Examination of Witnesses (Questions 20-39)
5 MAY 2004
MR MIKE
TOMS, MR
STEVE HARDWICK,
MR ALAN
CRUICKSHANK, DR
JONATHAN BAILEY
AND MR
KEITH JOWETT
Q20 Mr Stringer: Can I move on to the
negotiation of Air Service Agreements with countries like the
United States. Dr Bailey touched on that earlier. What have been
the real practical problems involved so far? You have given us
some written evidence but can you explain it to the Committee.
Dr Bailey: To start with, what
happened was the Commission produced a draft regulation to handle
the situation because it was being pragmatic in that it understood
that the world could not stop negotiating Air Service Agreements
and updating them, but at the same time it wanted to make sure
that they were compatible with EC law. That took a long time to
set up. I understand it has been adopted in the last few days.
That will mean once it is published in the official journal this
regulation will come into force after 30 days. In that regulation
there are a number of points that they make. They will set up
an advisory committee and every Member State which is allowed
now to go and negotiate with its bilateral partners, provided
the Commission is not already negotiating with them, first of
all will have to notify the Commission that it is going to go
and do that, it will then have to do the negotiation and when
that is concluded it will have to go back to the Commission and
submit the agreement for its approval. The Commission will come
up with a draft decision which will be put to the advisory committee
which will give its opinion and then the Commission will make
a final decision. It is quite a lengthy and bureaucratic procedure.
You asked for specific examples where that hinders us. In terms
of Manchester Airports' development, we have discussions with
airlines, predominantly foreign airlines, in a number of countries.
Take Hong Kong, that agreement was recently renegotiated between
Britain and Hong Kong and, unfortunately, although in theory it
can come into operation prior to the approval of this Commission
advisory committee it is not being operated, and the reason for
that is the Hong Kong Government does not want to implement the
agreement and then find it is overturned by the Commission at
a later date because of the heavy investment required by Cathay
Pacific, for example, if it starts a new route to Manchester,
where there is huge demand. We had a service there and at its
peak in 1996 100,000 passengers were carried. We estimate the
market from Manchester to be 140,000 now from CAA statistics and
so on. There is definitely a market for at least a daily large
aircraft service, but any plans which the airlines may have to
serve that market are called into question by the intervention
of the Commission.
Q21 Mr Stringer: So let us be clear,
from what you have just said and from your written evidence you
are saying that there are delays in establishing routes from Manchester
to Hong Kong, to Pakistan, to Beijing and South Africa?
Dr Bailey: Yes, some of those
are potential delays. We also have a problem in that we are having
to convince the international aviation negotiation part of the
DFT that the policy on liberalising the regional airports set
out in the recent White Paper and, indeed, also in the 1985 White
Paper should encompass the granting of fifth freedom rights on
which we have relied. Every single one of our long haul routes,
apart from those across the Atlantic, has been started on the
back of fifth freedom rights, so the liberalisation point is very
important to us. What I would say is that the Commission's intervention
here could slow things down. Many countries refused to accept
the community designation clause, for example. If you are Pakistan
and Britain comes and says, "Look, we want to update the
agreement and we would like you to give access to your market
to the carriers of 25 European countries", not many people
would turn round and say, "That is a very good idea".
They are very concerned about their airlines and whilst that may
be protectionist, you can understand the position that they are
in. One of the things we have thought is if perhaps the Commission
were able to enable Member States to offer reciprocity on this,
in other words access for the country they are negotiating with
to the 25 Member States, that might get round it, but I can say
that then you would be into a major negotiation among Member States
of the type that my colleague, Mr Toms, described.
Q22 Mr Stringer: You describe something
that appears to be becoming a barrier to access to regional airports.
Do you have an alternative? What do you think the Commission should
do?
Dr Bailey: I think the alternative
would be to let Member States continue with negotiating, which
they are trying to do, but without threat of withdrawing agreements.
The other way round this might be if the Commission were to have
competence then it would work on an Open Skies basis with blocs
of nations. That would be a very lengthy process. They are working
with Singapore, Australia and New Zealand, for example, on the
community designation clause. Potentially that is one way round
it but all of these things are very time consuming and that is
one the problems that airports face when they are trying to develop
services, they need rights to be available here and now so that
airlines can incorporate those into their thinking. For us at
Manchester, for example, and I speak mainly for Manchester rather
than the other airports in our portfolio, we have a significant
number of transatlantic services and that has been open since
1996, as you know, and airlines can think and plan accordingly.
Q23 Mr Stringer: Can I just ask BAA a
question. There are funds provided by the Scottish Development
Agency for route development through your airports in Scotland.
Can you tell us how much money?
Mr Toms: I would need to confirm
it but my recollection is it was £6 million.
Q24 Mr Stringer: How many routes does
that cover?
Mr Toms: I think the number of
routes depends on how many people bid. We may need to give you
an accurate paper on that.
Q25 Mr Stringer: It is actually in operation
at the present time, is it not?
Mr Toms: It is in operation at
the present time, yes.
Q26 Mr Stringer: You do not know how
many routes it is covering at present?
Mr Toms: No. We will give you
a specific answer.
Q27 Mr Stringer: You can provide it?
Mr Toms: We can provide it.
Mr Hardwick: There are two route
development funds, one which is operated by BAA Scotland, which
is £60 million, and we do know what we are doing with that
but the number of routes is very small because a number of the
carriers who are flying to and from Scottish airports were looking
to have those funds used on services to London which do not need
support whereas what we were wanting to do was expand access from
Scotland to many other destinations. The second fund is the one
you are referring to from the Scottish Executive but that is something
which they administer in partnership with the airlines, so we
will be informed about it, and we can give you a note on that,
but we will not be directly involved in negotiation, I am sure.
Q28 Mr Stringer: I did not realise there
were two funds. Can you explain how those are not caught by the
Charleroi decision?
Mr Toms: We had some premonition
that Charleroi might be raised today given that the decision
is being published today. We have not had a chance to review the
decision in detail but we have a certain amount of foreknowledge
of its content. My understanding is that there are two primary
grounds upon which Charleroi is being held in breach. The
first is that the offers made exceeded five years in duration,
in other words they were too long-term. The second is that they
were made to one carrier without being available to all carriers
on equal terms. Our understanding is that neither the Scottish
Office fund, if I can call it that, or indeed our support would
fall foul of that provision.
Q29 Chairman: Because both of them have
a degree of openness that would be available were it required
by some other carrier?
Mr Toms: Yes, they are both open
and they are both short-term.
Q30 Mrs Ellman: In your written evidence,
BAA identified three areas of problems with current European Commission
legislation. Can you say any more about those and where you would
like to see changes?
Mr Toms: These are the three issues
described in paragraph 12 of our evidence. The first is the temptation
to over-legislate or tinker. The Ground Handling Directive is
a classic example of that and in a second I will ask my colleague,
Mr Cruickshank, to talk on that particular issue. The second,
the one-size-fits-all problem, is a significant problem for an
institution in which airports vary in size from a few thousand
passengers a year to 64 million. Clearly the same degree of regulation
is not appropriate to airports of those different sizes, and routes,
of course, varying from London-Paris in thickness and quantity
down to those very small regional routes. The third point, which
is a point I made in my introduction, is the one about having
enough people in the Commission of the right calibre to support
their activities. I think that is exemplified by the problem of
the bilaterals and EU competence where, with all due respect to
the good, sound people there are in the Commission, this is a
huge and complex area where you need to be steeped in the history,
the negotiating styles and the chemistry of these negotiations
before you can really perform at your very best. I say this as
one who has done this for some years. Without that fine tuning
of expertise and experience you can be disadvantaged. Could I
ask my colleague, Mr Cruickshank, to say something on ground handling.
Q31 Mrs Ellman: What I would like to
know is how you would like to see the legislation changed to avoid
the problems that you have identified?
Mr Cruickshank: In this particular
area, and my colleagues from AOA and Manchester may want to add
to this, for me there are two issues. One is a desire for legislation
to go too far. There is an example at the moment of a possible
piece of legislation which both deals with some matters of important
principle in relation to passengers with reduced mobility flying
but then it potentially goes too far in inflicting a single organisational
solution to how we accommodate those passengers at airports. It
can go so far but then potentially go too far. The second example
I would give is where having established a piece of legislation,
and this is where the ground handling one comes in, there is a
very great temptation to review that after a few years, to go
through a major process of study, consensus building and then
try to develop something slightly better. Whilst it could be made
slightly better, the effort imposed on all parties may not warrant
the minor improvement.
Q32 Mrs Ellman: How would you like to
see that situation change? Is it to do with the way individuals
deal with the situation or is it to do with the processes that
are gone through?
Mr Cruickshank: My immediate response
is both. I think it requires encouragement from Member States
to the Commission to focus on the areas of greatest importance,
and clearly one of the biggest ones is Air Service Agreements
and what that means, and not to focus on smaller improvements
to smaller areas. Maybe that is where a benefit could come from—Member
States encouraging focus in particular areas.
Q33 Mrs Ellman: Manchester Airport, you
made a very strong point about the problems you had in implementing
the bilateral agreements because of the difficulties in the process.
I was not clear if you were saying that another system would be
better or that things had not been operated properly. You referred
to an alternative but then spoke about the problems of that.
Dr Bailey: I think what would
improve it in this particular case would be if Member States were
given competence back to deal with, say, the bilaterals within
the framework of EC law and you did not have this vetting process
which is a very longwinded process. You would do two things then.
One, you would shorten the process and make it simpler than the
one that they have put forward and that they are going to implement.
Two, the Member States have the resources and they know which
Air Service Agreements they need to update, which are important
to their consumers and their industry. They understand that better
than anybody. The Commission will not be able to prioritise things
properly, I believe. The alternative is to say, "Look, these
are the rules within which you need to negotiate" and leave
it to the Member States, and perhaps an audit can be done from
time to time. To have this procedure for each and every little
agreement—One example I gave was that we just want the British
to extend the fifth freedom traffic rights to an airline. It already
has them, it just wants to add some services, but instead we have
got to go through a British negotiation, and a difficult one because
you are adding in the Community designation, and then this rigmarole
at the Commission where you have got to notify them and check
them. Bring that back to the Member States, let them get on with
it and deal just with the blocs, like the US, at EU level.
Q34 Mrs Ellman: What will the consequences
be of 25 Members of the EU in relation to the issues you have
identified? Does it call for a change in the procedures? Would
it make any difference?
Mr Toms: It will certainly make
a difference of degree in the sense that there will clearly be
more partners who have to be satisfied before legislation can
be passed, unless more legislation is going to be passed by majority
voting. It is possible to overstate the additional burden which
will be placed on legislation from this bearing in mind the fact
that although ten additional states are being added, I think it
is a much smaller proportion of population or GDP than that and
that most of these states are not characterised by the complex
web of international air service that you would get in France,
Germany or the UK. It will make it more difficult but not to the
power of 25 over 15.
Q35 Mrs Ellman: What would the impact
be on the decisions by majority voting if that is the way we went
in terms of UK aviation?
Mr Toms: It is very difficult
to forecast that because it would depend which way the majority
went, frankly.
Q36 Chairman: If your commercial opponents
in another country decided that it would be convenient to block
something, particularly something as obvious as fifth freedom
rights, which you already possess, would that not be tantamount
to stymieing all development for anything other than a large bloc
arrangement at EC level?
Mr Toms: I think the point you
make in principle must be correct, which is the more people who
have a vote then the more people who have the power to block.
How far that will apply in practice is difficult to see so far
given that the major bilateral issues, or major EU/non-EU service
issues, are not those which affect primarily, say, Lithuania but
those which affect the major airports.
Q37 Chairman: That is an assumption that
those countries will not begin to require international routes
or will not begin to ask for exactly the same sort of developments.
Is there any guarantee at all that Riga will not start demanding
the same kind of access that Manchester wants?
Mr Toms: There is no reason why
not and that is why I say the proof will be in the pudding on
this and the situation may evolve over time.
Q38 Mrs Ellman: Have you any views on
the current situation on the negotiation for secondary trading
in slots? Is that an example of something that is proceeding successfully?
Mr Toms: As you can imagine, this
is an issue of some considerable interest to us at Heathrow. I
am rather fortunate in that I have to my right one of the Community's
top experts in slot allocation, for which reason I am going to
hand this highly technical area over to him, if you do not mind.
Q39 Chairman: Mr Cruickshank, we would
love to have a complete lecture, but not today.
Mr Cruickshank: It proved to be
a very difficult subject to reach consensus on in achieving the
technical amendment which is due to become law very shortly. Secondary
trading is increasingly recognised as having some value at a number
of congested European airports. At the end of the day, that value
was accepted and allowed to continue, pending a much more radical
consideration of slot allocation which we are all due to embark
upon in the months to come.
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