Anti-trust complaint could unravel UK-US aviation pact

Date: 08/02/01

By Tim Jones

EU COMPETITION investigators will make legal history if they try to unravel a 23-year-old pact that bars all but two European airlines from using the Union's biggest airport as a springboard to the US, say aviation industry sources.

Acting on a revised complaint from recently rebranded carrier bmi british midland, European Commission anti-trust officials are pursuing new lines of inquiry against 'Bermuda II', a UK-US aviation pact that allows only four carriers to operate transatlantic flights from London Heathrow.

"Using competition law on a government-to-government agreement would be really groundbreaking," said a corporate lawyer specialising in the sector. "Until now, the Commission has just challenged Bermuda II and other bilateral aviation pacts on the basis of overstepping legal powers and not on anti-trust provisions."

Lawyers acting for bmi, the second largest operator at Heathrow after British Airways with 14% of all take-off and landing slots, will file a formal complaint on the basis of basic anti-trust violations "in the coming weeks". The company is desperate to start offering transatlantic services from Heathrow but the existing pact limits these facilities to BA, Virgin Atlantic, United Airlines and American Airlines. So far, it has been blocked by US authorities under Bermuda II.

The Directorate-General for competition, headed by Mario Monti, has not yet challenged the legality of bilateral aviation pacts by using the core of the Union's anti-trust rules: Articles 81 and 82 of the EU treaty. These respectively prohibit agreements and undertakings between companies restricting or distorting competition within the Union, and bar companies holding a dominant position in a particular market from abusing their position.

When Neil Kinnock was transport chief, the Commission challenged the pacts using Article 226 of the treaty, which allows it to sue national governments for failing to "fulfil an obligation" set out in the Union's rulebook.

"The obvious difference is that, if you look at the wording of Articles 81 and 82, they refer explicitly to companies and undertakings and not governments," said an industry lawyer.

However, Commission officials say an anti-trust case could be brought against Bermuda II indirectly. It would focus on agreements concluded by airlines servicing UK-US routes in which DG competition found evidence of price-fixing, market-sharing, unfair trading conditions for other parties or extra contractual demands for new market entrants in violation of section of

Article 81.

In theory, this could apply not only to international aviation alliances but even to the system for slot allocation struck between 11 Heathrow airlines, according to an industry source.

He said the Commission believed it would then be possible to act against Bermuda II itself by opening infringement proceedings against the UK government for striking a bilateral agreement that required airlines to infringe Article 81.

"That would be dynamite," said a national competition official. "Whatever British Midland do, DG competition will be very, very careful before they take the next step."

EU competition investigators will make legal history if they try to unravel a 23 year old pact that bars all but two European airlines from using the Union's biggest airport as a springboard to the US, say aviation industry sources. Acting on a revised complaint from recently rebranded carrier BMI British Midland, European Commission anti-trust officials are pursuing new lines of inquiry against 'Bermuda II', a UK-US aviation pact that allows only four carriers to operate transatlantic flights from London Heathrow.