EU, U.S. Negotiators Reach Draft Aviation Agreement

March 6, 2007 // Published as a news service by IHS

Jacques Barrot, European Commission (EC) vice president in charge for transportation, said, ''I am delighted with the progress that has been made this week by the European and American negotiating teams. It is my intention to submit this draft agreement to the Transport Council at its next meeting on 22 March. We have an opportunity to unlock major benefits on both sides of the Atlantic. In economic terms, this unprecedented agreement would represent a step change - it could be worth up to €12 billion in economic benefits and up to new 80.000 jobs. The decision of the next Transport Council will be crucial. The open aviation area could be a centrepiece for a reinvigorated transatlantic relationship."

The new draft agreement provides for:

• An additional protocol on ownership, investment and control consisting of:
  • Rights in the area of ownership, investment and control of U.S. airlines by EU investors.
  • Rights in the area of ownership, investment and control by EU investors of third country airlines established in Africa and in non-EU European countries.
  • Rights in the area of inward foreign investment in European Community airlines by non-EU European investors and provisions on control, notably the development by the EU and the U.S. of a common understanding of the criteria used in making decisions in airline control cases.
  • The possibility for the EU to restrict U.S. investments in European Community airlines.
• A unilateral granting by the U.S. to the EU of so-called "7th freedom rights for passengers" to a number of non-EU European countries - that is, the right for European Community airlines to operate flights between a city in the U.S. and a city in these European countries.
• A number of access rights for European Community airlines to the U.S., the "Fly America" programme for the transport of passengers and cargo being financed by the U.S. federal government. Such rights have never previously been granted by the U.S. to a third country.
• Rights in the area of franchising and branding of air services, defined for the first time in such an agreement, to enhance legal certainty in the commercial relations in between airlines.
• Provisions on antitrust immunity in order to facilitate the development of airline alliances.
• Provisions on the development of joint EU-U.S. approaches in international organisations and in relations with third countries.
• Provisions on EU-U.S. technical cooperation in relation to climate change.

These elements are to be added to the existing provisions of the November 2005 agreement, which provides for the following:

• The recognition of all European airlines as "European Community air carriers" by the U.S., allowing for the consolidation of the EU aviation sector and the compliance with the November 2002 court cases in the so-called "open skies judgments."
• The possibility for any "European Community air carrier" to fly between any point in the EU to any point in the U.S., without any restrictions on pricing or capacity. This freedom does not exist at the moment.
• The possibility to operate flights beyond the EU and the U.S. towards third countries (the "5th freedom").
• The possibility for EU airlines to operate all-cargo flights beyond the U.S. to a third country, without a requirement that the service start in the EU (7th freedom). U.S. airlines will preserve their existing rights only.
• Provisions on commercial arrangements between airlines (such as code sharing and wet leasing).
• Unrecorded regulatory convergence mechanisms, notably in competition, state aid and security. The provisions on security are key in work towards a "one-stop security" approach.
• Institutional mechanisms, including a joint committee to handle any issue covered by the agreement and a dispute settlement procedure with arbitration provisions.

Negotiators also agreed on an article about further market access to maximize benefits for consumers, airlines and labour on both sides of the Atlantic since it foresees a transition to second step negotiations with a priority agenda. The article also foresees a mechanism to guarantee the second stage agreement in view of the ultimate EU objective of an open aviation area between the EU and the U.S.

Among the benefits, this agreement opens the possibility of an additional 26 million passengers on transatlantic flights over a period of five years. This compares with current annual traffic of just under 50 million passengers. At the end of the fifth year, this means that the market would be 34% higher with the agreement than without the agreement.

By eliminating the bilateral agreements and their restrictions on traffic rights, a reduction in the cost of tickets for companies and private customers is forecasted, with consolidated economic benefits of between €6.4 and €12 billion over a period of five years. The removal of barriers could also lead to the creation of around 80,000 jobs (spread more or less equally between the U.S. and the EU).

The cargo market would see growth of between 1% and 2%, which is highly significant given the size of the market globally (with the European and American industry accounting for 70% of the global fleet).

If approved by the Council of Transport Ministers, the new agreement would go into effect Oct. 28, 2007.

Source: European Commission.