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   On  1.2.1994  the  "Comité  des  Sages"  established  in  June  1993   by
   Commissioner Abel Matutes for Air Transport handed over its final  report
   analysing present problems of the air transport sector.

   Commissioner  Abel Matutes expressed his satisfaction with the  excellent
   work   done  by  the  "  Comité  des  Sages"  and  considered  that   its
   recommendations will constitute an useful policy guideline.

   The Commissioner particularly stressed the obvious need for policy action
   aimed  at paving the way for cost savings. He reiterated that the  report
   is  in line with the main thrust of the Commission's recent "White  Paper
   on  Growth,  Competitiveness  and Employment" which -  like  the  present
   report - attaches priority to making the Single Market fully effective.

   Abel  Matutes  stressed that it will be crucial to transform  the  Single
   European  Aviation  Market  from  a  letter  of  law  into  economic  and
   aeropolitical reality.

   The  Commissioner  announced  his intention to prepare  -  after  careful
   examination  of all recommendations - a concerted action programme  aimed
   at improving the competitiveness of the European airline industry.

   The  report entitled "Expanding Horizons - Civil Aviation in  Europe,  an
   Action Programme for the Future" contains a series of recommendations for
   different  policy fields aimed at facilitating the industry's ability  to
   meet considerable challenges. The main findings of the report are :

   -  Present financial strains result from both the impact of recession and
      the structural problems of the European Air Transport system.

   -  At  average,  the  European airline industry  suffers  from  too  high
      operating  costs  which have their origin in a  too  low  productivity
      inside  companies  and  in  areas  beyond  management  control   (i.e.
      infrastructure costs, charges, taxation).

   Committee Chairman Herman de Croo outlined the main measures  recommended
   by the group:

   -  effective  implementation  of the Third Aviation Package  and  related
      rules,

   -  a  major effort to phase out bottlenecks and costly  fragmentation  of
      air transport infrastructure in Europe,

   -  significantly improved cost-consciousness at all policy levels,

   -  a genuine European approach on external aviation relations.

   On  politically sensitive issues like state aids and capacity  safeguards
   Chairman  de  Croo underlined the need to manage  transition  instead  of
   reversing   the  policy  direction.  Therefore,  the  Commission's   "one
   time/last  time"-approach on state aids needs to be implemented  strictly
   on  the  basis  of clear-cut conditions  safeguarding  the  interests  of
   competitors. Financial relief to an industry under strain should be given
   only  on an equitable non-discriminatory basis. To this end the  European
   Union should examine taxation issues and encourage use of new  innovative
   instruments to finance investments. On overcapacity problems  competition
   authorities  should  act  flexibly and not object in  the  short-term  to
   individual arrangements between carriers on the condition that access  to
   the markets in question remains free.

   List of the Committee Members:

   Herman DE CROO              Chairman, Senator, Former Belgian Minister of
                               Transport
   The Aga KHAN                His   Highness,   Majority   Shareholder   of
                               Meridiana
   Pieter BOUW                 President of KLM, Royal Dutch Airlines

   Bjarne HANSEN               President of Maersk Air

   Geoffrey LIPMAN             President  of  the  World  Travel  &  Tourism
                               Council
   Henri MARTRE                Member  of  the Board  and  former  Executive
                               Chairman of Aérospatiale
   João Maria OLIVEIRA MARTINS Former Portuguese Minister of Transport

   Gonzalo PASCUAL             Chairman of Spanair

   Manfred SCHÖLCH             Vice-Chairman  of  the  Board  of   Frankfurt
                               Airport
   Guillermo SERRANO           Chairman of the Board of Amadeus

   René VALLADON               Chairman of the Joint Civil Aviation  Council
                               (Union "Force Ouvrière")
   Jürgen WEBER                Chairman of the Executive Board of  Lufthansa
                               German Airlines

   CHAIRMAN'S MESSAGE

   An overview
   Who would have predicted, one century ago when the dream of Icarus became
   a reality, the prominence of aviation in our society today?

   Every day, more and more people use air transport for business,  cultural
   exchanges  or  tourism.  More and more goods are  carried  by  air.  This
   increasing  mobility,  which  is scarcely affected by  the  present  hard
   economic  times,  runs  ahead of economic progress.  This  phenomenon  is
   particularly  true  in  the European Union and can only  widen  with  the
   disappearance of national borders, the creation of the European  Economic
   Area  and the development of relation with the countries of  Central  and
   Eastern Europe.

   Why the Comité des Sages?
   The  Comité des Sages was set up to reflect on the future of aviation  in
   Europe as an essential tool for economic and social development.

   Its  first  finding  was  that the European  airline  industry  is  at  a
   crossroad. The causes of this situation have been analysed by the  Comité
   with only one purpose: to suggest practical remedies.

   For  six months it has listened to the often contradictory views of  many
   knowledgeable  people. It has contacted organisations, studied  the  many
   problems  facing air transport, analysed data and  weighed  alternatives.
   The  Comité  has  reached  a  broad  consensus  both  on  causes  and  on
   remedies.1

   The root of the current problems
   In its early days as an infant industry, air transport depended on  state
   support.  It developed as a highly protected area of national  economies,
   an  integral  part  of  government policy. All  over  the  world,  states
   exercised  their right of sovereignty over airspace and  their  privilege
   to  set up national carriers. Almost regularly, these carriers were  used
   by  governments  as  an  instrument to  promote  trade,  or  their  "own"
   aeronautical industry, or foreign political links or domestic  employment
   -  all  without  regard  to  the  economic  implications  or   commercial
   significance.  As  a  result, national  air  transport  systems  emerged,
   causing  fragmentation  and many inefficiencies. In this  general  trend,
   Europe was no exception. It still suffers from this heritage.

   Some argue that basic characteristics of the airline industry are  unique
   and  therefore  require their own decision-making rules  and  a  distinct
   regulatory framework.

   In a certain sense this is true. It is clear that, from a business  point
   of  view,  international  air transport is often  subject  to  less  than
   rational  commercial decisions. These are based on  traditions,  national
   pride  or  simply  on  the fascination of  an  industry  symbolising  the
   ability  of human beings to overcome natural limitations and  to  realise
   the dream of Icarus.

   
   1    Two dissenting opinions were expressed: Messrs Schölch and  Valladon
        on  the issue of ground handling services at Community airports  and
        Mr. Valladon on social issues.
   

   Of course, this fascination  is primarily an asset. It implies an  above-
   average willingness of managers and employees to work hard for the  well-
   being  of  this industry. The crux of the problem is  to  reconcile  this
   asset  with  rules ensuring that  economically  rational  decision-making
   prevails.  The  European air transport industry will  have  a  prosperous
   future   only  if  decision-makers  at  all  levels,   including   public
   authorities manage to achieve this reconciliation. This job has yet to be
   done.

   Today,  technological progress and economic development  have  profoundly
   changed the market for international air transport. The airline  business
   has  become  a  mass  production industry. It  markets  its  services  in
   realtime at almost any point on earth. Global competitiveness has  become
   the  key  to  commercial survival. The need to  identify  and  to  assess
   strategic and practical options for managing transition from the past  to
   the future is obvious.

   At  a very early stage of the work it became clear to all Members of  the
   Comité that a major fact-finding exercise was required. For  far too long
   debates  had  been  largely  inspired and  conducted  by  those  offering
   simplistic answers to complex problems.

   The Comité was unwilling to accept misleading slogans and catchwords like
   "jungle  of ultraliberalism" or "state support for lame ducks"  which  so
   often were the only available substitute for a solid and honest analysis.

   Instead,  the  Comité opted for a careful collection and  examination  of
   indisputable  data and facts. Hearings with well-experienced experts  and
   senior  managers  were held an analysis of all  written  submissions  was
   made.  The  results  of an external and independent  study  on  the  cost
   structure  of the European airline industry were taken into account.  The
   outcome of this whole exercise is presented in this report.

   A costly fragmentation
   Analysis  shows  that  European  airlines  pay  a  heavy  price  for  the
   fragmentation of their market in Europe. Airports and air traffic control
   systems  are  ill-adapted to present changes, because they are  based  on
   national  and  local  interests  rather than being  part  of  a  European
   concept.  This  practice  has so far escaped the  justification  of  cost
   analysis  and the competitive drive which would naturally result  from  a
   liberalised air transport system.

   European airlines and airports also bear the cost of their own  heritage:
   their productivity is far lower than their competitors' in other parts of
   the world, notably in the US.

   The   legal  environment  in  Europe  has  changed.  The  Community   has
   anticipated  the  coming  global challenges by  establishing  the  Single
   Aviation  Market  and dismantling the old national  barriers  to  carrier
   designation  and  market  access. But in real life,  the  "level  playing
   field" in this aviation market remains somewhat rhetorical.  Governments,
   airlines  and even Community institutions are hesitant. State  subsidies,
   ownership control and other competition-distorting factors still  prevent
   the system from operating on even terms.

   The  three  liberalisation  packages for  intra-Community  air  transport
   represent  major steps towards developing the full economic potential  of
   the   Single   Market.  However  much  remains  to  be  done.   The   key
   recommendation  of this report are directly linked to a key finding:  the
   overly-high  costs  of  European air carriers require a  major  drive  to
   increase efficiency at all levels.

   The productivity gap of the European airline industry is based on various
   elements.  Some  of  them are controllable by  an  airline's  management.
   Others  go  beyond  such direct control. They  may  nevertheless  have  a
   significant  impact  on the costs of an individual airline.  Air  traffic
   control and airport charges are examples of specific problems in Europe.

   Above all, however, the Single Aviation Market exists so far only in law.
   In  concrete  economic  terms,  the structure  of  the  European  airline
   industry   is  still  very  much  oriented  towards   outdated   national
   boundaries. For the European industry to survive as a global  competitor,
   Europe's  Single  Aviation  Market  must  be  transformed  urgently  into
   economic and aeropolitical reality.

   What is needed
   In the view of the Comité des Sages, here is what must happen:

   -  The  internal market must be made to work by enforcing its  rules  and
      effectively  addressing  sensitive  issues  like  slots,  state  aids,
      mergers and alliances;
   -  As  a  matter of utmost urgency, infrastructure  bottlenecks  must  be
      removed.  New provisions of the Maastricht Treaty should be  activated
      to provide Community funds needed for establishing an efficient Single
      Air Traffic Management System and a truly European airport network;
   -  Future  efforts to harmonise national regulations must be linked to  a
      clearly demonstrated cost-saving effect;
   -  Innovative  forms  of  financing investment  must  be  facilitated  by
      updated rules on taxation and ownership in order to help air  carriers
      overcome their current financial impasse;
   -  A  genuine Community approach to external aviation relations  must  be
      quickly  established because this is vital for realising the  economic
      potential of the Single Aviation Market and for the mutual interest of
      Europe and its partners in the world.

   A fair balance of interests
   In addition to reaping the full potential benefits of the Single European
   Aviation Market, another important condition must be met. It is essential
   to  ensure  the  right balance between the  airline  industry  and  other
   related  areas  like  airport services, environmental  concerns  and  the
   justified interest of the workforce in not shouldering, alone, the entire
   burden of the restructuring process.

   The  Comité  analysed  all these areas with a view  to  defining  a  fair
   balance  of interests. This has been, of course, a difficult  undertaking
   because   it   means  identifying  the   borderline   between   objective
   requirements  and subjective interests. Obviously, conflicts of  interest
   are difficult to avoid when times are changing. This may explain why  the
   relevant  section  of  this report 2 contains  two  dissenting  opinions.
   However, there was broad consensus that

   -  airport  managements  should contribute to  improving  efficiency  and
      should, therefore, open ground handling services to competition;
   
   2   See "Ensuring the Right Balance"

   -  further  improvements in managing the environment are required.  These
      improvements   should  be  based  on  a  careful  analysis  of   cost-
      effectiveness  in  order not to put additional burdens solely  on  the
      European air transport industry as compared to its competitors;
   -  adaptation  of  employees  should be facilitated  by  flexibility  and
      mobility-increasing  measures.  In  this context  the  possibility  of
      Community financial support should be examined;
   -  public authorities should use identical cost imputation principles for
      financing investments in different transport modes and should  support
      improvements of complementarity between these different modes;
   -  governments and public authorities should abstain from intervening for
      noncommercial reasons in the operation of air carriers.

   Close  to  the  end of the work of the Comité  des  Sages,  the  European
   Commission's  White Paper on Competitiveness, Growth and  Employment,  of
   December 1993 became available and was endorsed by the European Summit.

   We found that the thrust of this document perfectly fits in with the main
   emphasis  of  our report. Both documents attach priority  to  making  the
   Single   Market  fully  effective  and  both  emphasise  the   need   for
   infrastructure improvements as the most promising way to create new jobs.

   The  Comité  is  convinced that extra efforts to  improve  air  transport
   infrastructure  will immediately generate a high return to  the  European
   economy  as a whole. There is no reason to further delay urgently  needed
   projects.

   A change of mentality
   After six months of listening to people, analysing problems and assessing
   alternatives, the main lesson I have drawn from this exercise is that old
   habits   obviously  die  hard.  Mentality  changes  are  lagging   behind
   technological, economic and regulatory changes.

   Decision-makers  in  many  air carriers,  national  governments,  unions,
   financial  institutions, airport managements and in EU institutions  need
   to  speed  up their adaptation to the new challenges of a more  and  more
   global and competitive business environment.
   The  European air transport industry cannot afford a continuing  lack  of
   such  mentality changes. Recognition of this very basic truth is The  key
   to  entering  better  times  for the  industry,  its  employees  and  air
   transport users.

   This  change  of mentality is, therefore, much more  important  than  the
   accumulated wisdom of any Committee.

   Herman de Croo

   Chairman

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