Graham Warwick/WASHINGTON DC
The first Farnborough air show of the new millennium could be remembered for the famously fickle British summer weather - or as the event at which Europe and the USA began a meaningful dialogue on the issues that divide the world's two largest aerospace markets.
Farnborough 2000 takes place in a period of unprecedented opportunity for transatlantic co-operation - but also at a time of unparalleled tension between the two trading blocks. And while the industry may be mature enough to see its way to a resolution of the problems, parochial politics and power plays stand in the way.
On the US side, the Aerospace Industries Association (AIA) has arranged for the largest ever delegation of US politicians to visit Farnborough. The visit is a precursor to a presidential commission on the future of the US aerospace industry which has been legislated for next year, after the new US president takes office. AIA president John Douglass wants politicians on both sides of the Atlantic to give Europe an opportunity to express its views to the commission.
Such a move will require an easing of the current trade tensions, which have been ratcheted skywards by the European Union's (EU) enacting of a ban on the addition of Chapter 3 hushkitted aircraft to the region's airline fleets. The US Government has elevated the dispute to the International Civil Aviation Organisation (ICAO), arguing the regional ban flies in the face of established procedures for creating and maintaining global aviation standards.
The hushkit dispute is making it difficult for both sides to have meaningful discussions on other aerospace issues, as the USA has interpreted the ban as a trade barrier. A similar reaction has accompanied other European actions, ranging from government launch aid for the Airbus A3XX to delays in Joint Aviation Authorities approval of US aircraft. Europe, meanwhile, accuses the USA of protecting its markets from outside competition, in sectors ranging from the airlines to the military.
An eye for an eye
Such polarisation is not surprising in a world where the balance of power is no longer between two military superpowers, but between two trading superblocs. But it is a particular problem for the inherently global aerospace industry. "Reciprocity has to be there," says Douglass. "We can't have a belligerent EU poking us in the eye with hushkit rules and the like." Equally, according to one senior Department of Defense (DoD) official, the USA has to face up to accusations it "pokes its allies in the eye" with illogical export controls.
The hushkit dispute, for example, is endangering the system of aviation standards on which international air transport network is built, argues Gerald Baliles, chairman of the Coalition for a Global Standard on Aviation Noise - a growing group of airlines and airports pressing for an international agreement on aircraft noise reduction.
The "fundamental" principle of a single global certification standard for noise reduction is at risk "largely because of the hushkit controversy between the United States and the European Union," says Baliles - a former US state governor. "The important issue is whether ICAO will retain the ability to set globally recognised operating and technical standards for the international aviation industry."
Any challenge to ICAO's role as the global aviation standard-setter comes at a critical time for the organisation, which has assumed an active role in assuring the safety of the world's airlines. The fear is that fragmentation of the framework of ICAO standards which govern international air transport could irreparably harm the industry.
The dispute could also harm ICAO's prospects on taking on an even wider role in regulating global aviation. It has been proposed that the international organisation be made responsible for the oversight of aircraft certification and operating standards currently regulated nationally. Such a move, it is hoped, would eliminate the difficulties which have dogged the harmonisation of US and European airworthiness regulations. These have resulted in delays to the European approval of US-certificated aircraft, as well as widely differing operating rules on either side of the Atlantic.
Hard on the heels of the hushkit controversy comes renewed US concerns over European government subsidies for Airbus Industrie. The last dispute was resolved in 1992 with a bilateral EU-US agreement limiting direct government support to 33% of the development cost. The US Government says the agreement is not working, citing concerns with launch aid for the A340-500/600 and now the A3XX, and could be moving inexorably towards a formal protest to the World Trade Organisation.
Inevitably, the EU hushkit ban and A3XX launch aid issues are being viewed by the USA through the polarising lens of the "Airbus versus Boeing" market battle. Douglass, however, argues: "Over the long haul, the common interests of Airbus and Boeing should make an accommodation by the two giants easier." He cites their common concerns about safety, efficiency and the environment, and with ensuring that governments of both sides of the Atlantic invest in developing technology to meet the challenges facing international air transport.
Differences between the EU and USA extend beyond the manufacturing industry and into the air services arena. They have surfaced in a disagreement on how to proceed beyond the current system of open skies agreements to a multilateral framework providing full market access. While the USA has led the drive to replace restrictive bilateral air services arrangements with open skies agreements, the EU is trying to seize the initiative by proposing a multilateral deal with the USA.
The European Commission has made the establishment of a Transatlantic Common Aviation Area (TCAA) a priority, says director for air transport Michel Ayral. The TCAA would be an extension of the current European Common Aviation Area to include the USA - but its creation will require the dismantling of the current open skies agreements between the USA and individual European nations.
Europe's single internal aviation market "necessitates a common external policy to protect its integrity," says Ayral. As a result, the EC has mounted a legal challenge to all the existing open skies agreements on the grounds that they damage the single internal market and should be replaced by the TCAA.
Ayral argues that open skies agreements "are no longer sufficient for the needs of the industry, and do not provide for fair competition". Specifically, the TCAA proposal calls for the US Government to end its ban on cabotage and lift its restrictions on foreign ownership and control of US airlines to provide the same market access now available within the European Common Aviation Area.
The US Government is not prepared to consider either concession. Signalling that the USA is not willing to give up all control of its airlines, US Department of Transportation (DoT) deputy assistant secretary of transportation for aviation and international affairs Bradley Mims warns: "If they push that button, they will not make progress." Instead, the DoT is pushing to expand its existing open skies deals into multilateral, regional agreements while maintaining the current restrictions.
Complex and confusing
Limits on foreign ownership of airlines are not unique to the USA, and are the major reason global codesharing and marketing arrangements such as the Star Alliance have become so prevalent and powerful. They provide alternative, indirect means of obtaining market access, but are "complex, confusing to users and a regulatory challenge", argues ICAO president Dr Assad Kotaite. He is among those pushing for ownership and control provisions to be relaxed to bring the civil aviation industry in line with other economic sectors. Proponents argue that limiting ownership limits would provide airlines access at new sources of finance and ease the safety and competition concerns surrounding undercapitalised carriers.
Many countries look to the USA for their lead, however, and the prospects for foreign ownership of US airlines remain slim. But the EC is not giving up. "It will be a very difficult negotiating process," admits Ayral. "It will have to be developed in a gradual way." The USA, meanwhile, may simply look the other way: "We want to establish an open aviation market with every country, not just Europe," says Mims, citing "positive signals' fromAsia, South America and Africa.
Ironically, the US military - frequently accused of being the most closed of markets - is moving to enable the creation of a single transatlantic defence market and industrial base. The move is dictated by necessity: NATO air operations over Kosovo last year were so compromised by interoperability problems exacerbated by US export controls that the DoD faces the possibility of having to fight future wars on its own.
Efforts to build closer transatlantic ties come at a time of unusual tension between Europe and the USA on defence issues. The European initiative to create an ability to fight outside of the alliance framework when the USA does not want to get involved in a crisis is viewed by some as a death knell for NATO; while US efforts to protect itself against a limited ballistic missile attack from a rogue nation is viewed by others as endangering the long standing balance of deterrence that has prevented nuclear war.
Against this background, the US Government has announced a modernisation of its Cold War-era export controls designed to speed the transfer of technology to coalition partners. "During Kosovo, interoperability was not what it ought to be," admits David Oliver, US principal deputy undersecretary of defence for acquisition and technology, he says, blaming barriers the USA has placed in the way of technology transfer. "We were unnecessarily irritating our allies," he says.
Industry hopes reforms to the US technology transfer regime will promote an open transatlantic defence market and create an environment in which US and European companies can form strategic alliances and even consider mergers. US industry, in particular, sees the demand for technology to fill the NATO capabilities gap as leverage to gain access to the European defence market.
Watching European industry follow the consolidation route already travelled by its US counterpart, Oliver hopes the technology transfer reforms will prevent the creation of a "fortress Europe" and the inevitable US retaliatory action. "If Europe closes down, the USA will lock out European companies. That's the political reality," he says.
BAE Systems chief executive John Weston has described the modifications to US export controls as "welcome and timely", but believes: "What we have been witnessing over the last few years is not a move towards fortress Europe or fortress America, but steady progress towards globalisation of our industry."
Exactly what direction that progress will take next could be determined by the willingness of industry on both sides of the Atlantic to use a forum like Farnborough 2000 to agree joint approaches to resolving the remaining political barriers to full globalisation.
Source: Flight International
