1944

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2004 TLA ANNUAL CONFERENCE THE BREAKERS PALM
BEACH FLOPEN SKIES What's it all about?
Andrew Muriel, Partner, DLA
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1944
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PARADOX

• Modern Assets
• Ancient Rules

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"Everything is forbidden that is not expressly
permitted"
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CHICAGO CONVENTION 1944

• Scheduled Air Services
• Special Permission
• Cabotage
• No special deals 'Giving or Taking'

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TWO FREEDOMS AGREEMENT 1944

• Right to fly over
• Right to land 'non traffic'

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FIVE FREEDOMS AGREEMENT 1944
Over Into - 'non traffic' Into - from home count
ry 'traffic' Out of - home country 'traffic' Thr
ough - 'traffic'
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FIVE FREEDOMS AGREEMENT
USA ? ? (1946) UK ?
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FIVE FREEDOMS AGREEMENT
Sixth Freedom From and to foreign countries via h
ome country Seventh Freedom 'Stand Alone' outsid
e home country Eighth Freedom Consecutive cabota
ge Ninth Freedom 'Stand Alone' cabotage
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BILATERAL AGREEMENTS
Allocate Rights Designate Carriers Specify Capa
city
Agree Rates Restrict Routes
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BERMUDA TYPE BILATERAL 1946
UK USA Routes Airports Traffic Principles De
nounced by UK 1976
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BERMUDA TYPE BILATERAL 1977
"The regulation of scheduled and charter air
services is an essential element of a healthy
international air transport system"
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BERMUDA 2
Very detailed airline designation
Specified routes Ownership and control (substanti
al effective)
Tariffs
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USA POLICY 'OPEN SKIES AGREEMENTS' (1)
Free market competition Exclude restriction on ro
utes, number of designated airlines, capacity,
frequencies, aircraft type Market force pricing
Liberal charter Liberal cargo
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USA POLICY 'OPEN SKIES AGREEMENTS' (2)
Nationality Clause "Substantially owned and eff
ectively controlled" US requires US 75 Preside
nt 2/3 of Board EU requires EU ownership and co
ntrol No rights of establishment No stand alone
cabotage
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USA POLICY 'OPEN SKIES AGREEMENTS' (3)
No fill up cabotage No seventh freedom No wet
leasing
'Fly America'
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GREECE / IRELAND / SPAIN / UK
No US open skies agreements More restrictive bi
laterals
Account for 50 value of EU-USA traffic
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US FEARS
National security Workers and wages Safety B
A/KLM US backdoor entry fears (US/Netherlands
bilateral)

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TEMPORARY MEASURES
Code sharing Alliances
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2002
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5 NOV 2002 EUROPEAN COURT OF JUSTICE
Austria, Belgium, Denmark, Finland, Germany,
Luxembourg, Sweden, UK Bilaterals with USA Flout
ed one of the basic principles of EU non
discrimination Flows from the 'Third Package'
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EUROPEAN COMMISSION STEPS UP A GEAR
Negotiation mandate with USA Negotiation mandate
'third countries' 5 June 2003 Mandates granted
by European Council
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2003
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OCTOBER 2003
Air France KLM announcement US-EU 'Open Skies'
talks commence
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DE-REGULATION LINKED BY REGULATION
US late 1970's de-regulation EU early 1990's de-r
egulation
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OVER-FRAGMENTATION OF EU AIRLINE INDUSTRY
21 EU airlines
6 US airlines
operate transatlantic flights
"EU airline industry is fragmented. Bilateral
restrictions are a barrier for restructuring and
consolidation"
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OPEN SKIES DREAM OR REALITY?
The EU proposal Merge together the EU and US ma
rkets Allow airlines to fly where they like, when
they like Work together more closely on regulato
ry issues especially competition cases
Remove limits on foreign investment to allow
cross-border activity
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OPEN SKIES DREAM OR REALITY?
EU has analysed the benefits Transatlantic pass
enger volume up by 4 to 11 million passengers per
annum 2-3 billion in consumer benefits per annum
2,000 to 7,000 new aviation jobs in the US (2.5
) Up to 2 billion additional activity in direct
ly related industries per annum (excluding
indirect benefits, tourism etc.)
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OPEN SKIES DREAM OR REALITY?
State of the negotiations Much progress Agreem
ent on basic framework Agreement on need for libe
ralised traffic rights Agreement on greater coope
ration especially on competition
BUT No agreement on enhanced access to internal m
arkets No direct access to domestic US market No
move to permit majority foreign ownership of US
airlines
"This would reduce benefits by half and slow the
moving of aviation into a new era"
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OPEN SKIES DREAM OR REALITY?
Industry implications will MA take off? A que
stion for industry not governments
MA is now a clear legal right for EU airlines
AF/KLM shows that there is interest - unlikely to
be the last example Some Europeans want to invest
and create jobs in the US US investors also
think globally
"EU aim is to create the freedom for industry to
decide the best path and invest accordingly"
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OPEN SKIES DREAM OR REALITY?
Industry implications consolidation? A questi
on for industry not governments
Change the law and international regulatory
framework to give flexibility Airlines may want t
o merge Airlines may want international organic g
rowth Airlines may prefer to be small Some inves
tors want to set-up new airlines
"EU aim is to create the freedom for industry to
decide the best path and invest accordingly"
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OPEN SKIES DREAM OR REALITY?
Conclusions The EU and US have an opportunity t
o open up the aviation sector with this new
agreement What is proposed would not be radical i
n any other sector of the commercial economy
Airlines and consumers will benefit as the
industry exercises freedom to operate and develop
with commercial benefit being the driving force
Global aspirations can be met without temporary
measures The economic case for changing investmen
t rules is extremely strong
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"Everything is permitted that is not expressly
forbidden"
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