David Field: November 2005 Archives

The Federal Aviation Administration is pushing hard for a rapid resolution to its air-traffic controller labour union showdown, a significant step for a federal government agency that isn't always known for moving quickly. After four months of negotiations toward a new contract with the National Air Traffic Controllers Association, FAA Administrator Marion Blakey called for a mediator to step in and resolve issues by Christmas. "They just aren't moving on the issues at the heart of the negotiations. Our call for mediation is about trying to get a voluntary agreement".

Blakey said that a 1998 contract signed by her predecessor had raised pay by 74% and that as many as 1,300 of the 15,000 traffic controllers earn more than $200,000 annually. She said that that cutting labour costs is imperative as the agency prepares for a transition to satellite-based navigation at the same time that its revenues, based in large part in ticket taxes, are falling, congressional budgets are crimped, and the agency may soon face an attrition crisis as a wave of controllers who were hired in 1981 soon face mandatory retirement. The FAA hired heavily after President Reagan fired thousands of unionized controllers who went on strike that year. Although this union, a successor to the 1980s labour organisation, cannot legally strike, a work-to-rule campaign could slow air traffic just at reaches pre-2001 peak levels. And workforce cooperation would be essential in a transition to new technology.

But a NATCA official responded that the FAA was attempting to drive the dispute away from a voluntary resolution and into the arms of a Congress that is no friend of labour. Under the law, if either side or a mediator formally declares an impasse in talks, the FAA's proposal goes to Congress for review. If the lawmakers do not act within 60 days to change it, the FAA can impose its last offer to the controllers as a binding contract. The showdown comes as the FAA girds itself for the rewriting of its basic funding formula in a process known as reauthorisation, a legislative marathon that can take more than a year.

NATCA spokesman Doug Church says, "They're trying to rush it into Congress, which won't have time to look at it, and then wrap it up before they get into FAA reauthorisation, which is going to be a bloody battle without the labour issue and even worse with it". He added, "We don't know why they're rushing now because they agreed to a negotiating schedule with talks though February and possibly even into March. And contrary to what they're saying, our negotiating team has reported fairly good progress so far and in fact were on the way to a session with them when they made their announcement. It's painstaking but there is progress," he said. Union documents that Mr. Church made available would seem to support this position.

Although the union and the agency disagree on how much controllers are in fact paid, the FAA wants to freeze base pay for 15,000 controllers while allowing increases based on merit. Controllers proposed a 5.6% annual increase that will cost $2.6 billion over five years, Blakey said. Russell G. Chew, chief operations officer of the FAA's Air Traffic Organisation, said base salary plus overtime, along with premiums such as locality pay, averages about $128,000 a year. With benefits included, he said, each controller costs the agency roughly $166,000 a year. Controllers must retire at age 59 and get more generous pension benefits than other federal workers.

The union, charged Blakey, had a motive to for delaying tactics: their contract is an "evergreen" in that it stays in force until a new pact is signed-or is imposed after an impasse. Blakey agreed in 2003 to extend this contract for two years.

The US proposal to loosen the rules on foreign investment in US carriers -an administrative proposal that's been put forth in lieu of changing the law itself - is now key to unlocking a new US/EU aviation relationship. The principle negotiators of possible transatlantic open skies said late Friday they had agreed to end restrictions on where airlines could fly, on nationality clauses and other restrictions after two years of talks toward an EU/US open skies deal. But they insisted that the tentative agreement, possibly effective in time for the 2006 fall season, would rest on progress on the ownership-rules reinterpretation.

The tentative agreement would create a single "open skies" treaty for the entire 25-nation European bloc, clearing the way for carriers such as the Air France-KLM Group fly to any US city from any European city, and it removes limits on the number of carriers that can fly between the US and London's Heathrow Airport, the world's third busiest. It also would end restrictions on the types of equipment airlines can use and on prices they can charge.

Daniel Calleja, the European Commission director for air transport, told reporters in a conference call that the European transport ministers will await the outcome of the US foreign ownership proposal before acting on the tentative pact. Calleja said that if the outcome is "positive", he expects all 25 nations to approve the preliminary accord. The US ownership proposal is open for comment and consultation until early January.

John Byerly, the State Department official who is the chief US negotiator, was enthusiastic about the possible competitive benefits of the deal, saying a deal would "open the gates for vigorous competition." It would be followed by a second-stage agreement to address any other issues that arise. The first stage deal also establishes a dispute-resolution panel to address questions of capacity restrictions or excess capacity; side deals tentatively agreed upon would significantly advance transatlantic cooperation on aviation security issues, clearing the way for harmonising of rules. Significantly, the agreement does not require any US changes in rules on military airlift obligations of carriers or on the so-called Fly America rule. This last mandates that government travelers use US-flag carriers but has been interpreted to allow federal flyers to use foreign code-share partners when they book through a US alliance member. Both policies have been highly contentious.

But Byerly stressed that the framework did not include a "Heathrow carve-out" and that carriers would still have to obtain slots there. Heathrow of course has been the single largest obstacle in the past two years of US/EU negotiations, and the pact does not explicitly address the UK scheduling regime. Although a de facto slot market exists, the carriers thirsty for Heathrow access say it is hardly an open or thriving market, and Continental, Delta, and Northwest would still have to buy, bargain, beg, or negotiate their way into LHR.

The silence on Heathrow would leave undisturbed the incumbents there, American, United, British Airways and Virgin Atlantic, but the two UK-flag carriers were wary of the deal. "Nothing has fundamentally changed", Virgin Atlantic chief executive Steve Ridgway said in a statement. Andrew Cahn, the director of government and industry affairs for British Airways, said, "Right now, the US proposal falls short of the legislative solution that could have delivered a very real transformational change to the restrictive ownership and control rules".

Cahn's stance points up the central fact: the entire package rests on the US Transportation Department's proposal to relax the investment rules, a proposal that is not a statutory change or a rewrite of the law. The DoT undertakes to make as liberal as possible a regulatory interpretation of the existing 25% limit by formalising guidelines and recent precedent. But the DoT offer does not offer the certainty of new legal language-which only the Congress can offer. And in the nearly three years since Transportation Secretary Norm Mineta asked Congress to consider changes to the law, nothing has happened except for a minor tightening of the legal language and senatorial statements that the books were closed.

The ownership-and-control proposal has attracted opposition not just from labour, as anticipated, but from a wide swath of the lower chamber, the House of Representatives, where a strong declaration of opposition came Friday from 75 members, including 22 Republicans nominally aligned with the Bush administration. While paying an obligatory nod to liberalisation, their letter says the investment proposal is "a backdoor effort to accomplish what the Department (of Transportation) has failed to accomplish by legislation". The signers, including one respected authority, former aviation subcommittee chairman Jim Oberstar, say the DoT "has overstepped its authority in this proposal with its revised interpretation" of the rules of ownership and control. Interestingly, the Democrats' objection is similar in language and thesis to objections raised by Continental, and is signed by numerous members of the delegation from New Jersey - where Continental has its Newark hub. Still, Byerly and Calleja were optimistic that the case would be won when the parties weigh the benefits to the $18 billion transatlantic market and the 750 million citizens of 26 countries compromising the larger market.

The bankruptcy reorganisation and (anticipated) shutdown, sale, or liquidation of Independence Air has excited some analysts and observers, who think that its exit would take some capacity out of the super competitive East Coast market and so eliminate some of the low, low, below-cost fares that have bled airlines flying up and down the eastern seaboard and At Washington's Dulles, the Independence base.

Not so fast. Within hours of the Independence bankruptcy filing, AirTran said it would expand its Dulles operation with new service to Boston Logan and added flights to Orlando. Both have been routes on which Independence relied. Now comes one of the most feared challengers in the business, jetBlue, which plans to add Logan flights to its Dulles roster. Its eight daily roundtrips rival Independence frequencies at their height. All these services begin in January. The clear beneficiary may well be Logan and Boston travellers, but the moves are nails for the anticipated Independence coffin. And they boost the boast of the many Dulles backers: the Virginia airport is going to be a low-fares bastion. Independence may well go away, but that doesn't mean competition is going away, too

The first 100-seater regional jets, the Embraer 190, began service in the US Tuesday with jetBlue's first flights with the type -- an inauguration that came a day after the type's 50-seat sister saw another setback with the bankruptcy of CRJ operator Independence Air.

JetBlue's long-awaited 190s made their first flights out of Boston on one of eight daily services between Logan and New York's JFK with, the carrier says, every seat filled. The entry of the crowd-pleasers on the highly competitive Northeast Corridor will be a test of the type against larger airliners used in shuttle service between the two cities, though jetBlue says it expects many of passengers on 190 routes to transfer at its JFK hub to flights on its jetBlue A320 longer distance routes. The Embraer can achieve routes of up to 2,100 nautical miles; the Airbus, cross-country nonstops.

If any confirmation of the limited outlook for 50-seat regional jets were needed, long-troubled Independence Air has given it with its long-awaited bankruptcy reorganisation filing on Monday. Its parent FlyI gave in to pressures months after most airline observers gave up on its strategy of low-fares on very frequent 50-seater flights. It has lost more than $395 million since it began flights in June 2004, when it ended its Atlantic Coast feeder operation for United Airlines.

The foreigners are coming, the foreigners are coming. Well maybe next year.  At least not just yet if they're here to buy US airlines. That's despite a big blast by US transportation officials that made a lot headlines about the US lowering barriers to foreign investment in airlines.

It comes at an interesting time: the US and its major airline partner, the EC, are in the midst of the most recent last chance attempt at an Open Skies agreement, and airline ownership and control is one of the key stumbling points. In the next-to-last last chance, the US offered rules recognizing common European ownership in return for relaxed landing and gate restrictions for airline wanting to fly into London Heathrow. In the last one before that, back in spring 2003, Transportation Secretary Norm Mineta asked Congress to change the law that keeps non-US citizens from owning more than 25% control of an airline here. But the 2003 ownership change proposals have simply sat and languished with no one in Congress willing to act on them. Now though they're trying again, with a plan not to change the law itself but to change the rules about how they interpret the rules; the details are important but perhaps important as the message being sent: we're trying to change.

In the past, US officials have stretched the rules a little so that a carrier in dire straits could raise money by selling non-voting shares --as was the case when it allowed the first big infusion, by KLM, into Northwest n 1991. That cleared the way for the sale of UP to 49% of a carrier so long as voting power remains one fourth or less in foreign control. But in other cases, they have been strict, in one instance, actually shutting down a carrier in Hawaii named Discovery because its real owners were not US citizens. Some airline chiefs in particular United's Glenn Tilton have been vocal in calling for an end to the foreign investment rules, as have many in the EC, but noting has happened. After all, labour (as in the pilot unions that give political and campaign contributions to many members of Congress) is opposed, opposed opposed, and the administration hasn't been able to find anyone in Congress who really wanted to carry water on this. Some in the Pentagon are also opposed, because they don't want any possible interference when they draft airlines for special airlift emergencies. And after The DoT concluded a very lengthy and complicated review of the Deutsche Post investment in DHL and Astar, the air cargo carrier, that allowed the investment to go ahead, lawyers and others were unsure what the rules really meant.

The proposal that DoT officials published in the official list of US regulations, called the Federal Register, does little to change the language of the law; what it does do is to make formal the recent interpretations such as that in the KLM/Northwest investment (big stake, limited control) or the DHL case (being a major customer doesn't mean actual control). The US insists that everyday airline decisions such as marketing, routing, etc. would be the same no matter the citizenship of the owners. ABN AMRO securities analyst Andrew Lobbenberg also sees the importance in the subtext, since "it appears rather surreal that allowing Europeans greater access to owning US carriers could be so important". His conclusion: the US is "moving towards a concept based on an airline's principle place of business being the US" rather than considering equity stakes, direct or indirect, as crucial tests of control.

While some like bmi/British Midlands cautiously welcomed the US move, others did not; Continental Airlines blasted the move as "a blatant attempt" to bypass Congress. Although the SkyTeam member supports congressional action to change the existing law, it accused the DoT of being "blinded" by the desire to secure a deal with the EC. And Virgin Atlantic called the move "a transparent device to fool the EU into agreeing to an imbalanced deal" and said, "In simple terms, the EU must not trade access to Heathrow - its most valuable asset - for anything less than a true open aviation agreement. Each side has a number of cards in its hand but the EU holds the ace (Heathrow) and it should only play it to end the game".

The new rules would apply only to countries with Open Skies deals with the US and with matching investment rules. This fact, however nuanced, though it could increase pressure on the EU to reach a deal with the US, would still leave barriers in place for investors from Japan and China, both of which lack Open Skies deals.