European Union flag carriers could face lawsuits from smaller independent airlines and corporate customers for fixing frequencies and fares with non-EU airlines, under new competition regulations.

On 1 May, air service agreements between EU members and other countries lost the protection from anti-monopoly enforcers that they once enjoyed as part of wider reforms to European competition law. Geert Goeteyn, a competition lawyer at aviation law firm Howrey Simon Arnold &White says that the new rules will make legal challenges to these deals much more likely, since many of these agreements stipulate which airlines - usually flag carriers - can operate between the two countries.

The European Commission is likely to be pragmatic in applying the rules to existing bilaterals, where such clauses are "common practice", but will be more proactive in ensuring new bilaterals are legal, he says.

However, as the deals are now open to direct judgement from national courts, affected companies such as rival carriers or firms with extensive overseas interests are likely to launch challenges. "If a bilateral is restricted to one airline from each side, this wouldn't be illegal per se, but it would have to be open to tender for any EU carrier," says Goeteyn. Furthermore, if the agreement fixes prices, companies using those routes frequently could challenge the deal, citing artificially raised costs, a principle established in a case against Scandinavian Airlines and Maersk, he adds.

Recently, British Airways franchise partner British Mediterranean Airways (BMed) was forced to abandon plans to resurrect services to Tblisi after it refused to agree fares and frequencies with Georgian carrier Airzena, says BMed chief executive Des Hetherington. Airzena international relations manager, Lia Naskidashvimi, says it wanted to form a "commercial co-operation with BMed under the bilateral, and should jointly decide on the frequency on the Tblisi-London route and find a tariff that is acceptable to both airlines". Hetherington says such co-operation would have been illegal. Airzena, however, says it has similar agreements with Air France and KLM.

The changes to competition law should ease larger deals, such as mergers and alliances, says André Lobbenberg, an airline analyst with ABN AMRO. The EC will now be allowed to deal with competition cases on its own, and the net effect is to make challenges on competition grounds quicker and easier, says Goeteyn.



Source: Flight International