TCAA : so far concept badly sold December 2000

It was September 1999 when the Association of European Airlines (AEA) published their policy statement "Towards a Transatlantic Common Aviation Area" (TCAA). The TCAA proposal from Europe’s major scheduled airlines has since been embraced by the European Union’s Commissioner for Transport Loyola de Palacio, and remains at the centre of the ongoing discussions between the US and the EU.

The major points of the TCAA proposition are as follows:

• Market access — equal and unlimited market access including full 7th freedom rights and cabotage;
• Harmonisation — airlines would compete within a harmonised legal environment, "under equivalent regulatory conditions"; and
• Ownership- within the TCAA, removal of all ownership and control restrictions, thereby permitting cross–border mergers and acquisitions and new market entry.

For some EU member states, notably the UK, and for the Commission itself, the US "open skies" model remains biased. It is not be the sort of agreement that a powerful European state should be accepting from the US. It offers no seventh freedoms, no flexibility on ownership, no cabotage and no standardisation on competition rules.

Proponents of the TCAA are keen to point out that it should form the basis for discussion rather than be regarded as the definitive, finished article. They also acknowledge that harmonisation of, say competition rules, will not occur in one step, but will need to be phased–in. Nevertheless, full harmonisation should be the ultimate goal.

what’s in it for us?

Critics of the TCAA concept argue that the policing of such an arrangement would need to be done by some form of supranational agency. And such an agency would probably end up acting a regulator rather than playing a purely supervisory role or handling disputes between parties. US reaction: At the last round of discussions between the EU and the US in October, US official John Bayerlee noted that "the real challenge is to define the added value for the US".

Clearly the TCAA is a European concept, and the US has its own tried and tested "open skies" model that has been successfully adopted in other markets. After all, the US has now negotiated 50 such agreements worldwide.

US officials such as Edward T. Smith, US Mission to the EU, are also concerned that the TCAA is "not doable" given the different legal and regulatory structures and practices that exist between Europe and the US. At a recent seminar sponsored by the European Aviation Club in Brussels, he pointed out that that wholesale changes in federal law would be required on issues such as:

• Investment (foreign ownership limitations);
• Cabotage (which has never appeared on the US agenda);
• The Fly America Act; and
• Wet leasing (the EU permits US airlines to wet–lease aircraft in the EU market but this is not reciprocated by the US).

The US reaction so far has been largely about a concern about ownership and control issues, and their impact on jobs. And in an election year it would be naive to expect politicians to an "alien" concept which is vigorously opposed by the aviation–related labour groups including the pilots union, ALPA.

The way forward

However, issues such as Fly America and wet–leasing should not have been insurmountable. It appear that the TCAA concept has been badly sold in the US. "What’s in it for us?" is always a valid question, and one that the European have not thoroughly thought through. A further round of discussions take place in Spring 2001 between the EU and the US on TCAA. At the moment it looks as if the US will be pouring more cold water over the proposal.

However, TCAA has gained critical mass, and the new US administration (whoever that is) may prove more willing to negotiate. One problem is that the EC has very limited powers to negotiate air services agreements with third countries on behalf of member states. So far the Commission has failed to persuade the Council of Ministers to grant it widespread powers, although the EC has been granted "special powers" to negotiate with a limited number of European countries (Poland, Czech Republic, Hungary, Norway, Switzerland and Malta).

An imbalance clearly exists between those EU Members who have negotiated "open skies" agreements with the US and those that have not done so. Increasingly it would appear this is causing some concern in Brussels. The success of the Star Alliance (partly as a result of "open skies" regimes and the granting of anti–trust immunity) has not so far been matched by other alliance groupings.

Brussels’ concerns are understandable. The Wings alliance is too small to be a major challenger to Star, SkyTeam has only just been launched, and it is too early to say whether oneworld can be successfully be resurrected following the KLM/BA merger talks collapse. The EC feels that if it can provide a level regulatory playing field, this might be a boost to European competitiveness and industry rationalisation.

The failed KLM/BA talks also served to highlight the airline ownership issues. And it is also clear that the UK or French governments alone are going to be able to persuade the US to change its mind on granting cabotage. One suggestion is that momentum for TCAA should be provided by consumer interest groups. It was consumers that after all were responsible for championing US deregulation in 1978 rather than the airlines themselves.

The EC should perhaps think about rolling out the TCAA concept with other countries as well as just targeting the US (although this would be perhaps require a re–branding exercise first). Representatives of Canada and Australia have expressed an interest in the TCAA concept and Singapore Airlines would probably be supportive. With the 21–country strong Asia Pacific Economic Co–operation (APEC) forum gaining momentum, perhaps the EC should be looking east before west.

The alternatives to progressing aviation regulatory outside of the TCAA framework remain long shots. The World Trade Organisation would provide one solution through the GATT framework, but so far little has been proposed in this area. The OECD is even more unlikely to provide any solutions. If the TCAA or its successor were to come to fruition it would be likely that this would be adopted globally in time, perhaps sooner rather than later.