The new agreement is historic, and will likely result in lower prices between the Japanese/US Market

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.