Future of airlines could hinge on verdict over bilateral deals

Date: 17/05/01

By Laurence Frost

THE future of EU airlines is in the hands of the European Court of Justice after the Commission last week put its case against 'open skies' agreements between member states and the US.

The Union executive is arguing that deals concluded separately by individual member states contravene EU law by granting discriminatory foreign access to airlines.

Open skies deals typically allow foreign carriers to compete with domestic airlines for passengers travelling to third countries.

In an interview with European Voice this week, Transport Commissioner Loyola de Palacio spelled out her view that the bilateral accords between Washington and 11 EU countries together create a major stumbling block to the airlines' long-term competitiveness.

No date has been set for the ECJ to deliver its ruling, but the industry is waiting with baited breath for what could turn out to be a major shake-up in the sector.

A decision in favour of the EU executive would bring it significantly closer to its long-held ambition to negotiate a single US access deal on behalf of the bloc.

If it wins the argument, the Commission is likely to seek political agreement to start talks on a transatlantic common aviation area (TCAA).

If it loses, de Palacio's spokesman Gilles Gantelet believes the EU executive will give up its battle for a negotiating mandate. But he said: "We don't think this will happen. We think the court will find in our favour."

The TCAA would remove the main obstacle to cross-border consolidation currently blighting Europe's 22 airlines. They are deterred from merging by the prospect of losing nationally-negotiated US access.

The ongoing merger process could soon see just three major US-registered carriers operating internationally.

Airlines are broadly backing the plan.

"We're for a trans-atlantic single market," said David Henderson of the Association of European Airlines (AEA).

The industry body is not swayed by concerns that a ruling against existing agreements could punish carriers in transatlantic alliances that have won exemptions from US competition rules through the pacts.

"All we're really interested in is to see progress towards a new construction," said Henderson. "We're in line with the Commission's thinking on this."

But the eight governments defending the existing pacts reject the Commission's claims that the deals illegally distort the EU's single market.

They also argue that a ruling against the agreements would throw the entire international aviation system into chaos.

One lawyer told the ECJ that since the signing of the 1944 Chicago Convention, more than 3,000 bilateral access deals had been agreed around the world.

If the Court rules against these agreements, the legality of many more would be questioned, Germany's counsel said.

Another of de Palacio's plans is likely to face greater resistance from airlines.

She will prepare the ground for a reform of take-off and landing windows or 'slots' when she tables a preliminary technical proposal in coming months.

The eventual reform aims to reduce airport congestion due to inefficiencies in slot allocation. But first de Palacio is likely to clear up an ambiguity in the status of slots, by designating them as government-controlled concessions rather than as the property of airlines.

"We're not convinced that the definition should be treated as a technical issue," said Henderson,"but that is what de Palacio seems to determined to do. This should not be thrust upon us as a fait accompli."

Airline insiders warn of a repeat of last year's head-on clash with industry, when de Palacio was forced to withdraw more ambitious slot trading proposals in the face of overwhelming opposition.

Article forms part of a survey on European transport issues. The future of EU airlines is in the hands of the European Court of Justice after the Commission put its case against 'open skies' agreements between member states and the US in May 2001.