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European Commission

MEMO

Brussels, 27 September 2012

EU External Aviation Policy Package

European Aviation

  • Aviation supports 5.1 million jobs and contributes €365 billion or 2.4% to European GDP1. It makes a vital contribution to economic growth, employment, tourism and people-to-people contacts as well as the regional and social cohesion of the Union. Connectivity is key to competitiveness.

  • The European aviation industry as a whole is still a world leader in manufacturing, airlines, airport hubs as well as Air Traffic Management research and technology (including the SESAR programme). However, these positions are under threat from a number of new challenges.

  • European carriers have been particularly hard hit by the recession. IATA predicts that net profits of European commercial airlines will fall from $ 0.5 billion in 2011 to a net loss of $ -1.1 billion in 2012.

  • Despite the current economic crisis, global air transport over the long-term is expected to grow by around 5% annually until 20302, a compound increase of more than 150%.

The 3 major challenges facing the European aviation sector

1. Growth shift towards other regions of the world

  • Demand for air transport is primarily driven by economic growth and prosperity. With an expected average annual GDP growth rate for Europe of 1.9%3 between 2011 and 2030 compared, for example, with growth rates for India and China of 7.5% and 7.2% respectively, aviation growth will see a relative shift to areas outside the EU with Asia and the Middle East in particular expected to become the focus of international air traffic flows.

  • Half of the world's new traffic added during the next 20 years will be to, from, or within the Asia-Pacific region, which will thereby overtake the US as leader in world traffic by 2030 reaching a market share of 38%.

  • Due to below-average growth rates, EU carriers will be losing market shares to non-EU airlines in most regions. In 2003, EU carriers had a market share of 29% of all inter-continental capacity in the world. By 2025, this share is expected to have fallen to 20%. This trend means that, if nothing is done, European airlines will be less able to generate growth for the European economy.

2. Intense international competition

Non-EU carriers are reinforcing their global position. For example, the fastest regional traffic growth in the world is expected to be in the Middle East, where by 2030 the region's airlines will represent 11% of world traffic, up from 7% in 2010.

Competition that is not always fair….

The EU considers open markets as the best basis for developing international aviation relations and therefore embraces competition. It is vital however that competition is fair and open. When, for example, subsidies, unfair practices, inconsistent or discriminatory application of regulatory frameworks and lack of transparency in financial reporting of companies in certain markets are used to distort the market, it is legitimate to defend the industry against unfair competition.

3. Infrastructure and Investment

  • Europe is suffering from under-investment in airport hub infrastructure as a result of which the largest EU hubs are increasingly congested. This hampers the possibility of European hubs to compete with major new hubs developing in other parts of the world. The capacity crunch at key European hubs must therefore be effectively addressed if European competitiveness is to be maintained. Investments in airport infrastructure and development of hubs, where justified by a strong and sustainable demand, are crucial for allowing European hubs to compete with those developing in other parts of the world. It is therefore important to identify bottlenecks to growth at an early stage and to remove them or at least limit their negative impact by using all means available to use scarce airport capacity more efficiently.

  • Investment in airlines is artificially restricted. Most countries still maintain rules stipulating that airlines must be majority owned and controlled by their own nationals thereby denying air carriers access to a wider range of investors and capital markets. The effect has been to impose an artificial industry structure on the airline sector that does not exist in other industries. Cross-border consolidation, seen by many as a pre-requisite for a more economically sustainable airline industry, is severely restricted. There is therefore a strong need for reforming the out-dated ownership and control rules for airlines.

The European Commission's proposals

Faced with these challenges, and to create new business opportunities in fast emerging markets, the European Commission is proposing a more ambitious external aviation policy, demanding for a more co-ordinated and assertive approach to strengthen its ability to defend European interests.

In particular, the Commission is proposing actions in three key areas:

1. New Aviation Agreements with Neighbours and International Partners

To give the EU aviation industry better access to the business opportunities in new markets, the Commission is proposing to:

  • Conclude EU level Air Transport Agreements with key and increasingly important aviation partners such as China, Russia, the Gulf States, Japan, India and ASEAN4* countries in south east Asia.

  • Complete by 2015, aviation agreements with Neighbouring Countries such as Ukraine, Azerbaijan, Tunisia, Turkey and Egypt. To move this process more quickly, Member States Should grant the Commission a general negotiating mandate for the remaining neighbourhood countries.

The total economic benefits of all these agreements are estimated at 12 billion Euro per year. More than 70% of these benefits are estimated to come from lower prices resulting from increased competition when limitations are removed in access to the markets between the EU and these partner countries which today is restricted under bilateral agreements between individual EU Member States and the partner countries.

The Commission intends to put forward a list of priorities for EU negotiating mandates for these agreements to Member States in early 2013.

Industrial and Technological agreements. In addition, industrial and technological agreements should be signed with key partners and other countries in areas such as air traffic management (ATM) ) including in relation to cooperation with the EU's SESAR programme, and safety including in relation to certification of aeronautical products.

2. Measures to strengthen fair competition

The EU considers open markets as the best basis for developing international aviation relations and embraces competition. This has been a fundamental lesson from the success story of the EU internal aviation market, but competition has to be both open and fair.

In order to safeguard fair competition, the Commission is proposing to develop, following consultation with stakeholders, a new more effective instrument to protect European interests against unfair practices. The existing EU regulation (Regulation 868/2004) in this respect has proven impracticable and a new instrument needs to be put in place that is better adapted to the realities of today's global aviation sector.

The current regulation was developed in the aftermath of 9/11 when there were concerns that EU carriers could be subject to price dumping in the Trans-Atlantic market. The instrument was following anti-dumping procedures applied for trade in goods. However, it has proven practically impossible to substantiate unfair pricing practices in international aviation, inter alia due to difficulties in comparing complex fare setting systems applied by airlines for "like air services".

In today's increasingly open and competitive international aviation market a key objective of EU external aviation policy is to ensure fair competition. In this respect, and only to be used as a last resort, a more effective and deterrent instrument is required in order to ensure a level playing field to safeguard fair competition. Such a new instrument should better reflect the specific features of the international air transport sector and should provide for an effective procedure in justified cases of unfair competition.

As an additional safeguard measure - developed most appropriately at EU-level - standard "fair competition clauses" to be agreed, and included in existing bi-lateral air services agreements between EU Member States and non-EU countries. The practical effect of this would be that in their bilateral agreements EU Member States and partner countries would jointly lay down procedures to safeguard fair competition for the respective air services.

3. Tackling ownership and control restrictions

Tackling Archaic Ownership and Control Restrictions

Current ownership and control restrictions, applied by most countries, deny carriers access to important sources of new capital. It is now time to address this issue more vigorously and to take the additional steps envisaged in the EU-US air transport agreement to liberalise airline ownership and control in order to allow airlines to consolidate and attract the investment they need. This should also be pursued at ICAO level, including at the March 2013 ICAO Air Traffic Conference. Cross-border consolidation, seen by many as a pre-requisite for a more economically sustainable airline industry, is severely restricted. In the US, for example, foreign ownership of airlines is restricted to 25% of voting stocks. In the EU, foreign ownership is, as a general rule limited to 49%. However, exceptions to this rule can be provided for in agreements between the EU and a third country, which is what the EU is seeking to do with key partners.

What are the main achievements of the external aviation policy so far?

1. Restoring legal certainty to bilateral air services agreements between EU Member States and non-EU countries by bringing these into conformity with EU law:

  • In total nearly 1000 bilateral air services agreements have been brought into legal conformity with EU law representing 75% of all extra-EU passenger traffic. Legal certainty is important both for EU and non-EU carriers.

  • Some 117 non-EU countries have recognised the principle of EU designation. Of these, 55 countries have agreed to amend all their bilateral agreements with EU Member States through Horizontal Agreements with the EU while the remaining countries have done so on a bilateral basis with individual EU Member States.

  • The necessity of restoring a sound legal basis for aviation relations with the EU has been accepted worldwide; with only a few exceptions this is no longer a real issue.

  • There is, however, still work to be done with a few important aviation countries, to complete the implementation of EU designation. These include India, China and South Korea and also South Africa, Kenya, Nigeria and Kazakhstan. Of these countries, it is only South Africa, Kenya, Nigeria and Kazakhstan which have not yet recognised the principle of EU designation at all.

  • These changes recognise the removal of national ownership and control restrictions on EU carriers as required by EU law. As a result, EU carriers can offer services from any EU Member State to non-EU countries, provided that designation rights and traffic rights are available under the relevant bilateral air services agreements.

  • Furthermore, mergers between EU carriers are recognised. But above all, legal certainty to bilateral agreements has been restored which is important for all operators.

2. Developing a wider Common Aviation Area with EU neighbouring countries:

  • Solid progress has been made in developing a wider Common Aviation Area with neighbouring countries, with agreements already signed with the Western Balkans5, Morocco, Georgia, Jordan and Moldova and an agreement has been initialled with Israel. Negotiations are on-going with Ukraine and Lebanon, they are expected to start soon with Tunisia and Azerbaijan, and at some stage also with Armenia. The economic benefits for consumers resulting from the first of these agreements (Western Balkans and Morocco) have been estimated at more than € 3.5 billion between 2006-2011 in the case of the EU-Morocco agreement, with a massive growth in air traffic between the EU and Morocco and many new routes and carriers, resulting in more competition, choice and lower prices. There has been a real decline in passenger fares of around 40% since 2005. Similarly, the EU-Western Balkan agreement (the ECAA agreement) has generated a total economic benefit of more than € 2.4 billion between 2006 and 2011.

3. Negotiation of comprehensive air transport agreements with key partners:

The EU has negotiated comprehensive air transport agreements with a number of major partners (United States, Canada and Brazil). These comprehensive agreements aim at a combination of market opening, creating the conditions for fair and open competition through regulatory convergence, liberalisation of ownership and control of airlines and resolving "doing business" issues.

A first stage agreement with the United States was signed in April 2007 and a second stage agreement in June 2010. An agreement was signed with Canada in December 2009. A comprehensive air transport agreement was initialled with Brazil in March 2011 (signature pending).

The EU-US agreement has played a pivotal role in shifting international aviation agreements away from mere market access negotiations. For the first time, a major international agreement acknowledged that conditions for competition also needed to be addressed and harmonised to ensure fair competition. The EU and the US have developed a new template agreement which facilitates the role of aviation.

Background: What is a comprehensive aviation agreement?

Traditionally, aviation agreements have been negotiated only on a bilateral basis between two states and have typically been very restrictive regulating and limiting the number of airlines that can operate between two countries, to which cities and how often.

EU aviation agreements with its neighbours as well as with other key partners seek to fully open the market (either immediately or through a gradual phasing) between a partner country and the EU as a whole.

Agreements with neighbouring countries are based on a twin-track approach of (a) gradual market opening based on a full liberalisation of all the direct traffic between a neighbouring country and the EU (and later also traffic via inter-mediate points or to points beyond); and (b) a gradual process of regulatory harmonisation whereby neighbouring countries commit to gradually implement EU aviation rules and regulations in their national legislation.

Agreements with other key partners aim at a combination of market opening, creating the conditions for fair and open competition through regulatory convergence (but not full harmonisation with EU rules), liberalisation of ownership and control of airlines and resolving "doing business" issues.

What is a Common Aviation Area?

The EU has over the past two decades transformed and integrated fragmented national aviation markets and created the single largest and most open regional aviation market in the world. The single EU aviation market, which is based on EU-wide common rules in all aspects of aviation, has been a huge success.

The EU is therefore seeking to extend the geographical scope and the benefits of the single EU aviation market by expanding this market to encompass neighbouring countries.

The EU has negotiated a number of important air services agreements with neighbouring countries which will, over time, constitute a Common Aviation Area based on a parallel process of gradual market opening and regulatory convergence towards EU aviation legislation and regulations, encompassing some 55 countries and 1 billion inhabitants i.e. double the size of the population of the EU.

IP/12/1027

TABLES

The EU's largest international markets:

Actual passenger traffic between EU-27 and non EU countries in 2010

(Millions)

Country

2010

1 USA

47.2

2 Turkey

30.1

3 Switzerland

26.6

4 Norway

15.0

5 Egypt

14.0

6 Russia

13.1

7 United Arab Emirates

11.0

8 Morocco

10.9

9 Canada

9.1

10 Tunisia

8.3

11 Israel

6.7

12 India

5.3

13 China

5.2

14 Brazil

4.9

15 Japan

4.6

16 Thailand

4.3

17 Algeria

3.5

18 Hong Kong

3.5

19 Croatia

3.4

20 Singapore

3.1

Source: Eurostat (Based on actual passengers carried)

% Change Top 20 Extra-EU Markets

by seats available for sale

(millions)

Country

2010

2000

Change-%

1

USA

70.1

67.2

4.4%

2

Turkey

43.5

13.7

217.3%

3

Switzerland

42.1

35.8

17.7%

4

Russia

26.9

8.8

204.9%

5

Norway

23.9

10.4

129.0%

6

United Arab Emirates

18.0

4.1

336.4%

7

Canada

15.7

9.8

59.5%

8

Morocco

14.4

4.4

224.8%

9

China

10.0

2.6

285.6%

10

Israel

8.2

6.1

34.8%

11

Croatia

8.0

1.9

324.3%

12

Tunisia

7.2

4.6

58.4%

13

Algeria

7.2

3.6

101.6%

14

Egypt

7.1

3.6

94.9%

15

Brazil

6.8

3.9

77.3%

16

Japan

6.6

6.6

0.4%

17

India

6.5

3.3

96.5%

18

Ukraine

5.8

1.7

243.7%

19

Singapore

5.5

4.4

26.3%

20

Qatar

5.0

0.3

1560.3%

Source: OAG schedules (N.B. Based on seats on offer for sale)

World Top-25 Airlines by RPK* (billions)

Airline

2011

2000

Change-%

1

Delta Air Lines

310

180

72.2%

2

United Airlines

292

203

44.1%

3

Air France KLM

217

153

41.7%

4

American Airlines

203

187

9.0%

5

IAG Group

169

161

4.5%

6

Southwest Airlines

167

68

145.4%

7

Emirates Airline

153

20

676.3%

8

Lufthansa

141

89

59.3%

9

China Southern

122

21

479.1%

10

Qantas Group

107

64

68.1%

11

Cathay Pacific

102

47

115.9%

12

US Airways

98

76

29.1%

13

Ryanair

94

4

2268.8%

14

Air China

93

18

414.4%

15

Singapore Airlines

86

71

21.5%

16

Air Canada

84

72

17.0%

17

China Eastern

79

14

483.6%

18

Japan Airlines

65

89

-27.1%

19

Korean Air

65

40

60.1%

20

easyJet

63

4

1307.9%

21

Qatar Airways

62

3

2147.1%

22

ANA

60

58

3.1%

23

Turkish Airlines

59

17

242.1%

24

TAM

57

7

683.4%

25

Thai Airways Int’l.

55

41

34.8%

Source: Air Transport World, Flightglobal

*) RPK = Revenue-Passenger-Kilometers, which is the number of paying passengers carried on scheduled flights multiplied by the number of kilometers those seats were flown

Major European Airlines (Domestic + International)

Recent Growth Trends

Billion Revenue Passenger-Kilometres (RPK)*

Airline

2000

2010

%-change 00/10

1 Lufthansa

94

130

37.5

2 Air France

92

125

36.1

3 British Airways

119

106

-11.6

4 KLM

60

76

26.1

5 Ryanair

3

72

2031.4

6 Easyjet

5

56

1086.6

7 Iberia

40

51

28.0

8 Turkish Airlines

17

47

167.5

9 Air Berlin

8

45

479.1

10 Virgin Atlantic

29

38

29.5

11 Alitalia

41

33

-19.4

12 SWISS

3

30

748.1

13 TAP

10

24

127.1

14 SAS

23

23

2.5

15 Austrian Airlines

9

16

81.0

16 Finnair

7

16

112.7

17 Aer Lingus

9

14

56.1

18 Spanair

10

9

-3.9

19 Brussels Airlines

2

7

211.6

20 LOT

6

7

14.6

Source: Various airline industry sources

*) RPK = Revenue-Passenger-Kilometers, which is the number of paying passengers carried on scheduled flights multiplied by the number of kilometers those seats were flown

Top-20 European Airports

Million passengers

Rank

Airport

2000

2009

2010

Change 09/10

1

LONDON HEATHROW

64.3

65.9

65.7

-0.2%

2

PARIS/CHARLES-DE-GAULLE

49.7

57.7

58.0

0.5%

3

FRANKFURT/MAIN

48.9

50.6

52.6

4.1%

4

MADRID/BARAJAS

32.7

48.0

49.8

3.8%

5

AMSTERDAM/SCHIPHOL

39.3

43.5

45.1

3.7%

6

ROMA/FIUMICINO

25.9

33.4

36.0

7.6%

7

MUNICH

22.9

32.6

34.5

6.0%

8

LONDON/GATWICK

32.0

32.4

31.3

-3.1%

9

BARCELONA

19.4

27.3

29.2

6.9%

10

PARIS/ORLY

23.8

25.1

25.2

0.3%

11

KØBENHAVN/KASTRUP

18.1

19.6

21.4

9.1%

12

PALMA DE MALLORCA

19.3

21.2

21.1

-0.4%

13

WIEN/SCHWECHAT

5.9

18.0

19.6

8.7%

14

DUSSELDORF

15.9

17.7

18.9

6.7%

15

MILANO/MALPENSA

20.6

17.3

18.7

7.9%

16

LONDON/STANSTED

11.9

19.9

18.6

-7.0%

17

DUBLIN

13.7

20.5

18.4

-10.1%

18

MANCHESTER/INTL

18.3

18.6

17.7

-5.2%

19

BRUXELLES/NATIONAL

21.6

16.8

17.0

1.2%

20

STOCKHOLM/ARLANDA

18.6

16.1

17.0

5.6%

Source: Eurostat

Top-20 World Airports by Passengers in 2011

Million passengers

Airport

2011

Rank in 2000

1 Atlanta

92.4

1

2 Beijing

77.4

Not in Top-20

3 London Heathrow

69.4

4

4 Chicago

66.6

2

5 Tokyo / Haneda

62.3

6

6 Los Angeles

61.8

3

7 Paris CDG

61.0

8

8 Dallas

57.8

5

9 Frankfurt (Main)

56.4

7

10 Hong Kong

53.3

Not in Top-20

11 Denver

52.7

11

12 Jakarta

52.4

Not in Top-20

13 Dubai

51.0

Not in Top-20

14 Amsterdam / Schiphol

49.8

10

15 Madrid / Barajas

49.6

20

16 Bangkok

47.9

Not in Top-20

17 New York (JFK)

47.9

Not in Top-20

18 Singapore / Changi

46.5

Not in Top-20

19 Guangzhou

45.0

Not in Top-20

20 Las Vegas

41.5

12

Source: Airports Council International

Top-25 Fastest Growing Airports in 2010

(With over 5 million passengers)

Source: Airports Council International

1 :

"Aviation: Benefits Beyond Borders", Report prepared by Oxford Economics for ATAG, March 2012

2 :

Airbus: "Delivering the Future: Global Market Forecast 2011-2030"

3 :

Bombardier/Global Insight

4 :

5 :

Multilateral agreement signed with the following partners: Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and UNMIK


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