Controversial legislation passed in the US House of Representatives is triggering concerns that second-stage European-US open skies negotiations may be in jeopardy.
In May the House approved a $70 billion Federal Aviation Administration funding package that contains divisive provisions including a three-year cap on antitrust immunity of airline alliances. Immunity expiration is intended to give the US Department of Transportation time to determine if policy changes are necessary based on a Government Accountability Office (GAO) assessment of antitrust waivers.
The bill was passed as US regulators review Oneworld's antitrust proposal after granting the Star alliance tentative approval in April.
The immunity provision does not bode well with John Bruton, the European Union's US ambassador, because the renewal process for antitrust pacts would create uncertainty for the airlines involved and ultimately damage the interest of consumers at a time when airlines need customers, he says.
Bruton is concerned that growing protectionism in the USA, as evidenced by the House FAA reauthorisation bill, would halt open skies negotiations "dead in their tracks".
If a second open skies agreement is not signed by 2010, either party can withdraw traffic rights secured during the first stage of open skies last year.
Open skies negotiations occur as sagging passenger demand shows no sign of a near-term turnaround on both sides of the Atlantic as the economic downturn continues.
Neither the Air Transport Association of America or the International Air Transport Association expect traffic to improve in the near-term, with ATA predicting declining passenger figures on US carriers through the peak summer season. IATA says there is no indication that faltering demand has bottomed out.
"Protectionism is tempting to political leaders when a market is shrinking and an industry is hurting. But for a global business like aviation, the open skies genie cannot be put back in the bottle, at least not without cost," FedEx Express president and chief executive Fred Smith says.
If Europeans reject gains made during 2008 open skies talks as retaliation for US policies, the USA will do the same, Smith predicts. The result could be an "all-out air trade war", which will not benefit anyone, including US carriers that provide international services, he adds.
Compounding the situation is that Congress has not passed a multi-year FAA reauthorisation since 2007 and the agency's most recent funding extension expires on 30 September.
While the House has passed a bill to reauthorise the agency until fiscal year 2012, the Senate is expected to introduce its version shortly and vote on the legislation by August.
In the meantime, European and US negotiators began their next round of open skies talks on 24 June.
Europe and the USA have different aims for second-stage open skies and neither party has indicated where it might compromise as the 2010 deadline nears.
The USA wants voidance of the nationality clause in existing bilateral deals and reciprocal unlimited all-cargo seventh freedom rights, which Europe gained during the first round of open skies. The USA also seeks a balanced approach to night flight bans, which are politically popular in Europe.
Europe wants cabotage rights and continues to challenge US ownership status quo, which is capped at just under 25%.
Congress killed the last US effort to loosen limits on control in late 2006 and the recently passed House FAA bill requires that US citizens control all matters pertaining to the business and structure of the carrier, including operational matters such as marketing, branding, fleet composition, route selection, pricing and labour relations.
In addition, the legislation requires FAA staff to conduct twice-yearly inspections of foreign repair stations, along with drug and alcohol testing for individuals performing safety-sensitive functions at those facilities.
Bill sponsor Congressman James Oberstar does not expect the citizenship requirements or the repair station mandates to hinder open skies talks.
The chairman of the House transportation and infrastructure committee "doesn't believe the provisions in the bill will be as critical as Europeans or the airlines are saying", an Oberstar spokesman says.
But the repair station requirement does not carry unilateral support on Capitol Hill, with Congressman Tom Petri concerned that if inspections are ultimately required, they could "ignite a fire with trade relations".
In addition, several airline executives from both sides of the Atlantic have spoken against the citizenship language.
Freight forwarder FedEx has long favoured reciprocal changes to air-carrier ownership.
"Aviation is the most global of industries, and there is no reason that airlines' ownership must be confined to nationals of one country. But market openings should be reciprocal not unilateral, so that trading partners have a level playing field," Smith says.
Citizenship requirements also limit investment opportunities.
Lufthansa chief executive Wolfgang Mayrhuber stresses that increased foreign ownership are likely to result in an influx of investments in the USA in the midst of the economic downturn.
Mayrhuber also attempts to allay union concerns that increased foreign ownership might cause job loss and higher fares.
There is no reason for US labour to worry about global competition, the Lufthansa chief says. Aviation is not a transferable business. Airlines do not invest in the USA to close markets, rather they invest in there to add to their networks, he says.
Source: Flight Daily News
