Written Memorandum from Lufthansa
1. Is Lufthansa in favour of the Commission's
proposals to extend the scope of Regulations 3975/87 and 3976/87
to include aviation services between the Community and third countries?
Lufthansa concedes the Commission's proposals'
inherent logic. It is certainly true that a Single European Aviation
Market cannot be regulated on its own merits with no consideration
given to the relationship between that market and the rest of
the world. Given the impact of global competition on intra-European
competition in general, and European competitors in particular,
it is furthermore correct to assume that measures should be envisaged
that ensure a level playing field for competition both within
Europe as well as between Europe and third countries.
However, there are two important caveats. Firstly,
the Regulations 3975/87 and 3976/87 can and should only be extended
in their geographic scope to countries that have implemented a
liberal aviation policy with most, if not all Member States, and
are willing to negotiate a Single Aviation Agreement with the
European Union. Such a prerequisite is necessary, because a market-orientated
competition policy can only be applied in an environment in which
the market is not distorted by regulatory intervention. By proceeding
in such a manner, the Commission would essentially be adopting
the approach it implemented in the course of the intra-European
liberalisation process, which, if I may recall, was indeed a gradual
phasing in of a European regulatory regime accompanied by the
gradual implementation of competition rules. The Community has
always maintained a close link between the scope of Community
liberalisation measures in the air transport sector and the scope
of the Regulation 3975/87, which the Commission itself recognises
in its proposals. The conclusion of air service agreements between
the Community and third countries should therefore be a precondition
for the proposed extension of the Commission enforcement powers
to air transport between the Community and such countries. Whether
the Community should seek to conclude such agreements with third
countries should, of course, be evaluated and determined on its
own merits and not in the wake of Commission enforcement action.
This leads to the second caveat, which is that
the scope should be extended gradually, on a step-by-step basis.
Given the highly sophisticated revenue-management systems and
route planning tools modern airlines use, aviation is dependent
on stable parameters; any paradigm shift, any dramatic change
in the regulatory framework that affects the commercial activity
of airlines, should be such that airlines can adapt appropriately.
2. In your opinion, what impact do you think that
the European Commission's proposals will have on airline competition
on short and long haul routes?
Currently, each Member State is responsible
for its air transport relations with third countries. Each such
bilateral relationship necessarily reflects the specific balance
or air transport interests and negotiating powers of the two parties.
It would be potentially very harmful if in such—often sensitive—bilateral
relations the Commission would have full powers under Article
87 to apply the Competition rules, whilst the responsibility for
trade in the air transport sector would still remain with the
Member States individually. Any enforcement initiative taken by
the Commission in such an environment may trigger a negative reaction
from the third country concerned, which may have serious consequences
at the level of the bilateral air transport relations between
the Member State and the third country in question. Instead of
bringing about the legal certainty advocated by the Commission,
such a development would have the opposite effect.
It is difficult to foresee in detail what specific
effect the legal uncertainty thus created would have on competition
on short and long haul routes. Lufthansa strongly believes that,
in the short- and mid-term future, international alliances between
airlines will continue to be an essential instrument particularly
for European carriers. It is with the help of such alliances that
European carriers, which currently transport only 8 per cent of
global traffic, have been able to position themselves strategically
in the global aviation market. Any legal uncertainty created by
the Commission would substantially undermine the strategic value
of European carriers as potential alliance partners for Asian
or North American carriers.
3. In your opinion, would carriers from any particular
Member States be advantaged or disadvantaged by the proposals?
Whether or not carriers from particular Member
States would be advantaged or disadvantaged by the proposals depends
on their implementation in individual cases. Current experience
of several airlines, including my own, seems to indicate that
the Competition Directorate (DG IV) as part of the Commission
is a politically driven entity. It is Lufthansa's view that the
current investigation by the Competition Directorate of all transatlantic
alliances is unnecessary and driven essentially by what the Commission
construes to be reasons of "political fairness". It
is also Lufthansa's view that by applying the same methodology
to all transatlantic alliances despite the different market sizes
and structures, as well as differing market penetration of the
carriers concerned, the Competition Directorate is following a
politically driven approach. The results of such politically driven
moves can, depending on the circumstances, be disadvantageous
to some individual carriers.
In an attempt to reduce the likelihood of such
politically motivated moves, Lufthansa proposes the creation of
a truly independent European Competition Authority. Without wishing
to elaborate such a proposal in detail, I would merely like to
point out that the Federal Republic of Germany has a well established
national Competition Authority, which is indeed independent of
any given political aspirations. This model has, at times, proven
to be a difficult regulatory body to deal with for the private
sector, and Lufthansa did not always share the views expressed
by the German Bundeskartellamt, but we endorse the principle that
the technical implementation of a politically predetermined competition
policy should be left to an independent agency. I believe it would
be worthwhile to examine the legal and procedural details of the
German solution as a potential model for the European Council
to consider.
4. Do you think that this proposal forms part
of a process that will lead to the Commission assuming responsibility
for the negotiation of Air Services Agreements between the Community
and third countries?
The proposals do indeed have far-reaching consequences
for the Commission in the field of air transport. The effect of
the extended scope of the Regulations 3975/87 and 3976/87 would
basically be to create a legal instrument for the Competition
Directorate to intervene with respect to any behaviour of airlines,
any agreement between airlines and any clauses foreseeing or allowing
behaviour of airlines that could be construed as having adverse
effects on competition, tariff clauses, capacity clauses, in short,
any clause currently contained in Bilateral Air Service Agreements
that is relevant from the perspective of EU Competition law, would
be susceptible for review by the EU Commission. The effect would
thus be: lack of legal certainty with the Member States as to
which kind of agreements could still be negotiated and agreed
upon bilaterally; and lack of certainty with the third country
concerned.
You will be aware of the ongoing investigation
of the Lufthansa/SAS/United Airlines alliance by DG IV; depending
on the measures contemplated by the Competition Directorate, it
could very well erode rights of European and a US carrier granted
under bilaterally agreed Open Skies Agreements. The alliance investigations
thus have the effect of increasing political pressure to transfer
negotiating rights from the individual Member States to the Commission.
Lufthansa considers it politically unwise to permit Commission
enforcement action in specific cases to drive a competition policy
which in turn determines the nature of a negotiation mandate.
The inverse should be true: The Council should seek to identify
the parameters for an external aviation policy, including competition
policy, based upon which a Single Aviation Agreement could be
concluded with a third country, which includes the guidelines
for the enforcement of a competition policy; such a competition
policy must be agreed upon with the third country, it should not
be imposed unilaterally by the European Union.
5. Do you consider that the proposals would lead
to a harmonisation of bilateral agreements?
It follows from the above, that the proposals,
if implemented in their current form, would erode the contents
of bilateral agreements and increase political pressure for a
resolution of the ensuing legal uncertainty. A harmonisation of
Bilateral Air Service Agreements presupposes that all third countries
would be prepared to accept new clauses that effectively replace
the current diverse specific agreements. I doubt whether this
is a realistic assumption.
6. In your opinion, will this proposal help to
resolve the differences that currently exist between different
Competition authorities in their policy making both within the
Community and between the Community and third countries?
Lufthansa is not aware of any real differences
that exist between the competition authorities in the Member States
regarding competition policy in respect of air transport. The
only real conflicts that exist are between the Commission and
certain Member State authorities. While the proposal would help
resolve those conflicts, the cost of that resolution is not worth
the benefit.
7. Are you in favour of the Commission having
a greater influence on Air Services Agreements between Member
States and third countries? How far would it be wise to proceed
in this direction at present?
Lufthansa believes that if a level playing field
for competition between competing alliances and competing airlines
is to be created not only within the European Union but also for
traffic between the European Union and third countries, then further
influence of the Commission on Bilateral Air Service Agreements
with these third countries will be inevitable. As a first step,
however, an encompassing European External Aviation Policy should
be adopted by the Council of Transport Ministers that includes
all elements of an aviation policy, including competition policy.
As a second step, individual third countries should be identified
with which a Single Aviation Agreement could be concluded. In
presenting such countries to the Council with a request to be
given a mandate for negotiations, the Commission should be required
to demonstrate the added value of Community negotiations with
these countries. The experience gained from such individual negotiations
should then be evaluated before moving to negotiations with additional
third countries. Setting aside the EU negotiations with Middle
and Eastern European countries with which the EU is currently
beginning negotiations, it would appear wise to pursue the notion
of a mandate for negotiations with the USA as a first priority,
assuming such negotiations could, indeed, be based upon a European
External Aviation policy and would prove to constitute an added-value
for Member States.
8. In what ways do you consider that future bilaterals
established between the Member States and third countries will
differ from current bilateral under the proposals?
Under the proposals, future bilateral Air Service
Agreements would have to permit Commission participation at the
negotiations, contain clauses that the Commission deems to be
in conformity with EU law, foresee jurisdiction of at least DG
IV in matters of relevance for Community competition law. It is
not difficult to foresee that divergent views on several issues
such as the relevant market, bi- or multilateral tariff or capacity
agreements between the designated carriers, the designation of
all EU carriers instead of carriers of the two countries concerned
could make an agreement difficult to achieve. It appears highly
unlikely that the third countries would accept all EU conditions
in the same manner. In particularly difficult cases, the Commission
would either have to resort to trade power outside the realm of
traditional aviation agreements or accept that aviation between
the Member State and the third country concerned cease.
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