The UK Government has brushed aside warnings from the European Commission (EC) that it could be taken to court if it approves the proposed British Airways alliance with American Airlines, without imposing tougher conditions to ensure transatlantic competition. The spat has also exposed more fundamental legal questions over the extent of the EC's authority to rule on such competition cases.
The row was sparked off by a letter from competition commissioner Karel Van Miert on 10 January warning the UK Government not to approve the alliance without tougher conditions, and threatening to pursue the issue through the European courts if the warning was ignored.
The outcome of this tussle between the EC and national governments may have implications across Europe, given the EC's belated investigation into other transatlantic partnerships. KLM, which sealed its alliance with Northwest Airlines on the back of US-Dutch open skies four years ago, says that it has received an approach for information from the EC and is planning to hold talks on the issue, although no sanctions have yet been discussed.
Van Miert's intervention on the BA/American alliance followed the proposals put forward by the UK's own competition watchdog the, Office of Fair Trading (OFT), which envisages BA having to give up 168 weekly slots at London Heathrow as the main price for allowing the alliance.
EC transport commissioner Neil Kinnock also entered the fray, with warnings that UK proposals to allow BA to sell or lease the slots for cash was inconsistent with existing EC regulations on slot regulation. He points out that new regulations, which could include provision for slot trading, are under consideration but are unlikely to become law for "at least 18 months". He also comments that under the UK proposals BA would be allowed to lease 70 of the slots on a "recoverable basis".
Comments from Van Miert suggest that the EC favours upping the loss of slots closer to the 400 or so being touted by US airlines opposed to the deal and questions the benefit to competitors of having to buy the slots for "-a very large sum of money before entering the market".
Both the UK Government and BA swiftly rejected the warnings, claiming that a decision on the alliance was a national issue.
The question hinges on different legal interpretations of two articles concerning competition enquiries within the European Union's founding treaty. Article 88 clearly puts the responsibility for competition decisions over corporate agreements on to national authorities, while article 89 says that the EC is responsible for ensuring the proper application of European competition law in co-operation with the member state.
"Nobody knows what the position is. The situation really is not clear," says John Balfour of European law firm Frere Chomeley Bischoff, although he adds that on balance the UK appears to have the stronger case, since the EC is given no specific right to intervene without consultation with the member state.
There is, however, a further complication in that the national authority is specifically charged with making its decision within the framework of EC competition rules under article 75. This states that an agreement between companies which is likely to reduce competition may still be allowed, but only if it offers wider consumer benefits. Other rules also prohibit "abuse of a dominant position".
It appears to be on these grounds that Van Miert is threatening a legal challenge if the UK declines his invitation to renegotiate terms for the alliance. He claims that the alliance will "eliminate" all competition on 13 routes between Heathrow and US cities, adding that on other routes the partnership will "reinforce" their "dominant position".
BA has argued that the alliance should be seen in the context of broader competition with other transatlantic alliances, an argument that the OFT appears to have accepted. Judged on this basis BA/American would have only 24%of the whole EU-US market. Ironically, Van Miert rejects this, saying: "It is based on the existence of a broad EU-US market which in our view does not exist". He concedes that benefits may arise from the US-UK open-skies deal, but argues that this cannot influence the legal decision over the agreement as it remains unsigned. BA replies that the two issues are inextricably linked.
Van Miert ends his letter with the suggestion that an "oral hearing" is held in February for the airlines to make out their cases before the EC. He says that the EC will also have to consult with member states. If the EC is forced to take the issue through the European courts, however, it could be years before a hearing, by which time the alliance could already be well advanced.
The two airlines have filed for anti-trust approval with the US Department of Transportation, while open skies talks are due to re-open in Washington on 4 February. BA is optimistic that all the strands are brought together by the end of March or early April, allowing the alliance to begin with the airline's summer schedule. That would let BA keep its promise of replacing the USAir code-sharing pact, which ends in March.
Source: Flight International
