Supplementary memorandum by the British
Cargo Airline Alliance (AS O4A)
AIR SERVICE AGREEMENTS BETWEEN THE UNITED
KINGDOM AND THE UNITED STATES
Following the Transport Committee's oral evidence
session on 24 May, please find to follow the BCAA's supplementary
evidence. Our response is divided into two parts—firstly,
clarification of issues that were discussed in the evidence session
and secondly, our response to the Committee's questions contained
in your subsequent letter of the 25 May.
1. BCAA SUPPLEMENTARY
EVIDENCE TO
ORAL EVIDENCE
SESSION OF
24 MAY 2000.
Granting reciprocal rights for UK carriers in
wetleasing, fifth freedom rights and Fly America
In response to Mr Olner's question (paragraph
55):
"Yes, but the fact at large is that UK companies
cannot compete in the USA and these rights are never going to
be granted until UK companies have the right to compete over there.
How are we going to get out of this impasse"
Fred Smith of Federal Express suggested that
such rights had been offered by the US Government at the last
round of talks between the two Countries.
"And that was on the table, Mr Olner. I
personally spoke to the Secretary of State for transportation
. . . and in fact the US Government offered wetleasing, offered
fifth freedom and offered seventh freedom rights" (paragraph
55)
We do not believe that Fred Smith's statement
is an accurate reflection of the deal proposed by the Americans.
The US proposal did not offer true reciprocity to British cargo
carriers in either wetleasing, fifth freedom rights or the Fly
America regulations. The deal proposed by the Americans would
have resulted in their continuing to enjoy their unfair advantage
in these three areas. The proposed deal, which had no reciprocal
element to it, was rightly rejected by the British Government.
Wet Leasing
As noted, Fred Smith of Federal Express claimed
that the US had tabled proposals to solve the wet leasing issue.
This was not the case.
The only offer the US made to UK cargo airlines
on wet leasing was the fifth freedom rights to be able to perform
international sectors on a "charter" basis. They claimed
that this was tantamount to "removing" the need to wet
lease aircraft to US airlines. This argument is fundamentally
flawed for the following reasons:
— A charter is not the same as a wet
lease. Under a wet lease the lessee bears all the costs of landing,
handling, fuel and route charges. Under a charter, the lessor
would bear these costs. The offer is therefore neither economically
nor operationally reciprocal.
— A wet lease operates under the traffic
rights of the lessee, a charter does not. If the country at the
end of the route does not recognise the UK as having traffic rights,
the charter could not be performed.
— The granting of international fifth
freedom charter rights under Open Skies does nothing to enable
UK airlines to wet lease to US airlines within their domestic
market.
Any deal on wet leasing must establish reciprocity.
Just as American airlines are able to wet lease to a British or
European airline operating services to and within the EU, UK cargo
airlines should be allowed to wet lease to US airlines which operate
services to and within the US market.
BCAA members have been approached by US airlines
to operate just such services. As an example, Philip Meeson informed
the Committee of a request to his company from Zantop International
airlines for Channel Express to wet lease a British plane for
operations within the United States. As requested, a copy of the
letter from Zantop to Channel Express is enclosed as an appendix
to this evidence.
Fly America and Fifth Freedom Rights
Mr Smith of FedEx mentioned that fifth freedom
rights were offered at the last round of negotiations. This statement
also needs clarifying.
Whilst the US offered fifth freedom rights as
part of an unbalanced "open skies" deal, it insisted
that the UK should offer US carriers the right to fly from the
UK to points in all other countries, including within our European
domestic market.
This means that while US airlines would be granted
the rights to fly from the UK to any EU Country (the BCAA's domestic
market). UK cargo airlines would have no reciprocal rights to
fly within the US's equivalent domestic market.
The BCAA supports the liberalisation of fifth
freedom rights to points beyond our respective domestic markets
provided only that the US is prepared to offer reciprocal domestic
access. We should not offer US airlines any more access from the
UK into the European single market without reciprocal domestic
access.
Mr Smith also failed to inform the Committee
that in the latest deal proposed by the Americans, there was no
indication of UK cargo airlines being allowed to bid for US Government
contracts under the CRAF or Fly America policies.
ARTICLE SEVEN OF THE CHICAGO CONVENTION—CABOTAGE
In his evidence to the Committee, Fred Smith
stated that the issue of the US granting UK cargo airlines the
right to fly within its domestic market could not be addressed.
This was because of the provisions of the Chicago convention.
"You are talking about a renegotiation of
the entire Chicago Treaty" (paragraph 23)
The BCAA does not believe this to be correct.
We attach for the Committee's attention as an appendix to this
submission Article Seven from the Chicago Treaty.
The Committee will note the regulations state
that each contracting State (to the convention) has the right
to protect Cabotage, but it can of course waive this right, as
all EU members States have done within the Single European market.
The Article refers to the prohibition of "exclusive"
deals. The UK Government's legal advice is that there would be
no breach of the Convention provided that any State seeking cabotage
from a conceding member is subject to the same criteria. This
could include common safety standards, shared objectives or even
EU membership.
The US Government could and should address this
issue so that it can put forward an Open Skies Agreement with
the UK that is based on reciprocity. Article seven of the Chicago
convention does not restrict the US from doing so.
Access to US Domestic Market
In their oral evidence to the Committee on 14
June, both BAA and Manchester Airport stated that access to the
US domestic market could best be achieved through strategic alliances
with US airlines. Although for some scheduled passenger carriers
strategic alliances may offer a means of gaining limited access
to the US market, strategic alliances are not a realistic commercial
option for British cargo airlines and charter passenger airlines.
Access has to be taken on the issues of wetleasing,
Fly America/CRAF, domestic rights and ownership regulations in
order to allow genuine access to the US cargo airline market.
This is the only means by which true liberalisation can be achieved.
USE OF
RUSSIAN AIRCRAFT
BY BCAA MEMBER
AIRLINES
Two BCAA member airlines augment their activities
as operators of UK aircraft with additional business based on
meeting the needs of customers requiring the movement of extremely
large (or "outsize") freight. This type of freight,
which includes relief aid, military supplies, aircraft engines
and even the turbine units of power stations, requires specialist
large freighter aircraft of types that are not found in the western
world.
Indeed, the only aircraft capable of loading
such material are of Russian design and derived from military
designs developed in the Soviet era. Their sheer size combined
with rear ramp-loading (as opposed to side door loading) makes
them an essential tool in this niche market.
Air Foyle acts as the General Sales Agent for
Antonov Design Bureau, the Ukrainian manufacturer of the Antonov
124 freighter—currently the largest freighter in the world.
Air Foyle markets the aircraft to potential customers worldwide
and handles some of the administrative tasks associated with operating
these aircraft. Air Foyle employs one Ukrainian national in the
UK to liaise with the crews and maintenance personnel employed
by Antonov with the aircraft wherever they operate around the
world. During 1998 and 1999, Air Foyle acted as agent for six
of these aircraft.
It now represents a total of eight. Air Foyle
receives a management fee and commission payments for its role
in handling this business.
HeavyLift Cargo Airlines adopts a different
approach. In addition to operating UK crewed and registered aircraft,
it also wetleases in six Antonov 124 and one Ilyushin 76 aircraft.
These are still operated by the lessor airlines but operate under
the traffic rights of HeavyLift on most routes worldwide. HeavyLift
has formed a joint venture company with Russian interests in order
to promote and handle the specialist business generated by these
aircraft. HeavyLift employs a total of six Russian nationals in
the UK.
As a proportion of UK cargo airlines' overall
revenues, these activities utilising Russian and Ukrainian aircraft
are small because the UK carriers are acting on a fee and commission
basis rather than showing all the revenues for such flight through
their own books.
Air Foyle and HeavyLift are now acknowledged
worldwide as being expert organisations in the management of outsize
freight aircraft and this in itself generates additional business
for their mainstream UK registered aircraft operations.
The BCAA acts as a trade organisation does not
hold further detailed commercial information on these activities
of its individual member airlines.
2. BCAA RESPONSE
TO SUPPLEMENTARY
QUESTIONS FROM
THE TRANSPORT
COMMITTEE
Q. What prospect is there in the short-to-medium
term that the US will agree to alter the "Fly America"
rule, lift the bar on UK airlines from the US domestic market,
amend the laws on foreign ownership of US airlines, or change
the rules on "wetleasing" aircraft to the United States?
In short, are the Alliance's demands realistic?
A. The BCAA seeks true reciprocity. This
means the current imbalance between commercial opportunities available
to UK and US carriers in each other's markets must be addressed.
Our objective is to secure a fair environment
in which UK airlines can grow into world-class airlines with a
fair chance of access to the rapidly growing world cargo market.
We believe these objectives are realistic. Some
of these issues require legislative change in the US while others
require nothing more than a change in FAA Regulations or the Administration's
policy. Given that the US administration is anxious to achieve
access to our market for US airlines we believe that if our Government
stands firm a genuinely reciprocal deal will be put forward by
the US.
History has shown that the best way to negotiate
with the Americans is in a purposeful manner. It does not work
to unilaterally give away rights in the hope that these offers
of goodwill will be reciprocated, as the recent unilateral concession
at Prestwick airport demonstrated.
Q. To what extent does the Alliance speak
on behalf of all European air cargo operators? What efforts have
been made to form a European Cargo Airline Alliance?
A. All-cargo airlines from several EU countries
have expressed similar views to those of the BCAA. They too face
increasing competition from US aircraft operating within the EU
domestic market as a result of unfavourable Open Skies deals signed
between the US and various EU Member States. The European operators
have supported and encouraged the BCAA in its attempts to secure
a level playing field.
Preparations to establish a European Cargo Airline
Association are underway. A formal launch of the organisation,
which is expected to consist of around a dozen airlines from six
countries, is planned for the summer of 2000 in Brussels. The
BCAA will ensure the Transport Select Committee is kept informed
of its progress.
Q. Do any of the Alliance's members currently
operate scheduled freight services between the UK and the United
States?
A. Airfreight Express (AFX) operates scheduled
services between London and New York utilising a Boeing 747 freighter
aircraft. It also operates services from London to the West Coast
of the United States, as it is entitled to do under the terms
of the existing UK-US Bermuda 2 provisions.
Other BCAA members do not operate scheduled
services between the UK and US. However, HeavyLift and Atlantic
Airlines do operate charter services across the Atlantic on behalf
of their customers as demand arises.
Q. How many Boeing 747, DC10 or L1011 freighters
do members of the Alliance operate?
A. Airfreight Express operates 2 Boeing
747 freighter aircraft. None of our other members operates aircraft
of these types. However, our members have recently moved from
short-haul aircraft into larger, longer-haul aircraft such as
the Airbus A300 as a result of the new opportunities that have
arisen since European deregulation.
If the relaxation of wetleasing and domestic
access regulations imposed by the United States can be achieved,
we believe that expansion into even larger aircraft such as the
Boeing 747, DC10 and L1011 is a realistic ambition and one which
will result in many more UK aircrew and maintenance jobs being
created.
Q. To what extent have members of the Alliance
taken advantage of the liberalised aviation market in the European
Union?
A. BCAA members earn more than 60 per cent
of their revenue from non-UK, European based work. We are free
to operate on any route within the EU and use that freedom to
offer services to express parcel companies, other airlines, postal
authorities and freight shippers throughout the European Union.
Since European liberalisation, our members have
expanded into larger aircraft, such as the Airbus A300 freighter
which was pioneered by Channel Express and converted from passenger
use by British Aerospace at Bristol. BCAA members have been able
to offer a comprehensive range of charter and wetleasing services
wherever market demand and regulations permit us to operate.
Q. What markets would Alliance members seek
to serve if you were granted free access to the US domestic market?
A. If BCAA members were given fair access
to the US wetleasing market, we would be able to provide our specialist
aircraft to US carriers requiring additional freighter capacity
on their route networks. Contact with potential customers has
convinced us that the demand for such services exists.
There are many other potential commercial operators,
such as the US Postal Service, UPS, Federal Express and DHL Airways,
all of whom have seasonal peaks where additional capacity is required,
and which we could provide.
We would also be able to provide specialist
point-to-point services to industry or shipping organisations.
BCAA members operate scheduled services on a world-wide basis
and believe that the US Market is one in which they would operate
competitively and profitably.
Q. What current services do members of the
Alliance operate, and what applications for services do they have
outstanding which make use of Fifth Freedom rights?
A. Members of the Alliance currently operate
charter and wetlease services for customers including DHL, TNT,
KLM, Lufthansa, Finnair, Royal Mail, Parcelforce, UPS and Federal
Express. These services make up a large part of Europe's air cargo
networks. In addition, BCAA members perform charter services for
major industrial users, moving motor car parts, computer components
and other high value cargoes.
Additionally they play a valuable role in supporting
the Ministry of Defence and relief organisations at times of crisis
by moving military and aid materials.
I hope this is helpful. Please do contact me
if we can provide any further evidence to aid the Committee's
inquiry.
Steve Guynan, BCAA Secretary
20 June 2000
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