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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