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Global developments presenting risks and rewards for the aircraft trading and financing market

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Headline News was last updated: December 22, 2009

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December 2009

Canada signed a comprehensive air transport agreement with the European Union comprising 27 Member States.

EU/Canada agreement increases access for Air Canada to Canada's second largest trading partner.

US government is to seek changes to the American Airlines British Airways alliance deal.

American Airlines/British Airways Oneworld alliance should be given antitrust immunity only if some takeoff and landing slots are surrendered or routes excluded from the alliance.

Oneworld is the third-largest global airline alliance after Star and SkyTeam.

DOJ claims that without the changes, the AA/BA alliance would result in competitive harm on certain trans-Atlantic routes serving 2.5M passengers annually.

Fares between six city pairs, including New York-London, Boston-London, and Chicago-London, would increase as much as 15% the DOJ claims.

DOJ wants the DOT to require AA & BA to divest of slots in order to preserve incentives for the current market participants to compete.

EU commission is also examining the AA/BA alliance plan.

European Commission sent complaints to AA, BA, and Iberia in October 2009 raising concerns about plans to coordinate operations and marketing.

European Commission is concerned that the AA/BA alliance may break EU rules on restrictive business practices.

Alliance members restricted by law from cross-border mergers try to use the grant of antitrust immunity to act more like single entities.

Alliance members use each other’s routes to expand networks, grow revenue, and compete with other large alliances.

DOT granted antitrust immunity to Continental Airlines in July 2009 to coordinate international flights as part of the Star Alliance.

DOT granted Delta Air Lines and Northwest Airlines antitrust immunity in 2008 to collaborate on routes with its SkyTeam alliance partners. .

AA & BA requested antitrust immunity in 1997 and 2001 and was declined.

DOT declined the AA/BA 1997 application because a US/UK treaty liberalizing air services between the nations was not completed.

USA/EU signed an “Open Skies” aviation treaty effective 2008 that now covers the UK.

DOT rejected the 2002 AA/BA application because e the carriers refused to give up enough slots to competitors for 16 daily round-trip flights between Heathrow and the USA

DOT not the DOJ will decide the AA/BA alliance request for anti-trust immunity and the conditions to attach to it.

Alliance benefits: AA/BA will be able to jointly price, market and schedule international flights in their Oneworld alliance without fear of antitrust prosecution.

AA expects that the U.S. Department of Transportation will approve the alliance with BA in a timely manner.

Oneworld alliance includes American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, JAL, LAN, Malev, Mexicana, and Qantas & Royal Jordanian Airlines.

October 2009

EU Commission is investigating the American Airlines, British Airways, Iberia OneWorld alliance.

September 2009

Airline Alliance restructuring complicate US-Japan bilateral air treaty negotiations

Airlines have been using international airlines alliances in place of cross-border merger activity to overcome the restrictions imposed on investment in US carriers. U.S.-European "open skies”, agreement was implemented in 2008.

American Airlines and British Airways have applied for closer ties in the Oneworld alliance. A decision on that application is pending. DOT approved the application by Continental Airlines to join the Star alliance with United in July 2009.

The US State Department acts as the chief U.S. negotiator when the Japan-USA air treaty is renegotiated.

The US Department of Transportation (DOT) oversees transportation regulators and airline alliance applications.

The U.S. Justice Department has increased antitrust supervision of airline alliances encouraged by the Obama administration. The administration wants to introduce tougher antitrust regulations over time.

The US House of Representatives approved a plan that discourages the creation of alliances and proposes that they be phased out after three years.

The US Senate is still debating the issue. 

Pilot’s unions oppose alliances because they reduce the opportunities for overseas flying. The Unions want the Obama administration to curtail alliances in a way that preserves jobs.

IATA argues that placing restrictions on foreign ownership and alliances are protectionist and anticompetitive. 

The current fight for a share in Japan Airlines (JAL) is raising regulatory issues that are now being addressed.

Only Delta Air Lines/Northwest Airlines and United Airlines can fly passengers from the United States to Tokyo and Japan Air Lines (JAL) and All Nippon Airways (ANA) have flying rights to the USA.

American Airlines has a code-share agreement with JAL in the Oneworld alliance. Each carrier has the right to sell tickets on each other’s flights.

Delta, representing the SkyTeam alliance wants to win over JAL by offering an equity injection and by deepening the commercial and operational relationship.

If JAL does go with Delta then the expectation is that ANA will join with United in the Star alliance. The USA-Japan air travel market would then be controlled by just two alliances raising antitrust concerns in the USA. 

Changed to the existing bilateral air treaty would be required to allow JAL to sell an equity share in its business and to join in a new alliance with Delta.

The alliances members would want the right to coordinate airfares and flight schedules free of the risk of antitrust review. Any U.S. antitrust review of any proposed alliance could make it difficult for carriers to risk taking an equity share in JAL.

Waivers from U.S. antitrust law would be required before any changes are made to the 55-year-old bilateral air treaty between the USA and Japan.

Treaty negotiations are focused on US airlines being granted more flights into Tokyo's Narita Haneda airports, and increased regional access to Pacific routes. Treaty renegotiations took place in Washington in September and in Tokyo in October.

The goal was to complete treaty negotiations in December 2009.