Memorandum by British Airways Plc (EU
06)
EUROPEAN UNION COMPETENCE AND TRANSPORT
1. INTRODUCTION
1.1 British Airways welcomes the opportunity
to submit evidence to the Transport Select Committee on the subject
of European Union Competence and Transport.
1.2 The inquiry is timely given the evolving
role of the European Union (EU) in many aspects of aviation regulation.
In line with the terms of reference of the inquiry, this submission
focuses mainly on the mandate given to the European Commission
to negotiate aviation agreements with the United States (US) on
behalf of EU Member States. However, we would also like to take
this opportunity to comment briefly on other topical areas of
EU aviation regulation such as the new European Aviation Safety
Agency (EASA) and the Single European Sky.
1.3 For clarity, we also highlight our main
points in an Executive Summary.
2. EXECUTIVE
SUMMARY
2.1 In British Airways' view:
— The negotiating mandate given to
the European Commission should be supported as this gives the
best chance of achieving greater liberalisation of the global
aviation industry.
— Any agreement on an Open Aviation
Area (OAA) should encompass the full range of measures necessary
for true liberalisation. The EU must resist an early harvest which
would hinder progress towards real liberalisation.
— There should be full participation
of representatives of individual states and the aviation industry
in the negotiation process with the United States (US). More specifically,
the UK Government should work to protect the interests of UK aviation.
— In the interim period, the process
of individual states negotiating Air Services Agreements with
third countries should be allowed to continue.
— EASA should bring high safety standards
to all EU based aircraft and airlines, thereby improving safety
for passengers on foreign as well as UK airlines while creating
a more level playing field for UK airlines.
— We hope the single European sky will
deliver improvements in air space efficiency and air navigation
service provider performance but we are concerned about the compromises
that have been made to secure political approval.
3. THE EVOLVING
POWERS OF
THE EUROPEAN
COMMISSION
3.1 In the post war era, the commercial
development of global aviation has been governed by a system of
Air Services Agreements (ASAs) negotiated and agreed largely on
a bilateral basis between the governments of the respective states.
A feature of many of these ASAs is the nationality clause. This
clause places limits on the level of foreign ownership and control
of the carriers designated in the agreements. This system has
resulted in an intricate "spider's web" of bilateral
international agreements between countries and has prevented the
natural path of consolidation within the aviation industry as
has occurred in most other international industries. In the absence
of such normalisation, airlines that wish to extend their networks
on a global basis have had no choice but to develop alliances
and code share arrangements with other carriers.
3.2 Despite this, some progress has been
made in liberalisation of these agreements. The US has negotiated
so called "Open Skies" agreements with many countries
including eleven EU Member States and the EU has a completely
open internal aviation market which is blind to nationality among
EU airlines. However, compared with the EU open aviation area,
US liberalisation can be seen as incomplete—not least because
the so called Open Skies agreements are merely conventional bilateral
agreements but with liberalised route rights.
3.3 On 5 November 2002, the European Court
of Justice (ECJ) ruled that eight EU Member States, including
the United Kingdom, had breached the European Community Treaty
by including nationality clauses in their bilateral agreements
with the US. The judgement stated that this was "a case of
discrimination, excluding air carriers of other Member States
from the benefit of national treatment in the host Member State,
which is forbidden by the Community rules on right of establishment".
In addition the ECJ identified three specific areas of Community
exclusive competence—slots, CRSs and intra Community fares
and rates.
3.4 The Commission issued a subsequent "Communication"
stating that the judgements of the ECJ establish the application
of the "AETR" principle by which the Union acquires
an external competence. The Communication also highlighted additional
areas of competence such as safety, customs duties, taxes and
user charges, Denied Boarding Compensation (DBC) and air carrier
liability.
3.5 Following the ECJ ruling, the Transport
Council agreed on the 5 June 2003 to a package of measures that
formalised the now mixed nature of responsibilities in the negotiation
of Air Transport Agreements, including:
— a framework for the passing of responsibility
for the negotiation of air transport agreements from the governments
of the Members States to the European Commission;
— a mandate for the Commission to begin
negotiations with the US on an Open Aviation Area;
— an agreement on Member states continuing
bilateral negotiations with third countries subject to a degree
of Community control; and
— a horizontal mandate which would
allow the Commission to negotiate Community Clauses with third
countries (ie "bring the agreements into line") in the
absence of a full mandate to negotiate a full EU level agreement
with that country.
3.6 In short, this means that the power
to negotiate aviation agreements is now shared inextricably between
the individual member states of the EU and the European Commission.
The Commission has since commenced negotiations with the US on
an OAA and plans to follow this with third country negotiations
under the horizontal mandate. It recently held inconclusive talks
with Australia, New Zealand, and Singapore under the horizontal
mandate, and is, we understand, considering whether to ask the
Council for a full mandate to negotiate an OAA with those countries,
either together or separately.
3.7 In the meantime, Member States can continue
to conduct bilateral talks with other countries. However, it is
the view of the Commission that no changes to an existing agreement
should be made unless a Community Clause is included. The purpose
of a Community Clause is to replace the existing nationality provisions
with a similar provision which would extend this access to carriers
of all EU nationalities. A "model" Community Clause
and other necessary amendments on pricing, CRS etc. have been
agreed between the Member States and the Commission, and are available
for use by either in bringing agreements into line.
3.8 In practice the Member States do agree
revisions to existing bilateral agreements and implement them
on the basis that business must be allowed to continue. These
revisions are subject to scrutiny by a Special Committee which
is set up for this purpose and comprises Member States and Commission
representatives. Its duty with regard to the Community Clause
is satisfied provided it makes a serious effort to persuade the
other party to agree to it.
4. IMPLICATIONS
OF THE
TRANSFER OF
POWER FOR
THE STRUCTURE
OF THE
INDUSTRY AND
INDIVIDUAL STATES
4.1 British Airways welcomes the judgement
of the European Court of Justice and the subsequent negotiating
mandates given to the European Commission. Whilst this means that
the exclusive power of individual countries to independently negotiate
ASAs with third countries has been modified, this is outweighed
by the advantages that can be gained through the EU's increased
power to facilitate the necessary changes in the regulation and
structure of the aviation industry.
4.2 The removal of restrictions on routings
and limits of ownership and control will open up EU markets to
foreign competition and will enable the much needed consolidation
process within the European aviation industry to begin. Agreement
between the EU and US on an OAA is then the most likely route
to further liberalisation of the global aviation industry, improving
its structure and maximising competition.
4.3 An OAA would grant access to all EU-US
routes to all EU carriers. This will enable UK carriers to operate
US routes from anywhere within the EU and grant the same opportunities
for EU carriers in the UK-US market. The result will be increased
benefits for EU consumers as carriers are able to compete on a
global basis.
4.4 The open aviation areas developed within
the US and EU in the 1980's and 90's have already demonstrated
the benefits that single markets can create. Passengers have benefited
from increased services, lower fares, strong competition and new
enterprise—most visible in the rise of the no-frills carriers
and the competitive response of the full service network carriers.
5. THE APPROPRIATE
EXTENT OF
EUROPEAN COMMISSION'S
POWERS
5.1 British Airways gives its full support
to accelerating the liberalisation of the global industry starting
with an Open Aviation Area agreement between the EU and the USA.
5.2 In our view, the mandate given to the
European Commission increases the chances of a comprehensive liberal
agreement with the US being negotiated. In the past, UK attempts
to secure agreement on these issues with the US have been unsuccessful
as both sides have been unable or unwilling to make all the changes
required. Since the Community has more power as a negotiating
bloc than individual states, and has the competence to propose
changes to some of the existing restrictive European Regulations,
an EU-led US negotiation is more likely to achieve the whole package
than member states negotiating individually.
5.3 However, whilst it creates a greater
chance of success, the negotiating mandate given to the EU also
necessitates a certain level of trust on the part of individual
member states.
5.4 In British Airways' view, it is vital
that the European Union does not settle for anything less than
a full liberalisation package with the US. Any agreement should
encompass the entire range of measures necessary for true liberalisation.
In order to secure the benefits of an Open Aviation Area as outlined
above, the package needs to encompass the removal of restrictions
across the spectrum such as: the limits in ownership and control,
access to the US domestic market, routing rights, the US Fly America
and Civil Reserve Air Fleet (CRAF) policies, cargo and wet-leasing
arrangements.
5.5 It is a key concern that, given the
complexity of the deal that needs to be negotiated, the temptation
may exist to agree to trade offs to secure an "early win".
This might take the form of an agreement to accept 49% ownership
and control rules in the place of the 100% required by a true
Open Aviation Area. A 49% limit would not permit necessary industry
restructuring. The airline industry has not developed into a "normal"
business precisely because national control rules prevent cross-border
mergers. Such partial liberalisation would inevitably favour the
US in the short to medium term who would then see no advantage
in pursuing a full liberalisation agenda. Only a full package
of measures, including access to the US domestic market for EU
carriers would bring about the necessary restructuring of the
aviation industry and the desired economic and consumer benefits.
5.6 The European Commission has been granted
the power to negotiate on behalf of 15 individual member states
and British Airways urges the Commission to use that leverage
to its fullest potential.
6. OTHER CONCERNS
REGARDING THE
EXTENT OF
EU POWER
6.1 In addition to the key concern outlined
above, British Airways would like to note the following issues
with regard to the appropriate extent of Community competence.
6.2 Continued participation of the industry
and representatives of individual states in negotiations with
the US: it is vital that the UK government and UK aviation industry
representatives play a full and active role in the ongoing negotiations
with the US. When conducted at a national level, the aviation
industry has the opportunity to lend its technical and commercial
knowledge to bilateral talks. This existing expertise needs to
be utilised by the Commission, preferably to the extent that representatives
from the industry are permitted to participate in future negotiations.
6.3 EU can add value to some but not all
bilateral negotiations. Examples of where the Commission can add
value at European level are:
(i) negotiations on specific common issues
of immediate concern. Examples are the current EU initiative to
free EU airlines from Russian overflight payments and other restrictions;
issues with the USA concerning passenger information and data
security;
(ii) negotiations with states whose general
policy towards bilateral partners has been restrictive/protective,
eg Japan, where the offer of access to the EU as a whole may be
persuasive; and
(iii) negotiations with neighbouring states,
eg Turkey which would lead to an enlargement of the contiguous
open operating area centred in the EU.
Examples of where the EU is unlikely to add
value are:
(i) countries whose policies are already
liberal vis a vis the Member States of the EU, eg Australia, New
Zealand;
(ii) countries where the overall market is
small eg many states in Latin America, Africa; and
(iii) countries where demand is limited to
one or two gateways in the EU, eg Congo, Gabon.
6.4 A phased approach : the EU should plan
a phased approach to third country negotiations and carefully
choose those countries where progress is both likely and desirable.
It is important to note that, even with recent increases in its
establishment, the Commission has limited resources, so the added
value concept is far from theoretical. The Commission also needs
to gain experience in this field. Priority should be given to
completing the EU/US agreement as a model of liberalisation and
agreeing with the Member States where the next priorities should
be. These are likely to be where liberalisation is difficult and
needed eg India.
7. RECENT NEGOTIATIONS
7.1 Two rounds of negotiations between the
EU Commission and the US have now been held. The different approaches
from the two sides can be characterized as the EU trying to create
a liberal umbrella agreement versus the US building incrementally
from their existing Open Skies agreements.
7.2 Of the two, the EU's aspirations are
those that deserve support from the UK and its industry. The US
position is that their so called Open Skies template is the ideal
model and that this model has already (in the case of several
Asia/Pacific countries) been adapted to create a multilateral
agreement.
7.3 In fact the Open Skies model does not
meet the need for change and consolidation in the industry as
it does not touch the issue of ownership and control which is
essential to bring about the consolidation of the industry. Nor
does it touch various matters of US protectionism such as the
Fly America policy, a one-way street in wet-leasing etc. The EU
model does challenge the US to tackle these issues and begin the
process of creating a global aviation market.
7.4 Thus far, the EU should be congratulated
for not acceding to the US position but this will be a long process
and it will be important that the Commission holds its line though
forthcoming changes of personnel at many levels.
8. OTHER AVIATION
REGULATION ISSUES
8.1 Although not mentioned in the Committee's
terms of reference, developments in the non-commercial areas such
as the International Civil Aviation Organisation (ICAO), the new
European Aviation Safety Agency (EASA) and the Single European
Sky have also seen competence being passed from national to European
level. As such, we would like to offer a few brief comments on
these issues.
8.2 The Chicago convention of 1944 provided
the world-wide regulatory framework for aviation and established
ICAO, both of which have been especially important in the development
of non-commercial aspects of aviation regulation such as safety,
security and environmental protection. As the European Union has
now been given competence in these areas the Commission is seeking
direct membership of ICAO in place of Member States. The UK and
other member states oppose this on the basis that there would
be a significant loss of Europe's voting power.
8.3 EASA is, in British Airways' view, an
important step forward in aviation safety that should lead to
the development and application of consistently high safety standards
across the EU. The previous approach, whereby national regulators
cooperated under the Joint Aviation Authority (JAA) resulted in
an uneven application of standards. Due to a consensus requirement
it proved difficult to reach agreements and central resources
were inadequate. The JAA itself had no real status and was unequal
in influence to the US Federal Aviation Authority. National regulators
either lacked the resources to operate effectively under this
approach or they became very expensive. The principle of subsidiarity
is met because the national approach was not working.
8.4 EASA's approach should result in a more
efficient approach with less duplication of effort and a more
consistent application of common standards. The standards themselves
should be developed on the basis of high quality and objective
safety analysis with consultation, regulatory impact assessment
and appeals built-in to the decision making process. The framework
has been designed to ensure that proportionate decisions are taken
as much as possible.
8.5 There are implications for the Civil
Aviation Authority which, although retaining its responsibilities
for oversight of UK manufacturers and airlines, has started to
lose its remit for developing safety standards. Initially, responsibility
will pass to EASA in the areas of airworthiness and maintenance
but in the future this will extend to operations and licensing
and longer term, there is scope to extend EASA's remit to aerodrome
and air traffic safety as well.
8.6 British Airways has also supported the
development of a Single European Sky because this should result
in a much greater efficiency of airspace coordination and allow
for significant productivity improvements and safety benefits.
However, following a difficult conciliation process between the
European Parliament and Council, the regulations that were agreed
recently resulted in a number of compromises to the original objectives.
Despite this, an important principle was established that the
provision of air traffic services should be separated from regulatory
functions and that independent safety and performance regulation
is needed to avoid conflicts of interest by Member States. During
2004, the revised regulations should be adopted and implementing
arrangements worked through. British Airways will seek, through
our industry association, to ensure that this project delivers
real improvements in the areas of performance (cost efficiency
and management of air traffic delays) and safety.
9. CONCLUSION
British Airways supports the negotiating mandates
given to the European Union as this offers the best chance of
achieving greater liberalisation of the global aviation industry.
We believe the Commission has acted appropriately thus far in
its negotiations with the US regarding an Open Aviation Area but
that a satisfactory final outcome is dependant on a full package
of liberalising measures being agreed with especial regard to
the issue of ownership and control which is essential to bring
about consolidation of the industry.
During this period of change, individual Member
States should be allowed to continue to conduct bilateral talks
with other countries. It should also be recognised that whilst
the EU can add value to some negotiations there are areas where
this is less likely and British Airways believes the Commission
should adopt a phased approach to future negotiations.
As demonstrated in Section 8, EU regulation
in non-commercial areas of aviation can bring benefits of consistency
and efficiency. However, it is British Airways' view that these
benefits are most apparent in the event that such EU regulation
does not duplicate UK regulation, create additional cost or be
more onerous on EU Member States and airlines.
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