Slicing Up the Sky-Pie

Not even the air is free.

In the aviation business, companies fight for shares of the sky, and airports apportion gates to their corporate allies. As international and domestic markets overlap, governments guard sovereign markets while ceding, within limits, to foreign competition.

The result, unbeknownst to most travellers, is an extremely complex patchwork of bilateral and multilateral deals between countries, their airports and their airlines, which altogether make the global aviation business possible.

So whenever questions of air-sovereignty arise, there are consequences for business.

It was only a matter of time before Europe’s unending sovereignty debate – the EU in federalisation-mode versus its individual member states – would make for just such a mid-air collision.

It has not actually happened yet, but the European Court of Justice has put it on the radar screen, with an opinion from Antonio Tizzano, the advocate general.

Who rules what

Delivering an opinion last week that is not legally binding but which will likely chart the path of European governance to come, Tizzano argued for EU prerogative in negotiations with third parties, in effect banning bilateral deals between members states and non-member states.

The advocate general said his opinion is "of obvious economic and political significance, not only because of the unusal number of member states involved and the repercussions on relations with the US, but especially because of their implications for the major restructuring taking place in the international aviation sector."

It has particularly strong bearing on the transatlantic aviation business, for which bilateral between European capitals and Washington have been in the works.

Such deals have been seen as a key to growth in transatlantic competition, with US carriers competing more in the European markets and some continental carriers plotting to cross the ocean and more aggressively enter the US domestic market.

The BA case

British Airways (BA), whose planned transatlantic joint venture with American Airlines was recently rejected on anti-trust grounds by the US Department of Transportation, had been a strong advocate of a bilateral deal allowing freer competition between the US and United Kingdom. This is precisely the sort of deal that Tizzano proposes to ban.

But now that BA’s venture with American Airlines is knocked out of the sky, pending an appeal, corporate hopes for a bilateral plan seem dashed, too.

"We had a small window of opportunity to pass a US-UK agreement, but that time is passed," said BA spokesman, Andrew Silvermann.

The outstanding question is how big foreign competitors to European aviation, mainly the US, will react if Tizzano’s logic wins out in Brussels and then by default in European capitals.

Still stung by the decision from Washington, Silvermann said "you’ve got to ask yourself if the United States will be willing to open its carriers to new competition" on a European-wide level, if they balked at even "a tiny amount" from the UK.