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SPEECH/11/654

Siim Kallas

Vice-President and Commissioner for transport

EU–Russia aviation summit

EU-Russia Aviation Summit

St. Petersburg, 12 October 2011

Ladies and gentlemen,

I would like to thank you for hosting this aviation summit here in the beautiful and historic city of St Petersburg. This summit offers a way forward in our aviation relations. It is up to us not to miss this opportunity.

Last October, Minister Levitin and I signed a protocol of cooperation where we agreed that the strategic aim should be to move towards a comprehensive air service agreement between Russia and the European Union. For me, events since last October have only confirmed the relevance of this aim and the need to develop a close aviation partnership.

Perhaps I should start by asking: who would benefit from closer EU-Russia links on aviation? In whose interests would they be? My answer is: this is in the interests of both sides Russia and the European Union. This is not a case of negotiations leading only to winners and losers. I firmly believe we can all gain from working together.

The creation of a common EU–Russia aviation area has advantages for passengers and business in both Europe and in Russia.

Firstly, commercial advantages. In the European Union, opening up the aviation market, overcoming the national fragmentation and breaking down the protectionist barriers has produced substantial growth, more jobs in the aviation sector and significant consumer benefits. We will hear more about this later today.

Market opening means more competition and new business opportunities for everyone. If a Russian airline can offer better services than a rival EU airline on a particular route, then obviously it is going to take the business.

A number of new airlines have recently been established in the Russia aviation market which are genuinely competitive: Transaero, UTair, for example - and S7 Airlines, now part of the Oneworld alliance. At the same time, too many small air companies are still crowding the domestic market in Russia and rely heavily on old planes. This obviously raises questions about maintenance and safety, since many regional aircraft have almost reached the end of their economic and technical life. Many smaller operations, mostly regional, are still far from meeting acceptable standards

The EU is by far Russia’s largest international aviation market. More than 40% of all Russian passenger traffic is directed towards EU destinations.

Unfortunately, the tragic Yak-42 accident is still fresh in our minds. Let me use this opportunity to convey my condolences to Russia and to the families affected by this tragedy.

We have closely followed the recent discussions about air safety in the State Duma and in the media. Minister Levitin, we take note of your very critical assessment of the situation in various areas of air transport. And I strongly support what you have indicated you plan to do.

I am offering, here and now, our enhanced cooperation on safety. Together, we can create a common air safety and security area.

Russia has the potential to become one of our most important air transport markets in the future.A common aviation area can provide the basis for a stable and reliable environment based on the RULE of LAW. Such a legal framework provides a solid basis and transparent rules for contracts, for property rights, for ownership and for transparency and accountability. A stable legal environment is a hugely important factor for doing business. It serves the great objective of ensuring fair competition. In aviation, the rule of law also means more commercial certainty and predictability – leading to more safety! The European Union has strong experience in developing this kind of legal environment.

Investment is needed to make an aviation business grow. We need investment in Europe to build new runways, and we particularly need investment to modernise our air traffic management. Our Single European Sky Air Traffic Management project (SESAR) will require – for its deployment phase – investment of some €30 billion.

How big is the need for investment to modernise the Russian aviation sector? Aviation is not only about aircraft and ATM, it's also about airports and services. Minister Levitin, you have also been very critical about the situation in Russian airports. There are few good runways, there are problems with the safety of airports and even an absence of lighting in some regional airports. The number of operating airports has also fallen over the last decade or so and only a couple of airport hubs exist which could be called truly international. Air traffic management desperately needs to be brought up to date.

To improve the situation, Russia undoubtedly needs investment. This is not only a question of money: even more important are the know-how and expertise that need to accompany financial investment. A common aviation area can greatly facilitate new investment into the air services business. Investment would lead to more flights, hence more business for carriers and the much-needed modernisation of aircraft and airport infrastructure.

Growth in aviation requires new aircraft. Russia once manufactured more than 350 commercial aircraft a year, making more than a thousand of the Yak-42's predecessor alone. A growing air services business will definitely order more aircraft. Aircraft manufacturing is a highly international business, but there is certainly room for new entries, new products. There is the great opportunity here for a Russian aircraft manufacturing industry with an impressive history.

Flying is a regional, continental and global business. If we join together in a common air space, both EU and Russian aviation will gain in global competitiveness. Just in terms of market access for airlines, EU carriers would see improved opportunities for their Central Asian and Far East operations; in turn, Russian carriers would increase their business within the EU and its 27 Member States, and beyond.

With more reliable, safer and competitive air services, Russia could make better use of its location as a 'territorial bridge' between Europe and Asia. Air freight could replace some lengthy rail or sea journeys to carry cargo from China to EU markets, via Russia and to the benefit of Russian business.

The international aviation industry is undergoing rapid change. Just during the last decade, there has been a trend of national flag airlines developing into European carriers. Air France and KLM led the way with their merger in 2004; British Airways and Iberia in 2010; and of course, the Lufthansa-led group. I am sure that Russia will also see a natural consolidation.

Our experiences with comprehensive bilateral agreements, with key partners like the United States and Canada have been very positive. European and North American airlines can now fly from anywhere on one side of the Atlantic to anywhere on the other. Earlier this year we also reached a comprehensive air transport agreement with South America's largest air transport market: Brazil. We estimate that full market opening with Brazil, one of the fastest growing aviation markets in the world, could generate up to €460 million in consumer benefits a year. So just think of the benefits if a similar agreement were to be signed between Russia and the EU, given that this market is nearly three times larger than the EU–Brazil market.

As we are all aware, there are also some 'clouds in the sky' affecting EU–Russia relations in aviation. I hope that we can overcome them shortly, indeed today.

Firstly, the issue of EU designation. I congratulate Russia for its recent agreement with Finland in which Russia for the first time accepts the principle of EU designation. This principle must now be quickly enshrined into all other bilateral agreements that Russia has with EU Member States: this is a pre-requisite for liberalising air traffic between the EU and Russia. The Finland–Russia agreement could probably serve as inspiration, but not necessarily as a model, for these other agreements.

The second outstanding issue leads on from the bilateral agreements. They force EU carriers to sign commercial agreements with their competitor Aeroflot, which then dictates what EU airlines have to pay for overflying Siberia to Far East destinations currently, around €320 million a year.

Russia is the only country in the world where such payments have to be made.

Payments for Siberian overflights have strained our relations. Our agreement to resolve the issue, initialled at the 2006 EU–Russia summit in Helsinki and approved by the Russian government in 2007, has still not been implemented, pending Russia's delayed entry into the WTO. As the Agreed Principles state, we are not questioning Russia's right to collect fees for overflights. This is normal practice. It’s a question of how it is being done now, which – as we have said repeatedly – is not at all transparent.

Happily, the linkage of these two issues now seems to be on the point of being satisfactorily solved, both in respect of Russia's entry into the WTO and Siberian overflights. But I want to be very clear: "Agreed principles" must enter into force no later than the date on which the final decision on Russia's WTO accession is taken.

Despite the longstanding problems, I do believe that this summit can herald a new era in EU–Russia aviation relations. Let us now agree to deepen cooperation and develop a comprehensive and close partnership.

Thank you for your attention.


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