EU-US AVIATION AGREEMENT (8656/06)
Letter from Rt Hon Alistair Darling MP,
Secretary of State, Department for Transport to the Chairman
Thank you for your letter of 13 December 2005.
Access for EU carriers to cabotage traffic in
the US would require Congressional action to change the US statute,
and it is clear that this is not a realistic possibility in the
near future. For this reason the EU side has focused attention
on changes to the administrative regime under which EU interests,
airlines or others, may invest in US carriers, which may be regarded
as an alternative means to gain access to the. US domestic market.
For example, if an EU airline were to be able
to control the operations of a US-registered carrier, it would
be able to organise that carriers' route structure and scheduling
so as to maximise passenger feed onto its own. trans-Atlantic
services. Indeed, changing airlines ownership and control rules
in a EU-US deal could have advantages compared to seeking cabotage
rights, since significant relaxation of these rules in the trans-Atlantic
market would be likely to have far-reaching consequences, increasing
the pressure to dismantle anachronistic restrictions on airline
ownership and control worldwide, thereby helping to bring the
global airline industry into line with other sectors.
Any Stage One deal would include a commitment
on both sides to resume negotiations at an early date towards
further liberalisation. We know already that the US would have
negotiating priorities in areas not likely to be covered in a
Stage One deal, including seventh freedom rights for. cargo operators,
entitlements to set prices freely on intra-EU routes, and various
regulatory concerns. This will enable the EU side to press for
the further liberalisation we shall be seeking. Once a liberalising
process gets under way it is likely to continue, as erstwhile
opponents realise that the benefits outweigh any drawbacks. If
we can achieve a sufficiently significant Stage One deal it will
help to create its own momentum for going further.
A Stage One deal of the kind currently under
consideration would very largely supersede the Bermuda II Agreement.
All UK airlines, all non-UK EU airlines established in the UK,
and all US airlines would be entitled to operate trans-Atlantic
services into any UK airport, including Heathrow. The only parts
of Bermuda II which would remain in force would be those dealing
specifically with services between UK Overseas Territories and
the US, which would be outside the scope of an EU-US agreement.
At the Transport Council on 5 December 2005
Vice-President Barrot reported on the progress of talks. We welcomed
that progress, but agreed that Council could not make an overall
assessment of whether to conclude a Stage One deal until the US
had completed its current rule-making process on airline ownership
and control which I described in my previous letter. I attach
for your information an extract from the Council Press Notice
showing the Presidency's Conclusions following the debate.
20 January 2006
The Commission informed the Council of the agreed
minutes reflecting the outcome of the last two rounds of negotiations
with the United States, following which a number of delegations
The President summarised the results of the
exchanges as follows:
"The Council welcomed the significant progress
made in the negotiations for an EU-US aviation agreement, which
it regards as a matter of the highest importance for the future
development of aviation worldwide. The Council unanimously expressed
its satisfaction that the text represents significant improvement
on the proposals considered by the Council in June 2004, in particular
on the enhancement of cooperation on a range of regulatory issues,
including in the areas of security, competition and state aids.
The Council also welcomed the new opportunities created in the
field of market access, such as the results achieved on code share
approvals and wet leasing, but observed that improvements in the
field of ownership and control of airlines would be an essential
element for a Stage One deal to be concluded. In this regard the
Council is following with close interest the rule-making process
under way in the US through which the administration is seeking
to relax the rules governing control of US airlines by foreign
nationals. The Council noted that clear, meaningful and robust
changes to US policy in this area would be critical in the evaluation
of the overall situation, which will be a priority once the US
rule-making process is complete.
The Council requests the Commission to continue
its efforts accordingly."
Letter from the Chairman to Rt Hon Alistair
Thank you for your letter of 20 January in response
to mine of 13 December 2005 which Sub-Committee B considered at
its meeting on 30 January 2006.
Sub-Committee B remain concerned about EU-US
aviation negotiations and will maintain a keen interest in them.
Therefore I would ask that you keep them fully informed of future
developments in this area.
What is the position of EU airlines not established
in the UK? Would they not be entitled to operate trans-Atlantic
services into and out of any UK airport? Can you provide a list
of non-UK EU airlines which are established in the UK and a list
of those which are not?
The press release attached to your letter stated
that the Council noted that clear, meaningful and robust changes
to US policy in the area of the rules governing control of US
airlines by foreign nationals would be critical in the evaluation
of the overall situation. We have noted carefully this point.
The Council expressed its satisfaction with
the negotiated text on state aids. What are the principals of
the text on state aids? Will it eliminate state aid for aviation
on both sides of the Atlantic?
1 February 2006
Letter from Rt Hon Alistair Darling MP
to the Chairman
Thank you for your letter of 1 February replying
to mine of 20 January.
I note Sub-Committee B's continued interest
in EU-US aviation negotiations and I will keep you abreast of
Under the terms of the agreement now under consideration
by the Council any EU or US carrier would be able to operate transatlantic
air services between any airport located in the territories of
the European Community and any airport in the United States. Legal
establishment of a Community carrier in the Member State where
the European airport is located would not be required, though
in practice the commencement of regular air services between a
Member State and the United States would involve the establishment
of a presence on the territory of that Member State by the airline
We do not keep a list of those non-UK Community
carriers which are established here. We would treat an application
from a non-UK Community carrier to be designated under one of
our bilateral air services agreements with a third country on
its merits. The basis for our decision would be whether it appeared
to meet the definition of establishment set out in the tenth recital
to Regulation (EC) 847/2004 on the negotiation and implementation
of air service agreements between Member States and third countries,
as clarified by a statement included in the minutes of the Council
meeting on 5 December 2003 which adopted a Common Position on
that Regulation. The relevant extracts are attached in an Annex
to this letter.
In general, we would expect that any Community
carrier operating regular scheduled air services to and from the
UK would meet the conditions for establishment.
Finally, you ask about the text on state aids.
The draft agreement recognises that government subsidies and support
may adversely affect the fair and equal opportunity of airlines
to compete in providing international air transport services.
It contains a mechanism whereby the parties may submit observations
to the other party regarding government subsidies and support
which they believe to be having an adverse effect on the ability
of their airlines to compete, and if necessary request a meeting
of a Joint Committee of the parties to consider the issues and
develop appropriate responses.
14 February 2006
Tenth Recital from Regulation (EC) 847/2004 on
the negotiation and implementation of air service agreements between
Member States and third countries:
"Whereas establishment on the territory
of a Member State implies the effective and real exercise of air
transport activity through stable arrangements;
"whereas the legal form of such an establishment,
whether a branch or a subsidiary with a legal personality, should
not be the determining factor in this respect;
"whereas, when an undertaking is established
on the territory of several Member States, as defined in the Treaty,
it should ensure, in order to avoid any circumvention of national
law, that each of the establishments fulfils the obligations which
may, in accordance with Community law, be imposed by the national
law applicable to its activities."
Statement on the right of establishment, entered
in the minutes of the Council meeting on 5 December 2003
"The benefit of the right of establishment,
according to the case law of the European Court of Justice on
the `Open Sky' judgements, is granted to Community carriers having
in one or more Member States stable and permanent organisational
structures; it is for Member States to examine, in accordance
with Community law, the nature of those structures.
"The Member State is entitled to require,
from Community carriers established on its territory, the respect
of the appropriate national legislation, inter alia the
applicable air transport specific regulations, including those
concerning safety and security, as well as fiscal and social law,
in conformity with Community law and its principles, in particular
the principles of non-discrimination and proportionality.
"The Member State is also entitled, under
non-discriminatory conditions, to require from the Community carrier
established the permanent presence on its territory of staff responsible
"The Council takes note of the declaration
of the Member States on co-operation in all fields relating to
the safety of aircraft and their operation."
(Council Document 15247/03 ADD 1)
Letter from the Chairman to Rt Hon Alistair
Thank you for your letter of 14 February in
response to mine of 1 February which Sub-Committee B considered
at its meeting on 27 February 2006.
The Members of the Sub-Committee are grateful
to you for undertaking to keep them abreast of development in
You stated in your letter that "in practice
the commencement of regular air services between a Member State
and the USA would involve the establishment of a presence on the
territory of that Member State by the airline concerned."
What is the difference, in practical terms, between the legal
establishment of an airline in a territory and the establishment
of a presence in that territory? You stated that the Government
does not keep a list of those non-Community air carriers which
are established in the UK. Does the CAA keep such a list?
I asked you whether the negotiated text on state
aids would eliminate state aids on both sides of the Atlantic.
Sub-Committee B assumes from your answer that the negotiated text
will not eliminate state aids on both sides of the Atlantic.
1 March 2006
Letter from Rt Hon Alistair Darling MP
to the Chairman
Thank you for your letter of 1 March replying
to mine of 14 February.
The proposed EU-US aviation agreement foresees
an open regime for flights between any airport in the Community
and any airport in the US, without the need for airlines to be
designated by Governments. A non-UK Community carrier would therefore
not be required to demonstrate that its operations in the UK amounted
to legal establishment in order to operate to the US from a UK
airport (as it would if it sought designation to operate services
under one of the UK's bilateral air services agreements). However
it would be difficult for any airline to operate services to the
US without having the presence of, for example, a sales office
and personnel on UK soil.
I can confirm that neither the Government nor
the CAA keeps a definitive list of non-UK Community carriers established
in the UK. However, the Government would not seek to designate
a non-UK carrier where this was required under one of our bilateral
air services without first ascertaining that that carrier was
duly established in the UK.
You are correct to assume that I do not think
the first stage of a EU-US agreement would immediately eliminate
all forms of aid currently provided to US carriers by the US Government.
What the agreement would do from the outset is give Europe a legal
framework and a forum within which to raise these issues and develop
responses if it appears that US Government support for its airlines
is having a detrimental effect on fair competition between air
carriers on North Atlantic routes.
21 March 2006
Letter from the Chairman to Rt Hon Alistair
Thank you for your letter of 21 March 2006 replying
to my letter of 1 March 2006. Sub-Committee B considered your
letter at its meeting on 19 April 2006.
We were grateful for your full response to our
questions, and look forward to hearing of any developments in
24 April 2006
Letter from the Chairman to Gillian Merron
MP, Parliamentary Under Secretary of State for Transport, Department
Sub-Committee B considered this document (8656/06),
and your Explanatory Memorandum, at its meeting on 12 June 2006.
As you might recall, the Sub-Committee published
a report in 2003, "Open Skies or Open Markets? The effect
of the ECJ Judgements of 5 November 2002 on Aviation Relations
between the EU and the USA",
followed by a supplementary report. Our reports recommended that
the Commission be given two mandates: firstly to negotiate with
non-EU states to persuade them to accept Community airline designation
instead of bilateral national airline designation in air service
agreements (ASA); and secondly to negotiate a fully-liberalised
Open Aviation Area with the USA.
We will carefully consider the latest proposal
and your Explanatory Memorandum in the light of our previous recommendations
and write to you further in due course. We will hold this proposal
under scrutiny at this stage.
15 June 2006
Letter from the Chairman to Gillian Merron
As you will be aware, Sub-Committee B has been
considering the above proposed Agreement (8656/06) together with
your Explanatory Memorandum.
The Committee believes that it is likely to
be in the interests of the EU, and more particularly the UK, for
the proposed Agreement to be concluded, subject to clarifying
the practical importance of certain aspects covered or not covered
by the Agreement, and subject also to greater certainty about
whether, and if so how, the EC slot Regulation is likely to be
amended. The Committee welcomes attempts to liberalise markets
(including the aviation market), provided there is a fair and
even balance, and that any points of difficulty are given due
consideration. In order to assist it in coming to a more definite
recommendation, the Committee would be grateful for your views
generally, and on the following points in particular:
1. How significant in practice would the
right to operate domestic services within the US be for UK airlines?
2. How significant in practice, from the
point of view of UK interests, would be the proposed rule change
about the "actual control" of US airlines, given that
the voting interest by non-US citizens would remain limited to
25% and that the airline's constitutional documents would have
to show that US citizens retained actual control?
3. Our understanding is that the proposed
relaxation of the rule of "actual control" is encountering
significant opposition in the US. Can you update us as to present
status and the likely future timetable?
4. The Agreement would remove the present
limits on the number of US airlines serving Heathrow and Gatwick
(which we understand to be two in the case of each airport). However,
is significant new entry by US airlines considered likely in view
of the severe shortage of slots at Heathrow?
5. The allocation of slots at EU airports
is governed by EC Regulation 95/93 (as amended). We are aware
that the Commission is considering proposing further amendments
in the near future, and we believe that, although it has not made
up its mind what to propose, it is unlikely to interfere with
rights in slots which airlines already have, and likely to propose
formal recognition of secondary trading in slots. Do you have
any further information about the Commission's current thinking,
and in any event do you agree that there might be risks in opening
up access, to Heathrow before it were clear what the regime as
to slots was to be, at least in the near and immediate future?
6. How commercially significant for UK airlines
would it be for them to be able to participate in the Fly America
programme (which requires most US Government commercial air transport
requirements to take place on US airlines)?
7. Are you aware whether any EU Member State
operates a policy similar to the Fly America policy (ie, requiring
its government commercial air transport requirements to take place
on a Community airline)?
8. Although the Agreement provides for quite
detailed provisions on cooperation in connection with competition
rules, there are no actual agreed common substantive provisions
on competition rules or state aid. Do you consider that this is
satisfactory, particularly given concerns which have been expressed
by UK airlines about aid measures enjoyed by US airlines?
9. It seems likely that, if the Agreement
is not concluded, anti-trust immunity will be withdrawn from certain
transatlantic alliances to which it present applies. bmi is the
only UK airline party to an immunised alliance. British Airways
is not, although several of its main European competitors are.
Do you have a view whether such withdrawal of anti-trust immunity
would overall be in the interests of the UK or not?
We will maintain the scrutiny reserve on the
proposed Agreement, and would be grateful to you for any updates
as negotiations progress in this key area.
5 July 2006
Letter from Gillian Merron MP to the Chairman
Thank you for your letter of 5 July regarding
these proposed decisions, which would authorise the signature,
provisional application and conclusion of an aviation agreement
between the European Community and its Member States on the one
hand, and the United States on the other.
Before responding to the specific questions
in your letter, it may be helpful if I up-date your Committee
on the latest position. I can now confirm that the US Department
of Transportation's Final Rule setting out a revised policy on
foreign control of US airlines is unlikely to be published until
late August or early September. As you are aware, this is a significant
element within the overall package of measures surrounding the
proposed agreement and, as indicated in my Explanatory Memorandum
of 31 May, the UK Government will reserve its position until we
have had a chance to consider the final package as a whole.
We understand that the Finnish Presidency currently
intends to bring the matter forward for consideration at the Transport
Council meeting on 12 October, and I wanted therefore to write
to you before the summer break to provide your Committee with
as much further information as we are able to give you at this
Turning to the questions listed in your letter:
1. Clearly the size of the US domestic market
alone makes it of potential interest to foreign airlines. At the
same time, it is a highly competitive environment served by a
range of existing US carriers. Whether, given the opportunity,
UK airlines would in practice operate there, either immediately
or in the longer term, is difficult to judge. In the Government's
view, it is likely that over time some carriers operating out
of the UK would at least make use of the opportunity to fly passengers
or freight on onward legs between points in the US (so-called
"consecutive cabotage"). EU cargo carriers in particular
may wish to establish hubs for onward distribution of freight
within the US. And EU passenger carriers might also want to establish
or collaborate with US domestic airlines as a means of feeding
traffic onto their transatlantic services.
2. The statutory limitations on ownership
and control of US airlines that would remain in place even if
the proposed rule change is implemented are in our view an unhelpful
and unnecessary restriction. We would hope that in the future,
perhaps as a further stage of an EU-US aviation agreement, the
US Government would consider an appropriate relaxation of these
statutory limitations. In the meantime, although clearly sub-optimal,
we consider the proposed rule change is a well-intentioned attempt
to alter the previous policy presumption against any semblance
of foreign involvement in the running of US airlines. As such,
it might encourage some investment by, and increased co-operation
with, foreign airlines, although to what extent is difficult to
predict. We believe this possibility could be enhanced if the
rule can be improved in its final version so as to offer greater
certainty to minority foreign investors, in particular about their
ability to enter into arrangements to exercise meaningful control
over commercial matters and to protect their investments.
3. Consultation on the Supplementary Notice
of Proposed Rule-Making has now closed. There remains some opposition
to the changes amongst vested interests in the US, and within
Congress, but we do not currently anticipate that this will prevent
the US Department of Transportation from promulgating its policy
change through a final rule. As indicated above, we expect this
to occur in late August or early September. However, there would
remain a possible risk of legal or regulatory action thereafter
to try to overturn the rule.
4. The current UK-US agreement limits services
between the US and London Heathrow to two airlines from each country.
In the Government's view, removal of this restriction would be
likely to lead to the entry of additional carriers from both countries
into that market. Clearly, the scale and speed of new entries
would be limited by the very restricted additional capacity currently
available at Heathrow. However, some potential new entrants already
hold slots at the airport, and the possibility exists for others
to acquire them through secondary trading. We anticipate that
the relative value of transatlantic services and the growth of
airline alliances both make it more likely that such trading would
5. We hope that the Commission will soon
bring forward proposals to recognise secondary trading, and we
do not expect these to interfere with the rights in slots which
airlines already have. However, we do not believe that the content
or timing of any such proposals need be a factor in deciding whether
or not to conclude an EU-US aviation agreement.
6. We believe the Fly America policy has
a significant effect in the market, though we have not sought
to quantify this. We consider the policy to be anti-competitive,
and would wish to see this issue addressed in the future. The
proposed EU-US Aviation Agreement would provide potential mechanisms
for doing so.
7. We are not aware that such a policy exists
in any EU Member State.
8. There are well established arrangements
for dealing with competition issues within both the EU and the
US, and for collaboration between the relevant authorities. Both
sides have concluded that it is therefore not necessary to lay
down new substantive procedures for dealing specifically with
aviation matters. However, state aids and indirect subsidies remain
a matter of some concern: there remain differences of practice
and interpretation between the two sides, and we would hope to
see these reduced and eliminated over time. For the present, the
arrangements that would be set up under the proposed EU-US agreement
would at least offer a new mechanism for addressing these issues.
We consider this to be a useful step forward and a realistic approach
for a first stage agreement, but we would want to see further
progress made under future stages.
9. As the question suggests, if the US authorities
were to withdraw anti-trust immunity, this could affect European
carriers in various ways and to different extents. We have not
made any assessment of the overall balance of interests for UK
carriers in this regard.
I hope this information will be helpful to Sub-Committee
B in its further deliberations.
18 July 2006
Letter from the Chairman to Gillian Merron
Thank you for your letter of 18 July, replying
to my letter of 5 July. Sub-Committee B considered your letter
at its meeting on 24 July.
We were grateful to you for the fullness of
your response to our questions. We note that much will depend
on the content of the US Department of Transport's revised rules
on foreign control of US airlines, which you expect either at
the end of August or the beginning of September. We share your
view that judgement on the proposed agreement should be withheld
until those rules have been properly considered. In the meantime,
we would be grateful if you kept the Committee informed of developments
both in European and US institutions.
In answering our question 4, you refer to "potential
new entrants" already holding slots. Can you confirm who
these potential new entrants are?
We will maintain scrutiny on the proposal, and
may revisit the issue after the US Department of Transport publishes
its revised rules.
25 July 2006
30 Correspondence with Ministers 45th Report of Session
2005-06, HL Paper 243, pp 144-145. Back
17th Report of Session 2002-03, HL Paper 92. Back