Archive for December, 2009
The Headline: Two of the worlds largest economies liberalise air bi-laterals
- The Fine Print – Concessions and Quid Pro Quos
- Is it a Win/Win?
- Overall: A good news story
Coming in a close second in aviation headlines, behind the excitement of the first 787 taxi tests, was the news that over the weekend, Japan and U.S. reached a historic open skies agreement, which replaces the more restictive agreemnt put in place in 1952, and re-negotiated with limits in 1998.
This new agreement allows for an open bi-lateral between the two nations for the first time, with only a few caveats. I think the fact that the Japanese delegation chose to stay on beyond the 11 a.m. deadline on Friday was testament to how close an agreement was for both parties.
The Fine Print
Of course this was a negotiation, and as such there were some concessions. Japan’s request for ATI and Joint Venture (JV) fast-tracks for their carriers went unresolved. In my analysis the Japanese delegation was pragmatic about their ability to walk away with ATI agreements in hand, but have put in place contingencies in the deal on this key point. After all, any keen observer of the U.S. aviation sector could see that the long delayed AA/BA ATI applications has been held up for some time and there is little sign of hope inside the Washington beltway for progress.
What carriers on both side gain is a liberalisation on the ability to operate flights based on consumer demand, and the removal of some pricing restrictions. From the U.S. side, only four slots at the new Haneda (HND) were secured, and the window for their use is at off-peak night hours, where customer demand is yet to be measured.
Access to HND is good news for the US- but the Japanese still walk away no worse for the wear. Macquarie, JAL, and the other key shareholders of Haneda were not building the new runway and facilities as decor. The Japanese government in particular has indicated its desire to develop international, particularly Asian traffic, through this strategically placed airport.
Is it a Win-Win?
In our view, Japan may well have come out these negotiations in a slightly stronger position. Gaining unlimited access to US markets and still keeping premium time slots at HND and NRT or themselves- even if they gave the US an additional 15 minutes on their ops window. That is the headline- but the Japanese way would to be gracious and move along with their win.
What should the US be proud of? The lobbying pressure alone from the Texas Congressional
delegation on this at the Department of Transport (DoT) and Department of State (DoS) level has been intense- and impressive. It shows how very much the US wanted this to be a US “win”. With Oberstar desire to muddy the waters on the powers of the Department of Justice (DoJ) and DoT to take independent ATI decisions- the power of the TX delegation becomes very important. What will we do if/when Hutchinson leaves her seat? She is one of the airlines, and consumers, best mates in DC. Regardless of what I think of the rest of her politics, she is good for US Commercial Aviation.
Overall it is good news for two of the largest, developed, economies
So overall, a good week for Japanese-American relations; There is no reason why two of the largest developed economies in the world should have open bi-laterals and to this observer- this is nothing but positive news for both Prime Minister Hatoyama and the Opposition Democrats, as well as the Obama administration.
In Todays Issue:
- - The Bullet
- - Summary of the Key Findings
- - Carbon Emissions: A Damning Indictment
- - The “Open Skies”?
- - TWC’s Take on the Report
- - Who says politics can’t be funny
This morning, The U.K House Of Commons Transport Committee published its initial findings to the Government on their enquiry “The Future of Aviation”. The enquiry began in late February of this year with a broad scope to elicit information from the public, the industry, and other interested parties on the Future of UK Aviation.
Committee Chairman Louise Elleman MP, said in a statement, “Aviation is an important part of the UK economy, both in the south east of England, and in the regions.”
The Committee goes on to say that the Government’s long term basis of Aviation Policy- a 2003 white paper- “continues to provide a sound basis for aviation policy but warns the Government that it must update its assessment of the economic value of aviation for the UK economy regularly to ensure its figures are subject to independent external scrutiny.”
Carter Stewart, Managing Director of TWC Aviation, a London-based Aviation Consultancy agrees. “We believe that the overall net economic contribution of aviation to the U.K. has been under-valued by the Government by as much as £800M GPB annually”
The Key Findings of the Report: Overall Good News for the Industry
In summary the statement from The Committee makes the following additional recommendations:
The Committee supports the Labour Government’s London Heathrow expansion proposal; but calls into question the Stansted expansion and instead suggests London Gatwick may be more appropriate.
While The Committee “recognises the importance of Air Passenger Duty (APD)” it suggests that the Government needs to be “mindful of the vulnerability of the aviation industry in the current economic climate.”
Carbon Emissions: A Damning Indictment of the EU – Sane Words to the Industry
The report could not be complete without also addressing the issue of Carbon Emissions and noise pollution. The Commitee says in their report that aviation should not be “demonised or assigned symbolic value beyond its true impacts.” It went on to comment that they had concerns that “The EU Emissions Trading Scheme has an appaling track record and may prove insufficient to to drive investment into low carbon aviation”
Regarding Carbon Emissions, the report sets forth a “number of principles that should be applied in this area.” It also refers us to the publication of the UK Climate Change report that is due to be published on Tuesday, 08 December. They also called on industry to “sensibly reduce its greenhouse gas emissions over the coming decades.”
The “Open Skies?”
“Discussions to extend the Open Skies agreement are ongoing between the European Commission and the US Federal Aviation Administration. This might allow further access to EU and US markets. The asymmetric nature of the Open Skies agreement is disadvantageous to the UK economy and particularly to the UK regions, and should be renegotiated at the earliest possible opportunity.”, the report says.
The report also reiterates MPs previous calls for the ATOL levy to be increased and extended to include all international flights. Currently, ATOL is only applied on package holidays from the U.K.
It also asks The Government to clarify the “basis of its claim that an additional £10 bn could be raised if VAT and Fuel duty were applied to Aviation.”
The key conclusion is clear. ”We beleive that the aviation industry is a very important to the UK Economy. Therefore we find it unsatifatory that the Government leaves such a key industry to the vagaries of the market.”
Our Take of the Reports Findings
“Overall we believe that the report is a good news story for both the industry and consumers,”, Stewart says. “At this critical economic time for our country the aviation industry, and airline consumers, have been suffering at the hands of the taxman disproportionately to other industries.”
“In a recent speech to The UK Aviation Club in September, The Lord Adonis defended the recent APD increase by saying it was ‘a matter of published policy’ and as a result ‘it would not be changed.’ I am glad to see members of the Transport Committee are calling into question the potentially damaging effect this policy has on UK airlines and airports to compete with other European rivals.”
“One of the most telling items from our perspective is the language used around the US Open Skies agreement.”, says Carter Stewart. ”With talks between the US and Japan about to start today this is not the ideal moment for a key U.S. shortfall to come into such scrutiny. We agree that US liberalisation promises have failed to truly materialise for the UK, and promises about foreign ownership are key”
“With US carriers vying for ownership and control deals with JAL, I simply hope that the Japanese keep in mind the key points of reciprocity in their agreement and have clear understanding and timetables from the outset.”, Stewart says.
“It is also refreshing to see MPs pushing back on behalf of the industry and consumers by demanding clearer answers on proposed estimates on tax revenue from VAT on tickets and fuel levies”, Stewart says.
Todd Koonce, Manager of Technical Operations at TWC Aviation believes that the report does hit some of the right notes about aircraft technology. “It is obviously to everyone’s benefit to phase in more efficient aircraft as soon as is financially and operationally viable. The key issue for many carriers has been the delivery delays of these very aircraft, like the 787 and A380, from the manufacturers themselves.
“I also believe that for short-haul segments, the efficiencies of turbo-prop aircraft have been overlooked by the airlines. There is also a public perception that regional jets are somehow safer, and more comfortable, when there is an argument to be made that latest generation of turboprops could offer lower emissions and better operating margins.”
Proof Positive of Humour in Politics
For those of your interested in the initial white-paper, here is a little bit of the background and history.
H.M. Government has for some time used a white paper entitled “The Future of Air Transport”, published in 2003, as the basis of U.K. Government Aviation policy. Ironically, it was then Alistair Darling, then Minister of State for Transport (and now current Chancellor of the Exchequer) who introduced the reports findings to the House of Commons on 23 of July 2002. Even at that time, then Minster Darling was making a case that the U.K. needed to keep pace with capacity demands, and understood the importance of our air gateways which needed to compete with the increase in market share by Continental European airports.
What a difference a few years, and a change to Chancellor can make.
(A full text of his statement to the House in 2003 can be found here, at the 1530 time marker.