Examination of Witnesses (Questions 640
- 659)
WEDNESDAY 21 JUNE 2000
MR RICHARD
ROBERTS AND
MR EDDIE
REDFERN
640. What is the effect of that business on
the current position?
(Mr Roberts) In terms of profit?
641. Yes.
(Mr Roberts) Our cargo carryings account for around
£2 million per annum of our profitability.
642. What is it in terms of turnover?
(Mr Redfern) On the UK/US market, in the last year
we carried 3 million kilos of freight.
643. Is that within Europe or is that America?
(Mr Redfern) No, that is from the United Kingdom to
the United States. So this is from the United Kingdom to the United
States and then from the United States back to the United Kingdom.
644. Surely that must be effective, in some
respect, with the bilateral directive in relation to your normal
business?
(Mr Redfern) Cargo on charter is very important to
us but it is top up revenue. It is not key to our survival.
Chairman
645. Whilst we are talking about your revenue,
may I bring you back to a case that particularly is interesting.
When you wet-leased aircraft to Aero Continente, what happened
there?
(Mr Redfern) The regime for wet-leasing into the United
States is very strange, very difficult to understand; and, if
I may, I will try and take you through that. In particular, with
Aero Continente, we had a commercial agreement to wet-lease the
aircraft with crew to Aero Continente. Within Peru, where the
Aero Continente are based and Panama, that aircraft was operated
under the traffic rights and commercial authority, economic authority
of Aero Continente, with the safety oversight staying with the
United Kingdom Civil Aviation Authority.
646. Is that because it was Panama you were
flying to?
(Mr Redfern) No. That is because the normal leasing
regime is that when you lease to another carrier, that carrier
holds out the service. That carrier markets it. Therefore, it
is under their commercial control. The operational and safety
controls stays with Air 2000—in this case, the operating
carrier—under the United Kingdom safety oversight. When
we applied to operate that aircraft on behalf of Aero Continente
into the United States, the United States said, "No you cannot
wet-lease that. That is a Fifth freedom right. You, therefore,
have to operate that aircraft under Air 2000 United States licences
and permits." A particular wrinkle, if you will, of the Aero
Continente arrangement, was that the Federal Aviation Authority
in the United States do not recognise Peru as a significant safety
area and they are categorised lower. Therefore, the permission
that Aero Continente had to operate into the United States, this
specific FAA permission for Aero Continente stated that they must
only use wet-leased aircraft. So we had this strange arrangement
that Aero Continente—
647. So although they had actually put this
qualification on to them, nevertheless when you did it they said,
"We are not playing under those rules"?
(Mr Redfern) Yes. "We are not playing under those
rules. It has to be under Air 2000 rules." If you take it
to the stage further—some of the requirements commercially,
etcetera—Air 2000 has no contractual relationship with the
providers to Aero Continente.
Mr Olner
648. I was just wondering if you could quite
simply tell the Committee whether you think there will ever be
an agreement reached, which will satisfy both the scheduled airlines
and the charter airlines.
(Mr Redfern) The simple answer to that is: yes, in
time.
649. Do you think agreements could be more quickly
reached—and reached perhaps in a better manner—if
they were dealt with quite separately?
(Mr Redfern) I believe so, yes. Traditionally, with
air services agreements, charter is not part of an air service
agreement. Her Majesty's Government, when they are having discussions
with other governments, conclude memoranda of understanding which
gives some legal basis to charter operations. It is a faster remedy
for us if there are subsequent problems.
650. So do you think that should be something
which should be strengthened?
(Mr Redfern) I believe that is the right way to move
forward, yes.
651. Have you advised the British Government
that this is the way to proceed?
(Mr Redfern) My understanding is that this is the
British Government's current policy. It is a quirk of history,
I believe, that under the UK/US charter is included within the
main air service agreement.
652. If we could just talk a little bit about
your views under restriction of ownership of United States airlines
to 25 per cent. They have a particular bad effect on yourselves
as a company?
(Mr Roberts) If I may answer that. It certainly has
those. That a United States company can legally own 49 per cent
of a United Kingdom airline, but were we to invest in a United
States airline our ownership would be restricted to 25 per cent.
I think we would have to agree that a 49 per cent ownership gives
much greater influence and control than a 25 per cent ownership.
That a 25 per cent ownership would be almost an untenable investment.
653. Could I ask if this is one of the areas
which has been parked whilst the United States seeks to change
its laws?
(Mr Redfern) I do not believe it has been parked.
I think it is still part of the discussion.
Chairman
654. I wanted to ask you what specifically you
believe the damage to be done to you by the Fly America rules.
I am not asking for specific flights. Do you have any occasion
on which you could say that the existing American restrictions,
of which Fly America is one—or let us take the ownership
of a company, the restriction of the ownership of a company—do
you have indication that either of those things damage your business?
(Mr Roberts) Could we take the ownership position
first. The United States charter market is almost counter-seasonal
to the European charter market. There are certainly opportunities
for European carriers effectively to put capacity into the United
States markets during the winter months, particularly in the northern
regions of the United States of America where their winters are
very harsh. There is a thriving business, known as "snow
bird" business.
655. Flying Pittsburgh en masse down
to the south?
(Mr Roberts) Into the Caribbean, into Florida, into
warmer climes, simply because their winters are so harsh. We would
actively look to take advantage of a relaxation.
656. Mr Roberts, forgive me, I do not mean to
stop you but I want to ask you a very specific thing. Have you
ever, for example, calculated, "We could do X numbers of
extra tours"? Because you say it is counter-cyclical, you
have plans which you would put into operation if this rule is
changed? We can all work out that, yes, if that restriction was
removed, you would move in with your nice glossy brochures and
say to everybody, "Fly with us and be nice and warm."
What the Committee would find helpful would be if you could say
to us whether it has actually been a commercial restriction and
give us some indication that you have done a certain amount of
work on that.
(Mr Roberts) Perhaps the way I could explain that
would be to say that Air 2000 was formed in 1987; and in 1998,
with our parent group, we established a tour operating business
and attempted to establish an airline in Canada, specifically
to take advantage of the seasonal nature of the United States/Continental
market. It is quite evident that we could not do that in the United
States of America but we would like to
657. So you have very specific plans. You have
a clear view. This would be useful for all of your resources.
You are not able to do it because of American laws. Is that what
you are saying?
(Mr Roberts) Correct.
658. Fine. Then I think we are soon going to
let you escape but we would like to know: have you had any Ministry
of Defence or any other United Kingdom Government contracts in
the last ten years?
(Mr Roberts) Yes, we have.
659. How many? How many have been obtained by
United States airlines?
(Mr Roberts) To deal with your first question. Since
1997, we have flown 40 flights for the Ministry of Defence, Civil
Aviation Authority, and the Foreign and Commonwealth Office, with
an estimated revenue of—
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