Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 24 MAY 2000
MR FRED
W. SMITH, MR
RUSH O'KEEFE,
MR NIGEL
GOODSON AND
MR MORGAN
FOULKES
20. Yes.
(Mr Smith) Yes, well we do not operate inside the
EU, Mr Stevenson. We only operate international flights that touch
the EU.
21. Nevertheless, Mr Smith, you are a world
wide operator with enormous experience, so clearly you have opinions
about these things. We are seeking your advice and clarification
so we can understand a little better. Could you therefore, as
briefly as possible, indicate to the Committee why you believe
that there is no `Open Skies' regime in the European Union?
(Mr Smith) Well I misunderstood your question. If
you are talking about EU Member States having an `Open Skies'
agreement within the EU, yes I do understand that to be the case,
but I thought you were referring to does the EU have an `Open
Skies' agreement with other legal entities that provide that.
Yes, I do understand that; for European operators, yes I do understand
that.
22. Thank you, that is fine. That is very helpful.
You say, both sides, that Bermuda 2 is badly out of date. We all
have our views about that. Could you again briefly identify why
you believe it to be out of date and what are the reasons that
it is out of date?
(Mr Smith) In our situation—and I presume this
is similar to UPS, but they can speak for themselves obviously—the
movement of goods by air has become a huge trade facilitation
mechanism. While the tonnage is light compared to sea transport—only
about 2 percent of the weight of international trade is moved
by air—it now represents over 40 percent of all the value
of international trade. If you take agriculture and petroleum
out it is well over half. By 2020, it will probably be 80 percent.
I should point out in the United Kingdom your airborne trade is
about 20 percent, versus the 40 percent worldwide. That is because
a very large percentage of your air eligible trade does not go
out of the United Kingdom; it is moved by lorry over to the Continent
and goes out of Schipol or Paris or Sofia. The United States now
has, for cargo operations at least and in most cases for passenger
operations too, 42 `Open Skies' agreements and in fact we have
Fifth freedom authorities from most industrialised countries in
the world except the United Kingdom. We have them in China, Japan,
Philippines, France, Germany, Turkey, Italy, India and so forth.
The United Kingdom is almost unique and that is why I say that
it is out of date in terms of the movement of goods.
23. Would you accept therefore a proposition
I put to you that one of the many reasons it is out of date is
the intransigence of the United States Government in refusing
to negotiate their policies towards their domestic market and
their `America First' policy?
(Mr Smith) We support the elimination of `America
First', we support the elimination of the ownership restrictions.
I personally lobbied on behalf of British carriers with the Secretary
of Transportation and the head of the FAA to remove wet-leasing
restrictions and to remove Fifth freedom restrictions and in fact
the United States put on the table last Fall Fifth freedom, Seventh
freedom and wet-leasing capabilities for new carriers, and I would
point out to you that we have never suggested Seventh freedom
rights out of the UK which is an entirely different animal. The
US international air cargo market is seven times bigger than the
UK market. The US has said that as a matter of policy that it
will not deal with cabotage and as I am sure you know, article
7 of the Chicago Convention specifically was put in there to prevent
countries from trying to force cabotage on a country including
international bilateral process. It was put in there primarily
I think to protect against the Americans who were very powerful
in 1944 trying to force cabotage on people. So if you start talking
about cabotage—which we support; we would not hesitate for
a moment to seek cabotage—I think you are really talking
about big internal political issues in the United States. You
are talking about a renegotiation of the entire Chicago Convention
Treaty because the United States in fact had a number of aviation
treaties which say if you grant cabotage to one entity, say the
UK, it must apply to all of these other treaties. I think also
the internal US cargo market is probably 50 times bigger than
the UK internal market. So we think the United States would try
to be responsive with what it put on the table last Fall. I understand
the BCAA's position, but I do not agree with it.
24. Do you agree with that, Mr Goodson?
(Mr Goodson) Yes, I know we were asked to stay silent
if we agreed, but I think it is worth emphasising the point that
UPS supports all the lobbying activities that Federal Express
also support in terms of foreign ownership, wet-leasing and the
`Fly America' policy.
Mr Gray
25. I think I am right in saying that FedEx
are one of the largest contributors to the Al Gore funding campaign,
so you are in a strong position to lobby on behalf of the British
cargo interests. Could you just tell us what you have done since
last year in forwarding that campaign and why it has not been
successful given that you are so well connected with the US government?
(Mr Smith) Well, I do not think that we in any way,
shape or form are one of the largest contributors to the Al Gore
campaign. Al Gore was our Senator from Tennessee for years which
leads to the connections that are sometimes reported on. George
W Bush was my fraternity brother and I have not taken a position
one way or another on the election, but I will this Summer.
Chairman
26. I think it is called guilt by association!
(Mr Smith) So we have no such clout and it certainly
is not because of any political contributions.
Mr Gray
27. Leave that aside, what have you done in
the last 12 months in lobbying the US government?
(Mr Smith) The most lobbying I have done in the US
government, including appearing before Congress, is to support
the issues that the BCAA wanted, which was wet-leasing and the
fifth and Seventh freedom traffic rights out of the United States
and to state that we did not have any objections to those other
things we mentioned. That is the only thing we have done.
28. But you failed?
(Mr Smith) Well, I think we did not fail on that side
of the Atlantic; we failed on this side of the Atlantic. We thought
there was an agreement basically, as far as our cargo goes, as
late as last September and then the landscape changed for whatever
reason and there was no agreement.
Miss McIntosh
29. Just for the record, I would like to remind
everyone of my husband working an American airline company. I
would like to pick up on a couple of comments that Mr Smith made
in the evidence he has given us just now. He referred to `America
First', which I presume is commonly known as `Fly America'?
(Mr Smith) Yes, I think that is right.
30. Would you accept, Mr Smith, that your company
gained some economic benefit from `Fly America'?
(Mr Smith) I do not know if we do or not, but it certainly
pales in comparison to other issues. We would support the elimination
of any `Fly America' area—we do not oppose that in the least.
31. I have heard your company say that before,
Mr Smith, but I have not seen any concrete evidence?
(Mr Smith) I do not know how much more you want than
the CEO and the founder of the company to say we totally support
it. It is not within our power to give it; if it were, I would.
We support the elimination of that US government criteria; we
have no objections to its elimination, none.
32. And what representations have you made to
the Secretary of State for Transportation?
(Mr Smith) The same as I am making to you. I have
told them that and am happy to reaffirm it in writing or cross
my heart; anyway you like.
33. You could not actually say to the Committee
this afternoon what percentage of your average earnings or—
(Mr Smith) It is tiny. It would be very tiny, very
small. We carry military cargoes for the US military as a result
of our being in the Civil Reserve Air Fleet. We are the largest
single component of the US Military Civil Reserve Air Fleet. We
flew over the half civil missions flown, over 700 I think wide
bodied flights, into Desert Shield and Desert Storm in support
of our troops and your troops, so to that extent we get some military
cargo, but we have no hesitation in supporting the repeal of any
`Fly America' restrictions. None whatsoever.
34. You also said, Mr Smith, that you do not
negotiate with the European Union. As you probably are aware that
there is on the table a proposal that in future no such bilateral
air negotiations will be conducted by the Commission on behalf
of the United States. What is the policy of both FedEx and UPS
on that proposal?
(Mr Goodson) I think from the UPS perspective we are
quite content with the present existing regime where bilateral
agreements are negotiated between Member States and other countries.
We also believe that that does not necessarily exclude the Commission
from having a role in trying to develop the template beyond `Open
Skies', possibly beyond the situation where the majority of Member
States will have already, particularly with the US, negotiated
`Open Skies' agreements. We certainly believe there is a role
for the Commission there, but it would be, I think, helpful to
that role if the UK specifically were to negotiate on its own
behalf a bilateral `Open Skies' agreement with the US.
Chairman
35. Mr Smith?
(Mr Smith) As I understand it, the European Union
is not a party to the Chicago Convention and its ability to represent
the Member States of the EU has been opposed most prominently
by the United Kingdom over Heathrow and some other issues. We
would not object if that is the regulatory regime that existed
but that, in our opinion, will be a long time coming and I hope
it will not preclude modernisation of Bermuda 2 in the interim.
Mr Donohoe
36. What percentage of your business relies
on Fifth freedom rights?
(Mr Foulkes) In terms of volume in Europe?
37. Anywhere, in terms of your operation?
(Mr Foulkes) I would say a figure I can give you is
that roughly 12 percent of intra-European flight segments are
Fifth freedoms.
Chairman
38. Hang on a minute. Intra-European flight
segments. You mean the flights between one country and another
within the European Union.
(Mr Foulkes) Yes, whether UPS or a charter contracted
out to a European operator.
Chairman: I just need to know what we are talking
about.
Mr Donohoe
39. We talk English in here sometimes. Some
of them do, anyway. I do not! How about yourself?
(Mr Smith) Our international revenues are about 4
billion dollars estimated on the fiscal year that starts June
1. I do not know the figure exactly but if I had to guess it is
probably around, worldwide, 300, 400 million dollars if that.
| 
