Memorandum by British Midland Airways
Limited (AS 03)
AIR SERVICES AGREEMENTS BETWEEN THE UNITED
KINGDOM AND THE UNITED STATES
1. On 9 March 2000, the Transport Sub-Committee
of the Environment, Transport and the Regions Select Committee
announced its intention to conduct an inquiry into the air services
agreements between the United Kingdom and the United States and
in particular to examine the impact of the continued failure to
resolve bilateral negotiations for a new regime, and the steps
which could be taken to resolve this impasse. This memorandum
represents the views of British Midland Airways Limited ("British
Midland") on this matter.
INTRODUCTION
2. Deregulation of the civil aviation market
has resulted in tangible consumer benefits within the United States
and in Europe. All consumers have benefited from increased competition,
a wider choice of services, product enhancements and cheaper fares.
These are all benefits which could be available to the 17 million
passengers who each year travel between the United States and
the UK, if only the two Governments could agree on the liberalisation
of Bermuda II, as the restrictive Air Services Agreement (ASA)
between the two countries is known.
3. It is now a well documented fact that
business travellers between London and the United States are being
charged some of the highest business class fares in Europe. Because
of the restrictions imposed by Bermuda II, passengers can only
choose between two UK carriers (British Airways and Virgin Atlantic)
and two US carriers (American Airlines and United Airlines) for
flights between the world's most important international airport,
London Heathrow, and the United States. Furthermore, passengers
have a choice of only 11 non-stop US destinations from Heathrow
compared to, for example, 16 destinations from Amsterdam.
4. British Midland believes that the current
situation is untenable and that it is imperative for both Governments
to negotiate a new more liberal air services regime and, therefore,
to set aside any narrow protectionist instincts which they may
have towards incumbent carriers. British Midland welcomes the
recent agreement to resume full scale talks in early June and
hopes that the stated aim of reaching a new agreement before the
end of the year, which will eventually lead to the removal of
all restrictions on services from Heathrow, will be achieved.
5. Any new agreement must include the ability
for new airlines on both sides to enter the UK-United States market
(especially at Heathrow), without restrictions on frequency or
on points served. British Midland also believes that, unlike the
current restrictions contained in Bermuda II, airlines should
be free to set fares at any competitive level subject only to
relevant competition laws. British Midland does not believe that
any new deal should guarantee landing or take-off slots at Heathrow
airport to new entrant carriers in the US market. Such new entrants
should obtain slots at the airport in accordance with Community
law.
6. The objective of a new Agreement is achievable
in the very near future, providing issues which cannot be resolved
in the bilateral forum are not allowed to stand in the way. Issues
such as the restrictions on the ability of foreign nationals to
own and control airlines, cabotage and wet-lease arrangements
which are limited by both US and EU legislation, should be addressed
through direct negotiations between the US and the EU rather than
in the UK/US forum. However, such points have, in the past, been
used to muddy the waters and, therefore, to hinder progress.
BRITISH MIDLAND'S
TRANSATLANTIC PLANS
7. British Midland's ambitions to re-enter
the US market are now well documented. We have recently confirmed
a firm order for four Airbus A330-200 aircraft, with options for
a further eight, which will allow us to re-commence long-haul
services again in the near future. The first of these aircraft
will be delivered in April 2001. It is British Midland's intention
to begin operations to the United States during the Summer 2001
Operating Season, preferably with flights between London Heathrow
and key US cities. We also intend to operate services to both
Washington and Chicago from Manchester, routes on which we were
recently designated by the UK Government. At the moment British
Midland holds Route Licences for services on the following transatlantic
routes.
— London Heathrow—New York
— London Heathrow—Washington
8. As part of our plans to operate to the
United States, British Midland has recently applied to the US
Department of Transportation for authorisation to codeshare with
United Airlines on British Midland's planned services between
Manchester and the United States and beyond both airlines' gateways
in each others countries to various beyond points. This application
is currently being considered by the US authorities and British
Midland remains confident that it will be approved in the not
too distant future. At present, because of the bilateral constraints,
British Midland is prevented from codesharing on United Airlines'
services from Heathrow. However, once this bilateral constraint
is removed it is likely that we will consider codesharing with
United Airlines on certain transatlantic routes from Heathrow
as well as beyond Heathrow and our US gateways. Such a codesharing
arrangement will provide British Midland's passengers with a range
of destinations within the United States which would otherwise
be denied to them. It will also allow both ourselves and United
Airlines to compete more effectively against the dominant carriers
in the UK-US market—British Airways and American Airlines
who are themselves intending to revive their deep alliance proposals.
THE CURRENT
SITUATION
9. Air services between Europe and the United
States continue to be controlled by a series of bilateral agreements,
many of which are very complex and restrictive. Generally speaking
the bilateral arrangements between EU member states and the United
States tend to fall into one of two groups:
— Traditional bilateral ASAs, set up
under the auspices of the Chicago Convention, which contain detailed
provisions concerning traffic rights, routings, tariffs etc.,
and which often severally restrict access to the markets concerned
(such as the UK/United States ASA).
— "Open Skies" arrangements,
in which airlines are permitted to operate services between the
two signatories to the agreement, subject only to a very few restrictions.
10. In recent years the US has actively
pursued "Open Skies" agreements. At the latest count
the United States had signed 46 such agreements, 15 of them with
European states (France, Germany, Italy, Belgium, Austria, Netherlands,
Denmark, Finland, Iceland, Luxembourg, Norway, Portugal, Sweden,
Switzerland and Turkey[14]).
It is perhaps worth noting that the only EU states which to date
have not signed "open skies" agreements with the United
States (the UK, Ireland, Spain and Greece) are countries whose
main or leading international carrier is a member of, or associated
with, the "oneworld" airline alliance headed by British
Airways.
11. Unfortunately, despite the fact that
the United States and the UK have a history of pioneering liberalisation
in aviation markets both within their own countries and with neighbouring
States, the consumer benefits which would undoubtedly flow from
deregulation of the UK-US aviation market have failed to materialise
because of the continuing inability of both Governments to make
progress on liberalising Bermuda II. Given that the UK/US aviation
market is the United States' third largest international passenger
market[15]
with over 17 million passengers in 1998, and the close historical,
political and trading links between the countries, it is particularly
frustrating that agreement on the liberalisation of this market,
and the introduction of much needed competition and greater consumer
choice, is being held up.
12. Bermuda II was signed in 1977 and, as
such, predates the deregulation of both the UK and United States
domestic markets, as well as deregulation within Europe. The Agreement
was the successor to the Bermuda I Agreement which was singed
in 1946: an Agreement which was very much ahead of its time in
that it was relatively liberal. However, by the early 1970s the
UK Government had come to the view that Bermuda I favoured US
carriers as they held an disproportionate share of the transatlantic
market. In 1976 the UK renounced Bermuda I, forcing the negotiation
of a new Air Services Agreement. The result of those negotiations
was the signing of Bermuda II, an agreement which was much more
restrictive than its predecessor. Under Bermuda II, the ability
to designate any number of carriers was removed, capacity is regulated
and heavily restricted via annual negotiations, and the United
States had to relinquish most of its fifth freedom rights.
13. One of the key, and most contentious,
restrictions in Bermuda II is the limitation on the number of
airlines which can operate services between London Heathrow and
the United States. As matters presently stand only four carriers
can operate such services: United Airlines and American Airlines
for the United States and British Airways and Virgin Atlantic
the UK. This restriction on competition has ultimately resulted
in fewer service options for both US and British consumers in
terms of both airlines and destinations, and has resulted in higher
business fares from London to the United States compared to similar
flights from other competing European Hubs—something which
has been underlined by British Midland's own Make the Air Fair
campaign (please see the enclosed booklet) as well as recent travel
surveys such as those by American Express and Barclaycard. In
addition to the four incumbent carriers at Heathrow a third US
airline, Continental Airlines the fifth largest carrier in the
world, has gained effective access to Heathrow through an agreement
to purchase a significant portion of Virgin Atlantic's capacity.
14. Despite the fact that London Heathrow
is the world's busiest international airport only 11 destinations
in the United States are served on a non-stop basis from the airport.
This is a direct consequence of the restrictions inherent in Bermuda
II and compares to 18 destinations for Frankfurt, 16 for Amsterdam
and 16 for Paris (Charles De Gaulle). Of the 11 Heathrow routes,
three (Philadelphia, Seattle and Detroit) are monopoly routes
operated by British Airways, and on only four routes (Los Angeles,
New York-JFK, New York-Newark and Chicago) do all four of the
Heathrow incumbent carriers operate. It is hardly surprising therefore
that competition on transatlantic services from London Heathrow
is limited.
IMPACT OF
LACK OF
PROGRESS
15. The restrictions on competition which
are inherent in the Bermuda II Agreement threaten to weaken London's
pre-eminence as Europe's leading business centre, while Amsterdam,
Brussels, Paris and Frankfurt establish themselves as global hubs
in direct competition to London. In each of these cases their
governments have concluded "open skies" bilateral agreements
with the United States which has allowed carriers the freedom
to develop new and competing services according to market and
commercial requirements. UK-US routes are currently the most important
across the Atlantic, accounting for around 40 per cent of the
entire EU-US transatlantic market, a larger share than any other
single Member State and larger that the US-Germany, US-France
and US-Netherlands markets combined. However, this pre-eminence
is being and will continue to be eroded unless the number of services
and the scope of choice for consumers and business travellers
can be increased, and air fares brought down to the levels in
other European countries. Travellers, particularly business travellers,
are increasingly looking to travel to the United States via intermediate
European points in order to make the substantial savings on fares
that are available on those routes when compared to a direct Heathrow
service.
16. There is undoubtedly a significant social
and economic cost to the whole of the UK from the restrictions
of Bermuda II. The inability of either the incumbent carriers,
or for new carriers, to develop additional services and routes
from London Heathrow (and to some extent London Gatwick) to the
United States, means that valuable inward and outward investment
opportunities are being lost together with millions of pounds
worth of consumer benefits which would flow from greater competition
and choice on transatlantic routes. Furthermore, deregulation
in other aviation markets (eg UK and Europe) has been followed
by a significant expansion of the market and passenger numbers.
TRANSATLANTIC FIFTH
FREEDOM RIGHTS
17. The UK Government regularly receives
requests from foreign carriers, particularly from the Asia-Pacific
region, for transatlantic fifth freedom rights. Singapore Airlines
has been a particularly prominent campaigner for such rights.
The airline has run several high profile campaigns in a so far
unsuccessful attempt to persuade the UK Government to grant it
fifth freedom rights between Heathrow and the United States. In
its campaigns Singapore Airlines has rightly pointed out the lack
of competition in the current UK-US market and the resulting very
high business fares which are charged and cited these as reasons
why the airline should be granted the traffic rights.
18. Despite the fact that there remain unsatisfied
demands for services to the United States by UK carriers such
as British Midland, the UK Government has, in the past, granted
transatlantic fifth freedom rights to a number of carriers. At
the moment such rights are held and utilised by Kuwait Airways,
Air India, Pakistan International, and Air New Zealand. In addition
to these transatlantic fifth freedom rights from Heathrow are
also available to Russian and Israeli carriers. The Committee
will wish to note that Air India's transatlantic fifth freedom
rights from Heathrow were recently significantly increased, even
though the UK Government had not commissioned an economic analysis
by the CAA of the possible impact of doing so. The quid pro quo
for these extras was the removal of a relatively minor irritant
in the UK/India bilateral rights, the only beneficiary of which
was British Airways.
19. The Government's policy on fifth freedom
rights is consider each request on its merits and, wherever possible,
to trade such rights in return for benefits of equivalent value
for UK carriers and interests. This is a general policy which
British Midland supports. It is, however, our view that it is
inequitable for the UK to award fifth freedom rights to foreign
carriers in markets where UK carriers are themselves prevented
or constrained from operating. The US market is a case in point.
British Midland was, for example, very disappointed with the Government's
decision to award additional fifth freedom rights to the United
States to Air India. If or when the bilateral arrangements between
the UK and the United States are liberalised and all UK carriers
are free to compete in the market if they wish, then objections
to granting transatlantic fifth freedom rights to foreign carriers
would carry less weight.
20. Part of British Midland's transatlantic
plans includes operating services from Manchester to Chicago and
Washington. The prospect of these services being a success is
reliant upon Bermuda II being altered to allow us to operate Heathrow-US
services at the same time (the ability to operate to Heathrow
in parallel to Manchester will allow us to heighten our profile
in the United States). However, any moves to unilaterally grant
fifth freedom rights to foreign carriers would, inevitably, cause
us to review whether transatlantic services from the regions would
be commercially viable when faced with a likely proliferation
of marginally costed fifth freedom services.
STUMBLING BLOCKS
TO A
LIBERAL DEAL
21. There has been some progress over the
years on liberalising Bermuda II. In the early 1990s the UK managed
to negotiate greater access for designated UK carriers to the
US market by way of an agreement to allow them to codeshare with
a US carrier on feeder services within the United States. Furthermore,
in 1995 the UK and the United States concluded an agreement covering
the liberalisation of all routes between the two countries, excluding
services to either London Heathrow and London Gatwick. Despite
these advances, full scale liberalisation of the ASA has remained
elusive, even though both sides have been discussing a replacement
for Bermuda II (and drafts of various texts have been exchanged)
for several years now.
22. In common with its well publicised policy
on air services agreements the United States has been seeking
to agree an "open skies" agreement with the UK. Such
an agreement would remove all restrictions on the number of airlines
which can operate services between the UK and the United States
and the restrictions on routes and frequency. It would also grant
to the carriers of both sides unlimited fifth freedom rights and
allow airlines to set fares at any competitive level, subject
only to the application of competition law. However, the UK Government
has consistently argued that the United States' model agreement
does not represent true open skies. In the opinion of the UK a
true open skies agreement should include the removal of restrictions
on the ownership and control of airlines, access to domestic markets
(cabotage), the non-application of the "Fly America"
Act to UK carriers, an expedited disputes resolution procedure
to guard against anti-competitive behaviour, and the removal of
restrictions which prevent US carrier wet-leasing UK registered
aircraft. It is this extreme purist line which is at least partly
responsible for the failure of the two Governments to agree a
new bilateral arrangement. We understand that at the latest informal
discussions in Washington that the UK has not modified its demands
in any way: This is most disappointing and could, we believe,
continue to frustrate progress on a new Agreement.
Foreign Ownership and Control
23. Bermuda II currently requires that substantial
ownership and effective control of a designated airline is vested
in the Party designating the airline, nationals of that Party,
or both. This is in common with the vast majority of air services
agreements around the world, and the United States normally includes
such a requirement in its "open skies" agreements though
it has shown a willingness to bow to EU ownership and control
rules[16]
in its "open skies" agreement with other EU Member States.
In the United States there is currently a restriction on the foreign
ownership of "voting interests" in US carriers (currently
25 per cent).
24. In its recent negotiations with the
United States on an "open skies" deal, the UK Government
has consistently suggested that all restrictions on the foreign
ownership and control of airlines should be swept away. This negotiating
line is supported by the CAA and by both British Airways and Virgin
Atlantic who purport to wish to gain effective control of a US
based carrier which they could then use to feed traffic on to
their transatlantic services. The UK's stance on this point ignores
the fact that the granting of such rights is not within the UK's
gift—allowing for the 100 per cent ownership and control
of a UK carrier by US nationals would require a change to EU law.
Similarly, allowing the 100 per cent ownership and control of
a US carrier by UK nationals would require a change to US legislation,
a change that the US Executive could not guarantee securing even
if they wished to, given Congress's historic opposition to allowing
greater foreign involvement in US airlines.
25. This issue has been one of the main
stumbling blocks to the conclusion of new, more liberal, bilateral
agreement between the UK and the United States. However, given
that the UK cannot deliver 100 per cent foreign ownership and
control of UK carriers to the US because of EU Law, it is British
Midland's view that continued inclusion of this matter in the
negotiations would be unproductive. The Committee may wish to
note that British Midland supports the principle of the removal
of bilateral restrictions on the ownership and control of airlines.
However, it must be recognised that this issue can only be tackled
in wider forums, such EU/US or EU/ASEAN, or by bringing aviation
under the auspices of the WTO. Either route would take years to
bring about change.
Access to Domestic Markets (Cabotage)
26. Another key demand of the UK Government,
again supported by the UK's two incumbent carriers and the CAA,
is that UK carriers should, as part of any "true open skies"
deal, gain access to the local US domestic market. The UK has
consistently argued that the EU, by virtue of the third aviation
package, equates to a domestic market for UK carriers. Therefore,
granting fifth freedom traffic rights to US carriers to EU points
is the equivalent to granting US carriers cabotage rights. In
return for this right the UK expects the US to grant the right
to UK carriers to carry traffic (passengers and cargo) between
US domestic points either as part of a second leg to an international
flight or as free standing sector.
27. There are several inconsistencies with
this argument. Firstly, the current ownership and control rules
in the UK, EU and the United States would prevent cabotage operations
by the airlines of the other side. Secondly, the EU has made it
clear that the granting of cabotage rights by an EU Member State
to a non-Member State would represent a distortion of the single
market, and whilst Community law allows for the extension of market
access to third country carriers, this can only be as a result
of agreements or conventions to which the Community is a contracting
party[17].
Despite being informed of the Commission's view the UK Government
continues to insist that it does have the right to exchange cabotage
rights with the United States even though to do so would run the
risk of a legal challenge from Brussels.
28. Another point to bear in mind on this
issue is, assuming that the UK can persuade the United States
to accept an exchange of cabotage rights, that it could lead to
airlines electing to alter their licensing state in order to find
a more commercially beneficial operating regime—effectively
establishing "flags of convenience" similar that which
has occurred in the shipping industry. It is a fact, for instance,
that US FAA regulations concerning crew operating hours are less
stringent than those of the UK CAA. If US carriers were to be
granted UK cabotage rights, UK carriers would be at a competitive
disadvantage as their US counterparts, who would continue to operate
under FAA rules and would therefore be able to compel their flight
crews to operate for longer hours thus reducing staff costs. There
would also be questions about how the proper safety oversight
of foreign registered aircraft could be maintained if they are
permanently, or semi-permanently based away from their state of
registry. Like all of the world's major international carriers
British Midland is extremely conscious of the need to operate
a safe airline and to maintain the highest levels of safety oversight.
However, if the UK Government were to grant cabotage rights to
the US it should not be unexpected that some UK carriers would
seek to re-register themselves as US carriers in order to take
advantage of what in many cases is a less restrictive or costly
operating environment.
Fly America
29. The provisions of the "Fly America"
Act are contained in 49 US Code Section 40118. This provides that
US Government departments and agencies are required to take necessary
steps to ensure that the carriage of passengers and property by
air takes place on a US carrier where payment for the transportation
is made using US Government funds.
30. In negotiations on a new air services
agreement with the United States, the UK has consistently argued
that this blatantly protectionist policy should be dropped for
UK carriers as a pre-condition of any new deal being signed. This
policy stance by the UK ignores the fact that waivers to the Fly
America Act are readily available in certain circumstances, and
that codesharing with a US partner would, and does, allow UK carriers
to carry US Government traffic (as Virgin currently do via the
codesharing arrangement with Continental). At the moment this
Act is another blockage to a new more liberal ASA between the
UK and the United States, but with a little more flexibility on
both sides British Midland is confident that this issue should
be easily resolvable.
Expedited Disputes Resolution Procedure
31. Something that has been of considerable
concern to UK carriers in particular has been the slowness of
action of the US courts when dealing with cases of anti-competitive
behaviour. To counteract this the UK has proposed some bespoke
text for any new Agreement which would allow for speedy action
to prevent an anti-competitive situation developing. The United
States remains unconvinced about the necessity of such an Article
in any new ASA, preferring to rely on the courts to take any necessary
action. Furthermore, there are doubts about the workability of
the UK's proposals, which include the retention of a standing
panel of experts to adjudicate in cases of anti-competitive behaviour,
the funding of which has yet to be resolved.
32. The UK has recently suggested the same
text to the Australian Government as part of the negotiation of
a fully liberal air services regime between the UK and Australia.
Like the US, the Australians rejected the proposals, fearing that
airlines would "Forum Shop" for whichever method of
dealing with their concerns would give them the best result. The
Australians rightly pointed out that the inclusion of an expedited
disputes resolution procedure in the ASA would not prevent carriers
from going to the courts in either country if they so wished,
either in addition to, or instead of, the expedited procedures.
33. Finally, the need for such a bespoke
procedure has now receded given that the UK Competition Act 1998
is now in force and that it too covers civil aviation. There are
provisions in the Act which allow the competition authorities
to act swiftly and it is also possible for airlines to go directly
to the courts to seek interim measures in cases of alleged anti-competitive
behaviour if they so wish. It is British Midland's view therefore
that, given US opposition to such a text, the correct Australian
view that any such text will make very little difference as airlines
will still shop around for best forum available, and the fact
that the Competition Act 1998 is now in force, the UK Government
should now drop this demand.
Wet Leasing
34. The wet-lease of aircraft is a process
by which airlines can obtain short term or long term additional
capacity by contracting in an aircraft and its crew from another
airline. Both the UK and the US impose restrictions on the ability
of airlines to wet-lease from airlines of other countries. The
US restrictions have proved to one of the stumbling blocks in
the way of a new air services agreement between the United States
and the UK.
35. EU Council Regulation 2407/92 governs
the terms and conditions under which aircraft from non-EU registered
airlines can be wet-leased by EU carriers. For a UK carrier to
wet-lease in a foreign registered aircraft the effect of the regulation
is that the UK authorities must grant a waiver. In granting the
waiver the UK authorities have to ensure that the aircraft operates
to safety standards at least equivalent to those applicable to
UK registered aircraft. Under the UK's own regulations it is also
possible for UK based airlines to object to any proposed lease
if they have equivalent capability and capacity available to operate
the wet-lease. The US regulations are even more stringent in that
there is a prohibition on the wet leasing of foreign aircraft
based on safety and operational concerns. It is this total prohibition
that is of concern to some on the UK side.
36. The US total prohibition is not a major
issue for the UK passenger airlines, but it is a point of concern
for the UK's cargo operators who consider it inequitable that
UK carriers can wet lease in US aircraft (as British Airways currently
do from Atlas Air), but reciprocal arrangements are prevented.
Whilst British Midland sympathises with the cargo operators on
this point, we do not believe that it is of sufficient importance
to prevent progress on a wider more liberal bilateral deal which
will bring significant and greater benefits to the 17 million
passengers who fly between the two countries every year.
A WAY FORWARD
37. It is a natural human and corporate
instinct, when faced by a threat such as increased competition
which could harm your financial well being, to resist change.
It should come as no shock therefore to hear the incumbent UK
carriers on the Heathrow-United States route, British Airways
and Virgin Atlantic, claim to be in favour of liberalisation and
increased competition, but only so long as some of the unresolvable
issues outlined above are dealt with at the same time. Some more
cynical observers might feel that some carriers support these
UK policy objectives simply because they know that they are likely
to hinder progress on a new more liberal deal.
38. It is true that in the short term the
implications of increased competition on transatlantic routes
could result in a loss of revenue for the incumbent carriers.
In the long term though it would normally be the case that liberalisation
and increased competition would stimulate the market (as has been
the case in Europe) and lead to more traffic, something which
should allow the incumbent carriers to recover any initial losses
of passenger volumes, assuming of course that they are flexible
enough to adjust to a more competitive environment.
39. The difficulty for the officials negotiating
for both the UK and US sides is to broker a deal which will secure
the support of all of their stakeholders (the incumbents, potential
new entrants, airports etc.). This is not easy when the initial
impact of a more liberal deal could be a drop in revenue for the
incumbent carriers. However, that is the challenge facing the
USDOT and the UK's DETR.
40. It is British Midland's understanding
that the preliminary official level talks which took place in
Washington on 30 March 2000, have led to an agreement on the conduct
of future UK/US air services negotiations. Essentially, the Governments
have concluded a framework for how a future deal make look. At
a subsequent airline briefing, DETR explained that negotiations
would centre on a two track phased approach to full liberalisation,
and that talks would be held under the assumption that airline
alliances, such as that originally proposed by British Airways
and American Airlines, would become a reality. The effect of this
approach would be that as airlines sought to deepen their relationship,
so greater access at Heathrow for new entrant carriers would be
guaranteed and the other restrictions in Bermuda II relaxed. The
timing of the various stages of the liberalisation process, and
the trigger mechanisms for increased Heathrow access, remain uncertain.
41. British Midland broadly welcomes these
latest developments, though we have reservations over the timescales
involved and the linkages to anti-trust immunity which would appear
to be geared towards assisting British Airways and American Airlines
cement their relationship and therefore maintain and further develop
their already dominant position in the transatlantic market. We
will, however, wait to see the detail of the proposals before
reaching a firm view. It is our firm expectation that early in
the process at least some limited access to the Heathrow-US market
will be granted to new entrant carriers on both sides so that
consumers can at least experience some of the benefits of increased
competition and greater choice sooner rather than later. Indeed,
we hope that the Governments will agree before the Autumn that
new entrants can operate some services between Heathrow and the
United States from Summer 2001. Our preference would have been
an approach which would immediately open up all routes between
the UK and the United States to increased competition. However,
we recognise that this is not practical as certain elements on
both sides are likely to object strongly. A phased deal, however,
would allow all parties time to adjust to the new commercial reality
and to plan accordingly. Consumers would still obtain the benefits
of increased competition and greater choice, but would have to
wait a little longer before the full benefits of total liberalisation
will become available.
42. It is clear to British Midland that
these latest negotiations will not be easy, and there are still
many obstacles in the way of progress. For a phased approach to
a new deal to work it is our belief that the UK must drop some
of its more unworkable or unresolvable demands. Changes to US
ownership and control rules and the granting of cabotage rights
fall into this category. On the former the US has shown some latitude
in the past in allowing foreign carriers to invest to fairly high
levels in US carriers. US rules already allow foreign nationals
to own up to 49 per cent of the equity of a US carrier, though
the limit of 25 per cent of the voting stock still remains. Further
changes on this, and on the negotiation of cabotage rights, should
only be attempted in a wider forum, such as EU/US discussions
on a Transatlantic Common Aviation Area, or through the WTO.
April 2000
14 France, Portugal and Turkey have agreed a phased
approach to "Open Skies" with the United States. The
US/France arrangements do not, however, include fully open fifth
freedom rights. Back
15
Only US-Canada and US-Mexico are bigger. Back
16
Council Regulation 2407/92 requires that any carrier that wishes
to be licensed by an EU Member State must be majority owned and
effectively controlled by EU Member States and/or EU nationals,
as opposed to the individual State (or nationals of that State)
which actually licences the airline. Back
17
See Article 4(2) of Council Regulation 2407/92. Back
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