OPEN SKIES TREATY Last Updated 2/18/10 Compiled by Dave Harris

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1 OPEN SKIES TREATY Last Updated 2/18/10 Compiled by Dave Harris The following was excerpted from Wikipedia. The Legislative Committee does not necessarily endorse or agree with some of the writer s conclusions, but rather provides the article for background information. It is an excellent summary of Open Skies. Some parts of the original article were edited, as they do not apply to airline agreements. BACKGROUND INFORMATION Edited from Wikipedia Open skies refers to a bilateral (and sometimes multilateral) Air Transport Treaty which liberalizes the rules for international aviation markets and minimizes government intervention. The provisions apply to passenger, all-cargo and combination air transportation and encompass both scheduled and charter services. Since World War II, most states have invested in the creation and defense of national airlines. Aviation differs from many other forms of commerce, not only because it has a major international component, but also because many of these airlines were wholly or partly government owned. Thus, as international competition grew, various degrees of protectionism were imposed. The Convention on International Civil Aviation (1944), signed in Chicago (Also called the Chicago Convention), was intended to prepare a framework within which civil air transport could develop (not military or other state activities whether in a piloted or drone craft). It introduced nine Freedoms of the Air for those states that have adopted the Convention, and enter into bilateral treaties, that may grant any of the following rights or privileges for scheduled international air services: 1. To fly across the territory of either state without landing. 2. To land in either state for non-traffic purposes, e.g. refueling without boarding or disembarking passengers. 3. To land in the territory of the first state and disembark passengers coming from the home state of the airline. 4. To land in the territory of the first state and board passengers travelling to the home state of the airline. 5. To land in the territory of the first state and board passengers travelling on to a third state where the passengers disembark, e.g. a scheduled flight from the U.S. to France could pick up traffic in the UK and take all to France (sometimes termed beyond rights).

2 6. To transport passengers moving between two other states via the home state of the airline, e.g. a scheduled flight on an American airline from the United Kingdom lands in the U.S. and then goes on to Canada on the same aircraft. 7. To transport passengers between the territory of the granting State and any third State without going through the home state of the airline, e.g. a scheduled flight on an American airline from the UK to Canada that does not connect to or extend any service to/from the U.S.. 8. To transport cabotage traffic between two points in the territory of the granting State on a service which originates or terminates in the home state of the foreign carrier or (in connection with the so-called Seventh Freedom) outside the territory of the granting State (also known as consecutive cabotage), e.g. an American airline flies from the U.S., lands passengers in London and then boards passengers to fly to Manchester. 9. To transport cabotage traffic of the granting State on a service performed entirely within the territory of the granting State (also known as stand alone cabotage), e.g. a British airline operates a service between Perth and Sydney in Australia). To date, only the first five Freedoms have been recognized by international treaties. Civil Transport Open Skies The last twenty-five years have seen significant changes in airline regulation. The United States began pursuing Open Skies agreements in 1979 and, by 1982; it had signed twenty-three bilateral air service agreements worldwide, mainly with smaller nations. That was followed in the 1990s by agreements with some individual European states. A huge step was taken in 1992 when the Netherlands signed the first open skies agreement with the United States, in spite of objections posited by European Union authorities. The agreement gave both countries unrestricted landing rights on each others' soil. Normally landing rights are granted for a fixed number of flights per week to a fixed destination. Each adjustment takes a lot of negotiating, often between governments rather than between the companies involved. The United States was so pleased with the independent position that the Dutch took versus the EU that it granted anti-trust immunity to the alliance between Northwest Airlines and KLM Royal Dutch Airlines which started in 1989 (when Northwest and KLM agreed to code sharing on a large scale) and which actually is the first large alliance still functioning. Other alliances would struggle for years to overcome transnational barriers or still do so. In 2001 the United States signed the Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT) with Brunei, Chile, New Zealand, and Singapore. The U.S. has enjoyed a powerful negotiating position but the European Commission, as a supranational body, negotiated with the United States government on a Community Air Service Agreement. These negotiations led to the text of an agreement being initialed on 2 March Contending issues are: Cabotage: Opening up the hub and spoke networks on both sides of the Atlantic would be contentious;

3 U.S. rules on foreign ownership: These are partly designed to protect their own carriers but also to satisfy the U.S. Military, which maintains the Civil Reserve Air Fleet by drawing on commercial fleets for airlift during national emergencies. The airlines, as a quid pro quo, benefit through a priority over the carriage of military and government personnel. The tax free position of EU-U.S. aviation. The provisions of the Fly America Act. Problems in harmonizing the framework of antitrust policy (e.g. to protect against predatory behavior). The EU/US Open Skies Agreement was amongst one of the most significant open skies agreements concluded in recent years, covering civil aviation traffic between two of the world's three biggest markets. The Asian market, considered one of the fastest growing, remains relatively regulated at present, although the phased introduction of the ASEAN Open Skies Agreement covering ten countries in Southeast Asia from 2008 has prompted major Asian markets (including Japan, China and India) to consider similar initiatives. Most of the existing civil agreements include: 1. Free Market Competition: Key Open Skies Provisions No restrictions on international route rights; number of designated airlines; capacity; frequencies; and types of aircraft. 2. Pricing determined by market forces: A fare can be disallowed only if both governments concur "double-disapproval pricing" and only for certain, specified reasons intended to ensure competition. 3. Fair and equal opportunity to compete: For example: o All carriers designated and non-designated of both countries may establish sales offices in the other country, and convert earnings and remit them in hard currency promptly and without restrictions. Designated carriers are free to provide their own ground-handling services "self-handling" or choose among competing providers. Airlines and cargo consolidators may arrange ground transport of air cargo and are guaranteed access to customs services. o User charges are non-discriminatory and based on costs; computer reservation system displays are transparent and non-discriminatory. o 4. Cooperative marketing arrangements

4 Designated airlines may enter into code-sharing or leasing arrangements with airlines of either country, or with those of third countries, subject to usual regulations. An optional provision authorizes code-sharing between airlines and surface transportation companies. 5. Provisions for dispute settlement and consultation Model text includes procedures for resolving differences that arise under the agreement. 6. Liberal charter arrangements Carriers may choose to operate under the charter regulations of either country. 7. Safety and security Each government agrees to observe high standards of aviation safety and security, and to render assistance to the other in certain circumstances. 8. Optional seventh freedom all-cargo rights Provide authority for an airline of one country to operate all-cargo services between the other country and a third country, via flights that are not linked to its homeland. SELECTED NEWS & LINKS FOR FURTHER INFORMATION 01/21/10 Recently Japan and the United States concluded a new round of Open Skies negotiations. While most experts feel that this treaty favors Japanese carriers, there are many perspectives on this agreement. Here are a few different perspectives on these recent negotiations: /18/10

5 Today several U.S. airlines, including United, filed for slots at Tokyo s Haneda airport. Delta is arguing that it should be the only carrier to receive those slots. Here are some links to the story: