Select Committee on European Scrutiny Fifteenth Report


Annex 1: Transport Committee's opinion of 20 March 2007

Michael Connarty MP

Chairman of the European Scrutiny Committee

House of Commons

London SW1A 0AA

20 March 2007

Open Skies

The European Scrutiny Committee has asked for the Transport Committee's opinion on three matters relating to the draft EU-US Air Transport Agreement, pursuant to Standing Order No. 143(11).

A text of the draft EU-US Air Transport Agreement was agreed on 2 March 2007. The Council is meeting on 22 March to consider the agreement. If it receives approval it is expected that the Agreement will be signed at the EU-US summit on 30 April 2007. It would provisionally come into force from 28 October 2007.

The Transport Committee took evidence last week from British Airways, Virgin Atlantic, BMI, Silverjet, the Secretary of State for Transport and the DfT's Director of Civil Aviation. I enclose a copy of the uncorrected transcript of that meeting and of a letter the Committee has subsequently received from BA, pursuant to S.O. No. 137A.[4]

The Committee considered the questions you put to us at its meeting yesterday, and has directed me to reply in the following terms. The Committee also takes the view that if the draft Agreement were adopted, it would result in a reduction in the price of transatlantic tickets.

Would UK airlines be, if not better off, at least no worse off than under the present bilateral arrangements?

The Committee takes the view that UK airlines collectively would be no better or worse off under the proposed draft Agreement than they are at present. Some airlines may do a little better, some a little worse, but the relative position of British aviation in comparison to US aviation will decline. We believe that UK airlines may be naïve in their assumptions about possible benefits from the opening up of Heathrow. We think it likely that American airlines will be in a better position to trade and purchase slots at Heathrow, pushing smaller UK and EU airlines out of the transatlantic market. We also think that large European airlines holding significant numbers of slots at Heathrow will use some to operate transatlantic services to the detriment of UK airlines hoping to start similar services. The consequences of these changes would be a damaging reduction of feeder routes into Heathrow.

The Committee is concerned that, given the potential challenges posed to major UK carriers, witnesses were not able to point to any compensating benefit in other parts of the draft Agreement.

The Chief Executives of both British Airways and Virgin Atlantic made it clear to us that the draft Agreement would not seriously impinge on their ability to compete in terms of both service and price. However, the Committee noted that both Chief Executives accepted that the consequences might be negative. British Airways currently operates 41 per cent of the slots at London Heathrow Airport. It will be in an advantageous position to exploit these slots under the draft Agreement, opening up markets from Heathrow to Atlanta, Dallas and Houston. British Airways' share price fell by six per cent immediately following the announcement of the draft Agreement. Mr Willie Walsh, the Chief Executive, indicated to us that he did not believe that this signalled the beginning of a trend.

BMI and the business-class airline Silverjet both believe that they will profit from the draft Agreement; in particular it will give them access to the highly profitable transatlantic markets from Heathrow, which they are currently denied. They saw no detriment to opening up European skies to American airlines as it is unlikely that they will be able to compete with the well-established and efficient low-cost European airlines.

Is the agreement based on truly reciprocal benefits, particularly in the absence of provision allowing Community airlines to carry traffic within the US and of relaxation on the prohibition of Community airlines acquiring effective ownership of a US airline?

No. We are convinced that the draft Agreement is unbalanced and lacks reciprocity. It would benefit American interests to the detriment of the broader European interest and to the detriment of the UK national interest in particular. Furthermore, we do not believe that this imbalance could be redressed in the short- to medium-term: there is neither the will in the United States to do so nor, if this Agreement is signed, would there be any incentive to do so or penalty for failure to do so.

It might be argued that American airlines are not at present utilising those Fifth Freedom rights that they have in the EU and are not, therefore, likely to utilise the further rights gained in this Agreement, but this would be to miss the point. The fact is that "open skies" should mean exactly that but the current draft would leave American skies firmly and, we suspect, permanently closed to foreign aircraft.

Similarly, there are statutory prohibitions in the USA against majority foreign ownership of American airlines. At the end of 2006 the US Department of Transportation withdrew a possible liberalisation measure due to trade union, airline and Congressional opposition. It is highly unlikely that this attitude will change within the timeframe proposed by this Agreement for a "second stage".

Are such benefits as might arise from this first-stage agreement enough to balance the risk that a more beneficial second-stage agreement would not emerge within a reasonable time-scale?

No. The benefits to UK and European airlines and broader interests from the draft Agreement are practically negligible. In contrast, the benefits that will accrue to American airlines from the opening up of European airports—particularly Heathrow—are immense. To offer up these benefits with only the vague promise that talks will resume, on the flawed presumption that the US will shift a negotiating position which has been entrenched for over thirty years, would be extremely unwise. It should be remembered that there are likely to be disbenefits to the UK economy because of lack of access to Heathrow from other UK airports.

We do not expect that any stage-two agreement could be achieved that would open up the American skies to European-owned and -operated carriers. The American position has remained unchanged since Bermuda II. We see no indication that endorsing this draft Agreement would change that. Indeed, we fear that this Agreement gives the United States most of what they have been negotiating for since Bermuda II and will permanently entrench "unequal skies".

Even if the draft stage-one Agreement contained a firm, detailed timetable for the resumption and conclusion of negotiations on a stage two Agreement, with a view to achieving access to the US market, and punitive measures to enforce this timetable (neither of which it does), in our view it would be insufficient. By the time any punitive measures came into force, the partial open skies achieved at stage one would have been in operation for a number of years and could well be impossible to rescind.

I hope the European Scrutiny Committee will find these views helpful when it comes to consider the matter tomorrow.

Hon Gwyneth Dunwoody MP

Chairman of the Committee




4   To be published as HC 395-i. Back


 
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