Tilting toward Cabotage

Tilting toward Cabotage

Copyright 2004, Traffic World, Inc.

When you ship cargo by air within the United States, do you want the opportunity to use a non-U.S. airline? Will that help keep prices down while improving service? Would the market be more competitive if foreign interests were allowed to own more than 25 percent of a U.S. airline (and vice versa)? Would you mind if your cargo rode aboard a plane leased from abroad along with its crew? Is all this an outsourcing-of-American-jobs issue that should be shelved until after the national elections?

This week in Brussels, United States and European Union negotiators reconvene for a fourth round of aviation talks at which they are expected to debate whether to take incremental steps toward these goals or to hold out for a more substantial pact incorporating all of these changes.

U.S. negotiators, led by John Byerly, U.S. deputy assistant secretary of state for transportation, prefer the staged approach, saying it is unrealistic to expect U.S. lawmakers and other interests to support sweeping changes. They advocate signing an initial agreement soon that makes some changes and working for broader liberalization in the coming months.

EU negotiators, meanwhile, prefer an agreement that makes broader changes and European Commission Transport Minister Loyola de Palacio said she would settle for no less. And Association of European Airlines Secretary General Ulrich Schulte-Strathaus called for a "paradigm shift" in aviation.

Both sides agree speed is of the essence in the talks. The U.S. presidential election is heating up and Europeans will have parliamentary elections later this year as well.

"If something doesn''t happen by June, it''s all over really for another 18 months," American Airlines chief lobbyist Will Ris said.

During a presidential election cycle, attention is diverted elsewhere. And if President Bush should lose and a new administration comes in, some say that would be as good as starting over.

For some in the aviation industry, stalling the talks would be just fine. Labor unions are wary of lifting regulatory controls on the aviation industry and particularly oppose allowing foreign carriers and foreign crews to fly within the United States.

"We believe that having foreign air carriers operate in the U.S. really has no precedent," Air Line Pilots Association Senior Attorney R. Russell Bailey said. He predicted liberalizing foreign ownership rules would lead the U.S. aviation industry in the tracks of the U.S. maritime industry, which has shrunk considerably since laws changed regarding foreign-flagged carriers.

The two sides agree on many of the goals of the talks but the differences that have arisen stem from the best way to get there. "On both sides of the Atlantic, we as airlines are facing the same kinds of challenges that cannot be addressed by traditional open skies agreements," Schulte-Strathaus said.

The EU''s chief goals include greater access to the U.S. market, or cabotage rights, and lifting the restriction that bars U.S. airlines from being more than 25 percent foreign-owned. They also would like to increase code sharing between U.S. and European airlines and to legalize wet leasing, or the leasing of planes with crews.

Department of Transportation Director of the Office of International Aviation Paul Gretch believes the EU''s approach would likely result in gaining nothing rather than making smaller gains.

"It''s an approach that has the potentiality of leading us into a brick wall," he said, calling a paradigm shift nearly unattainable. "This is an enormously difficult and complex situation. It can''t be done right away. The situation is made more complicated by the fact that this is an election year in the United States."

American''s Ris also said such a sea change is not politically possible. Although he called the start of the aviation talks "surprisingly vigorous," Ris said Palacio''s demands could stall the negotiations.

He said the chief complication is that U.S. negotiators are not empowered to make the changes the EU wants. Changing foreign ownership limits on airlines, a change the Bush administration supports, requires congressional action. Cabotage and changing things such as wet leasing and Fly America rules also are not simple changes negotiators can make.

Last year, Transportation Secretary Norman Y. Mineta belatedly sent Congress legislation he hoped to include in the Federal Aviation Administration reauthorization bill that would have raised the foreign ownership limit to 49 percent. But with little lobbying from the administration or other supporters, it languished on Capitol Hill, never receiving consideration and being left out of the FAA bill that President Bush signed into law.

If the United States and EU can sign an early aviation agreement that includes a change in foreign ownership limits, Gretch pledged the administration would work harder to get it into law.

"This would be presented to Congress in the context of the EU," Gretch said, saying that if it is framed as part of larger, important negotiations, it is more likely to receive support that if it is a stand-alone measure. "I think we will make rational arguments about why it''s in Congress''s best interest to do this."

Ris predicts garnering congressional support will be a challenge. "The main obstacle to this remains very strong opposition in Congress to do anything to amend the ownership laws or the cabotage laws," he said. "And that''s going to be a very difficult obstacle to overcome."