Challenges in Liberalizing and Implementing Air Transport Agreements. Andrew B. Steinberg December 1, 2011

Transcription

1 Challenges in Liberalizing and Implementing Air Transport Agreements Andrew B. Steinberg December 1, 2011

2 Overview 1. Steady progress toward de jure liberalization 2. Existential threat: antitrust challenge to Air Canada/United 3. Capacity constraints and other doing business restrictions 4. Bilateral investment treaties as remedial tool 2

3 LIBERALIZATION 3

4 Are we seeing the end of Bermuda style bilateral agreements? Capacity restrictions Limited routes, no cabotage Pricing regulations Limits on foreign ownership/control Nationality clauses permit only those airlines substantially owned and effectively controlled by the country in question, or its nationals, to exercise traffic rights

5 The Open Skies template Free market competition Pricing determined by market forces Limited doing business protections Cooperative marketing arrangements Provisions for consultation and arbitration Liberal charter arrangements Safety and security Optional 7th freedom all-cargo rights 5

6 U.S. Open Skies Partners 103 Today 1. Netherlands 22. Brunei 43. Morocco 65. Paraguay 86. Spain 2. Belgium 3. Finland 4. Denmark 5. Norway 6. Sweden 7. Luxembourg 8. Austria 9. Iceland 10. Czech Republic 11. Germany 12. Jordan 13. Singapore 14. Taiwan 15. Costa Rica 16. El Salvador 17. Guatemala 18. Honduras 19. Nicaragua 20. Panama 21. New Zealand 23. Malaysia 24. Aruba 25. Chile 26. Uzbekistan 27. Korea 28. Peru 29. Netherland Antilles 30. Romania 31. Italy 32. U.A.E. 33. Pakistan 34. Bahrain 35. Tanzania 36. Portugal 37. Slovak Republic 38. Namibia 39. Burkina Faso 40. Turkey 41. Gambia 42. Nigeria 44. Ghana 45. Rwanda 46. Malta 47. Benin 48. Senegal 49. Poland 50. Oman 51. Qatar 52. France 53. Sri Lanka 54. Uganda 55. Cape Verde 56. Samoa 57. Jamaica 58. Tonga 59. Albania 60. Madagascar 61. Gabon 62. Indonesia 63. Uruguay 64. India Maldives 67. Ethiopia 68. Thailand 69. Mali 70. Bosnia and Herzegovina 71. Cameroon 72. Cook Islands 73. Chad 74. Kuwait 75. Liberia 76. Canada 77. Bulgaria 78. Cyprus 79. Estonia 80. Greece 81. Hungary 82. Ireland 83. Latvia 84. Lithuania 85. Slovenia 87. United Kingdom 88. Georgia 89. Australia 90. Kenya 91. Laos 92. Armenia 93. Zambia 94. Trinidad & Tobago 95. Switzerland 96. Japan 97. Croatia 98. Israel 99. Barbados 100. Colombia 101. Brazil 102. Saudi Arabia 103. Macedonia

7 The Japanese Open Skies Conversion South Korea (Jan 2011) Malaysia (Feb 2011) ANA/Lufthansa JV (June 2011) Australia (Oct 2011) Taiwan (Nov 2011) Key features: No limits on scheduled carriers, flights or frequencies (exc. Tokyo) Tokyo restrictions lifted in 2013 No limits on charters 7

8 Latin America 8

9 Canada-EU Air Transport Agreement Phases in an open aviation area % foreign voting control + ends capacity/traffic limits % foreign voting control + fifth freedoms 3. Right of establishment % cross border ownership plus cabotage 9

10 Obstacles remain: the Emirates saga Germany limited to four cities; still no right to serve Berlin or Stuttgart Ordered to increase business class fares to match Star alliance carriers Canada limited to three flights per week; seeks daily service to Toronto, Calgary and Vancouver 10

11 CANADIAN COMPETITION BUREAU v. AIR CANADA/UNITED-CONTINENTAL 11

12 Commercial ways of dealing with investment and traffic restrictions Cross-border Mergers Interlining Reciprocal marketing programs Codesharing (on-lining) Cooperative agreements Alliances Immunized metal-neutral joint ventures

13 Competitive analysis of ATI applications DOT and DOJ assess the competitive impact of alliance immunity as they would an airline merger Immunity allows carriers to coordinate for good or bad as though they had combined by merger What relevant markets will be affected by the proposed combination of airlines into an immunized alliance? What carriers will be counted as competitors? Does the alliance make possible public benefits? such as More nonstop cities served, more frequencies, improved scheduling Reduced costs from joint operations Elimination of double markup 13

14 DG-Comp (EU) review - similar

15 Consumer Benefits In An Immunized Alliance New and expanded cross-border services Integrated corporate contracting Fare combinability Reciprocal frequent flyer programs Facility rationalization More efficient purchasing and staffing 15

16 An Existential Threat to the New Order: The Canadian Challenge Seeks to completely bar proposed transborder joint venture Or prohibit carriers from pooling revenues and from coordination over pricing, yield management, inventory, and capacity planning Alleges combination creates 19 unlawful monopoly markets 16

17 Apparently, they didn t get the memo. 17

18 Air Canada: Competition Bureau ignores 1. Canada s Blue Sky policy promoting liberalization 2. U.S. Canada Open Skies Agreement (which presumed ATI) 3. New competitive landscape, i.e., immunized alliances 4. Success and rapid growth of non-legacy carriers 5. Efficiency gains from an immunized joint venture 6. Written advisory opinion 15 years earlier blessing AC/UA deal 7. Express approvals (ATI) from US DOT and other authorities 8. Prior approval from Bureau for Atlantic ++(Star Alliance) 9. Constant challenges and financial threats to airline industry 10. Possibility that Air Canada will be marginalized 18

19 CAPACITY CONSTRAINTS AND OTHER DOING BUSINESS RESTRICTIONS 19

20 Slots update Proposed amendment on slot allocation due today from European Commission may legalize secondary trading but also: Require auctioning off of any new capacity Confiscate as much as 10% of incumbent slots Increase use or lose threshold to 85% Cancellation of AA inaugural Chicago-Beijing flight Tokyo (Haneda) limitation on slots for North American carriers to late night and early morning times 20

21 Airports and ATC Insufficient progress on Single European Sky Refusal of India to accommodate Lufthansa A380 Possible solution to EU/Russia spat over Siberian overflight fees Heathrow third runway is dead again 21

22 REDRESSING MARKET BARRIERS THROUGH INVESTMENT ARBITRATION 22

23 Bilateral Investment Treaties -- Intro Create a neutral forum for multi-national firms to sue a foreign sovereign Disputes with other state s investors decided by binding arbitration at International Centre for Settlement of Investment Disputes (ICSID) or United Nations Commission on International Trade Law (UNCITRAL) Arbitral decisions binding and enforceable in the host State by virtue of BIT, anywhere else in the world by virtue of other conventions Arbitral panels empowered to grant provisional relief and damages Commencement of process relatively simple and inexpensive: Notice to sovereign 3-6 month cooling off period 23

24 BIT protections for foreign investors Guarantee fair and equitable treatment, protecting legitimate investment expectations Interpreted to mean foreign investors should be safeguarded from Arbitrary or discriminatory regulation on the basis of nationality Schemes amounting to unjust enrichment by the sovereign Conduct running afoul of customary international law Protected investments are wide array of commercial arrangements not just physical or financial holdings 24

25 Questions? Contact information: Andrew B. Steinberg Jones Day 51 Louisiana Ave NW Washington, D.C (202)