truly operate as "European" airlines. Removing or amending the clauses to permit cross-border mergers and to increase operational opportunities could well result in a significant enhancement of the competitive stature of European airlines.
The United States, on the other hand, appears to have more modest initial objectives. It would like to extend its current "open skies" bilateral formula to the four European countries—Greece, Ireland, Spain, and the United Kingdom—with which it has more restrictive agreements. In addition, it would also like to obtain for its cargo carriers "Seventh Freedom" rights—i.e., the right to carry traffic between two foreign countries without any operational connection to the United States (see "Open Skies and Airline Freedoms, page 20).
While the United States has spoken of obtaining an "early harvest" in the negotiations to demonstrate that the talks can be fruitful, exactly how the significant requests of the Europeans can be addressed when the U.S. objectives appear more modest will have to be seen.
Implications for pilots
Several of the items on the negotiating agenda will require ALPA’s attention. Foremost among these are ownership and control of airlines, market access (e.g., Seventh Freedom or cabotage), and aircraft leasing. The EU push to eliminate the nationality clauses in the bilaterals has to do primarily with creating flexibility for the ownership structure of European airlines and would not necessarily affect the ability of the United States to maintain its own rules with respect to ownership of U.S. airlines. The elimination of the nationality clauses, however, could have a significant effect on airline alliances. In addition, the EU has made plain that it is also interested in providing the opportunity for Europeans to own and control U.S. carriers. The implications of foreign ownership for pilots will have to be examined thoroughly.
The EU apparently also wishes to explore opening up the U.S. and European domestic markets to U.S. and EU carriers. As ALPA has consistently and firmly opposed exchanging such cabotage rights, this will be another area that will bear careful scrutiny.
Similarly, the EU appears to be seeking to eliminate the U.S. prohibition on U.S. air carriers’ wet leasing foreign aircraft (leasing them with crews), a prohibition that ALPA has long supported.
In addition airline ownership and control, market access, and aircraft leasing, the proposed agenda contains many other matters, such as safety, security, airline and crew certificating, and state aid, that will require ALPA’s attention,. Several of these matters could well become the subjects of working groups of experts in which ALPA will need to participate to ensure that pilots’ interests are properly considered.
Given the scope of the agenda, the number of participants, and the range of interests affected, the talks are likely to extend over a considerable length of time. However, certain key issues may move quickly to the forefront of the agenda. Thus, ALPA will need to devote immediate and long-term attention to this U.S.-EU venture. Nothing less than a sweeping transformation of the regulatory structure that applies to international aviation is being proposed, and pilot interests must be fully considered and adequately addressed.
In a future article, Russ Bailey and Seth Rosen will discuss the Global Aviation Strategy Group, an ALPA group that has been established to address international regulatory developments, and the International Pilots Services Corporation, an ALPA-affiliated corporation that provides advice and analysis on collective bargaining and international regulatory matters to pilots of foreign airlines. They will also describe the steps that IFALPA has been taking to ensure that pilot views are taken into account as international regulatory options are considered.
Open Skies and Airline Freedoms
Since 1992, the United States has negotiated "Open Skies" agreements with other countries as a matter of policy.
The principal elements of the U.S. open skies formula are open entry on all routes, unrestricted frequency and capacity on the routes, First through Sixth Freedom rights for combination carriers and first through Seventh Freedom rights for all-cargo carriers, broad pricing freedom, and open codeshare opportunities.
The U.S. formula does not include cabotage rights or the elimination of an individual country’s restrictions on ownership and control of its own airlines.
Open skies agreements have also retained the right of one party to refuse to accept the other party’s designation of a carrier if that other party or its nationals do not own or effectively control the designated carrier.
FIRST FREEDOM: A carrier of one country may fly over the territory of another country without landing. Example: Northwest (NWA) flies from Minneapolis over Iceland to Norway..
SECOND FREEDOM: A carrier of one country may land in another country for non-traffic-related purposes, i.e., only for a crew change or refueling. Example: Northwest flies from Minneapolis to Norway but lands in Iceland for fuel.
THIRD FREEDOM: A carrier may drop off passengers from its own country in another country. Example: Northwest flies passengers from Minneapolis to Norway.
FOURTH FREEDOM: A carrier may pick up passengers in another country and carry them back to its own country. Example: Northwest flies passengers from Norway to Minneapolis.
FIFTH FREEDOM: A carrier may pick up passengers from a country other than its own and deliver them to a third country, also not its own. Example: Northwest picks up passengers in France and drops them off in Greece.
SIXTH FREEDOM: A carrier may pick up passengers originating in one country and carry them to a third country via its homeland. Sixth Freedom can be viewed as a combination of Fourth and Third Freedoms. Example: Northwest carries passengers from Canada to New York and then on to Germany.
SEVENTH FREEDOM: A carrier may pick up passengers from a country other than its own and deliver them to a third country, also not its own, on flights that do not connect to its homeland. Example: Northwest carries passengers from Germany to Greece on an operation that does not connect to the United States.
CABOTAGE: A carrier picks up passengers in one country and delivers them to another point in the same country. Example: Northwest picks up passengers in Paris and drops them off in Nice.