RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/163/Add.2
10 November 2000
(00-4777)
Council for Trade in Services
DEVELOPMENTS IN THE AIR TRANSPORT SECTOR SINCE THE CONCLUSION OF
THE URUGUAY ROUND
PART THREE
Background Note by the Secretariat
Addendum
This background note brings additional information on the developments in the air transport
sector since the conclusion of the Uruguay Round, covering sectors on air traffic control services
(including charging systems), general aviation and aerial work, and commercial air transport services.
_______________S/C/W/163/Add.2
Page 2
TABLE OF CONTENTS
I. AIR TRAFFIC CONTRO L SERVICES INCLUDING CHARGING SYSTEMS .............4
A. AIR NAVIGATION SERVICES AND AIR NAVIGATION SERVICES PROVIDERS ..................................4
1. Definition and classification................................................................................................ .....4
2. Main charac teristics ......................................................................................................... ......10
(a) A great organic diversity................................................................................................... ........11
(b) The dual and complex natu re of the ac tivities ..........................................................................13
(c) A complex fee sy stem........................................................................................................ .......14
3. Recent economic and regulatory developments:  delays and congestion as the
driving forces of institutional reform  and technological innovations ................................16
(a) An ever increasing number of aircraft movements...................................................................16
(b) A debate focused in Europe on the unification of the airspace.................................................17
(c) An embryonic debate in  the United States................................................................................22
(d) An improved financial situatio n faced with new challenges ....................................................23
(e) A limited but significant movement in institutional structures largely driven by
financial cons ideratio ns. ...................................................................................................... .....24
B. AN INTERNATIONALLY AGREED CHARGING SYSTEM UNDER STRAIN ........................................29
1. An internationally agreed charging system..........................................................................29
(a) Article 15 of the Chicago Convention ......................................................................................29
(b) Statement by the ICAO Council to contracting States on charges for  air navigation
services....................................................................................................................... ...............31
2. The Montreal ANSConf debate .............................................................................................33
II. GENERAL AVIATION AND AE RIAL WORK SERVICES ............................................34
1. Introduction................................................................................................................. ............34
2. Definitions and Regimes...................................................................................................... ...35
3. Regulations .................................................................................................................. ............37
4. Business/Corporate Aviation (including fractional ownership) .........................................39
(a) Fractiona l Ownership........................................................................................................ ........39
5. Possible UN CPC Classifica tion Linkages (GA/AW)...........................................................40
6. Economic..................................................................................................................... .............42
(a) US Business Aviation ........................................................................................................ .......42
(b) European Business Aviation.................................................................................................. ...44
7. Conclusion ................................................................................................................... ............44
III. COMMERCIAL AIR TRANS PORT SERVI CES: .............................................................45
A. ECONOMIC DEVELOPMENTS ......................................................................................................45
1. Traffic and Financial Trends................................................................................................. 45
(a) Global te ndencies........................................................................................................... ...........45S/C/W/163/Add.2
Page 3
(b) Developmenta l aspects ....................................................................................................... ......49
2. Employment ................................................................................................................... .........52
B. REGULATORY DEVELOPMENTS ..................................................................................................52
1. Privatiz ation ................................................................................................................ ............53
2. Bilateral Liberalization a nd Regional Integration...............................................................54
ANNEX 1 ........................................................................................................................ ......................68S/C/W/163/Add.2
Page 4
I. AIR TRAFFIC CONTROL SERVICES INCLUDING CHARGING SYSTEMS
1. Air navigation services were mentioned briefly in document S/C/W/59, paragraphs 64
and 129.
2. The legal regime of the air navigation service, for instance in terms of charging, as well as its
recent economic and regulatory evolution, presents great similarities with the situation of airportservices.  However they differ fundamentally in three respects.  Firstly unlike airports, air navigation
facilities and services provided by a State generally extend over the whole territory of the State
concerned or even beyond, and they are frequently dependent on facilities and service provided in
other States.  Secondly, in most States all or most of the air navigation services are not provided by a
single entity;  several entities may be involved although only a few are major service providers.
Thirdly, air navigation services are closely connected with the safety of aircraft operations and have
national defence and external relations implications;  they are also perceived as closely related to thesovereignty of the State.  Consequently most gove rnments favour maintaining their control over these
services.
3. These characteristics have however not prevented significant economic and regulatory
changes over the last ten years.  What appears to be the driving force is the constant increase of
traffic, which makes the management of air traffic services a perpetual race against growingcongestion. To try to remedy this congestion States are constantly looking for technological
innovations and procedural, institutional and regulatory improvements.  The need to finance these
costly technological innovations by resources other than the general budget of the State, and the need
for more reactive, more customer-oriented organizations has led in certain countries to limited but
significant institutional change.  Those attempts are however often judged insufficient by airlines and
by customers faced with growing delays.  This debate has recently reached a climax in Europe and to
a lesser extent in the United States but is likely to extend in the years to come to the rest of the world.
4. These economic and regulatory developments will be described in the first part of this section
while the second part will deal with the description and evolution of the internationally agreed
charging system which is similar in essence to the one regulating airports and facing similarchallenges.
A. 
AIR NAVIGATION SERVICES AND AIR NAVIGATION SERVICES PROVIDERS
1. Definition and classification
5. The provisional CPC contains a definition of air traffic control services:  CPC 7462 "air
traffic control services:  flight control tower operation services, including approach, landing and take
off control services.  Also included are services pr ovided by airport-located radar stations.  "CPC rev1
for its part replicates this heading and this definition with a different number (r67720) and with a newexclusion of radio navigation services.
6. This definition does not appear to encompass the whole of the activities considered as air
navigation services by the industry and by ICAO in  its Manual on Air Navigation Services Economics
(ICAO document No. 9161/3, third edition, 1997).  In particular it does not cover "en route" services,
that is the guiding of the plane at its cruise altitude between airports.  Several services that are alsoconsidered by the industry as part of air navigation services, such as meteorological services and
search and rescue services, are not encompassed either.  For possible future classification purposes it
may be worthwhile to examine the industry's and ICAO's concepts and definitions.
7. There is a universally agreed breakdown of air navigation services, which could form a
meaningful basis for a possible classification, in the ICAO Manual on Air Navigation ServicesEconomics (MAN).S/C/W/163/Add.2
Page 5
8. The following chart describes the ICAO classification system.  It presents its headings in a
digital form, giving the corresponding definitions, describing the facilities and the types of providers
involved, and attempts to indicate CPC correspondences.  Its content is made up of direct quotations
from the ICAO manual except for the CPC correspondences.S/C/W/163/Add.2
Page 6Table 1
Air Navigation Services – ICAO Classification
ICAO manual headings ICAO manual definitions Staff and facilities involved ICAO remarks on the provider Possible CPC correspondence s
1 Air Traffic Services (ATS) Usually provided by the civil aviation
administration although in a growingnumber of States autonomous bodies
also referred to as operating agencies
have been assigned this function.  Insuch instances the same authority mayalso be responsible for providing
certain communication services for
example some or all Aeronautical fixedservices (AFS, see below, line 21) andAeronautical Mobile Services (AMS
see below line 22) or even radio
navigation aids (see below line 23)
11 Air traffic control services A service provided for the
purpose of:
 1)  preventing collision
      a) between aircraft;  and
      b) on the manoeuvring area          between aircraft and
          obstructions; and
2)  expediting and maintaining an
      orderly flow of air traffic
111 Area control services       (en route)Air traffic control services for
controlled flights in control areasArea Control Centers (ACC)
including Oceanic Area ControlCenterProvided in a majority of States by the
same organization which provides AirTraffic Services (ATS) en route.  Inabout one third of the States responding
to the ICAO questionnaire the services
are provided by the airportadministration especially in the AsiaPacific RegionNone
112 Approach control
       servicesAir control services for arriving
or departing controlled flightsApproach control offices, working
positions integrated in area controlcentersProvided in a majority of States by the
same organization which provides AirTraffic Services (ATS) en route.  Inabout one third of the States responding
to the ICAO questionnaire the services
are provided by the airportadministration especially in the AsiaPacific RegionCPC 7462 "air traffic control
services:  flight control toweroperation services, includingapproach, landing and take of
control services. Also included are
services provided by airport locatedradar stations."S/C/W/163/Add.2
Page 7ICAO manual headings ICAO manual definitions Staff and facilities involved ICAO remarks on the provider Possible CPC correspondence s
113 Aerodrome control
       servicesAir traffic control services for
aerodrome trafficAerodrome control towers CPC7462 "air traffic control
services:  flight control tower
operation services, including
approach, landing and take ofcontrol services. Also included areservices provided by airport located
radar stations."
12 Flight information services Flight information centers
13 Alerting services A service provided to notify
appropriate organizations
regarding aircraft in need ofsearch and rescue aid and assistsuch organizations as required
2 Telecommunication    services (COM)CPC75299 "Other
telecommunication services n.e.c."provides for the inclusion of e.g."mobile maritime and air-to-ground
communication services" which
appear to accommodate theaeronautical (COM) telecomservices. Existing GATS telecom
commitments are rarely so elaborate
under "other" as to specify suchservices.  It is worth consideringthat existing telecom commitments
on mobile and fixed radio (incl.
satellite) services may alreadyconvey commitments on thetransmission component for the
COM services, but not necessarily
the supply of the COM serviceitself.
21 Aeronautical Fixed
     Services (AFS)A telecommunication service
between specified fixed points
provided primarily for the safetyof air navigation and for theregular efficient and economical
operation of air servicesAFS are frequently provided partially
or wholly by postal and
telecommunication branches ofgovernment although use is made ofprivately owned communications
organizations in some instances
22 Aeronautical Mobile
     Services (AMS)A telecommunication service
between aeronautical stations and
aircraft stations or between
aircraft stationsAMS are frequently provided partially
or wholly by postal and
telecommunication branches of
government although use is made ofprivately owned communicationsorganizations in some instancesS/C/W/163/Add.2
Page 8ICAO manual headings ICAO manual definitions Staff and facilities involved ICAO remarks on the provider Possible CPC correspondence s
23 Aeronautical radio
        navigation servicesRadio navigation aids Usually provided by the civil aviation
administration although the
communications branch of government
or an autonomous authority may also beinvolvedCPCrev1 67300 "navigation aid
services : ...radio navigational aid
locating services such as GPS" (the
corresponding CPC provisionalitem p74530 was limited to watertransport)
3 Meteorological services for    air navigation (MET)[Provision of] meteorological
observations, reports andforecasts, briefings and flightdocumentation, SIGMET and
AIRMET
1 information, world
area forecasts system, digital gridpoint data for computerized flightplanning, meteorological
information for inclusion in
broadcasts, aeronauticalmeteorologicaltelecommunications (if not
included in COM) and any other
meteorological data required fromStates for aeronautical useWorld Areas Forecasts Centers
(WAFCs), Volcanic Ash AdvisoryCenters (VAACs), Tropical CycloneAdvisory Centers (TCACs),
meteorological watch offices
(MWOs), aerodrome meteorologicalequipment for aeronautical purposesand telecommunication equipment for
aeronautical purposes and various
facilities and services which alsoserve meteorological requirement ingeneralMET is usually provided by a separate
meteorological entity which in manyStates reports to another branch ofgovernment than do the civil aviation
administration or the
telecommunication services branch (seealso table 2 below)91138 "general administrative
economic commercial and labouraffairs relatedservices:…administrative services
by …weather forecasting
institutions"
4 Search and rescue (SAR) Search and rescue services
provided to aviationRescue Coordinating Centers (RCC),
Rescue SubCenters (RSC), if any
aircraft including helicopters, rescueboats and vessels, mountain rescueunits and other units forces or
facilities which are designated
primarily or exclusively or which areavailable to perform aeronauticalsearch and rescue functions when
requiredWhile aeronautical SAR activities are
often coordinated  by the civil aviation
administration, in most States theaircraft vehicle, vessels and personnelutilised in the actual SAR operations
are provided by the military, civil
defense and other forces91290 "other public order and
safety affairs related services "
(see CPC provisional, page 220,
"air-sea rescue services areclassified in subclass 91290")
                                                          
1 SIGMET: information concerning en route weather phenomena which may affect the safety of aircraft operations.
  AIRMET: information concerning en route weather phenomena which may affect the safety of low level aircraft operations.S/C/W/163/Add.2
Page 9ICAO manual headings ICAO manual definitions Staff and facilities involved ICAO remarks on the provider Possible CPC correspondence s
5 Aeronautical information
services (AIS)[Services consisting in]
collecting, collating, editing,
publishing and distributing
aeronautical informationconcerning the entire territory ofthe State as well as any other
areas for which it has undertaken
to provide air navigation services.Included are the preparation anddissemination of AeronauticalInformation publication (AIP),
Notice to Airmen (NOTAM),
Aeronautical InformationCirculars (AICs) and theprovision of plain language
preflight information bulletins to
flight crews as part of thepreflight information serviceStaff facilities and equipment
employed to that effectAIS tend to be provided by the civil
aviation administration?S/C/W/163/Add.2
Page 10
9. It is worth noting that this breakdown is currently being revised to take into account
technological development.  With the progressive implementation of the CNS/ATM (Communication
Navigation Surveillance/Air Traffic Management) automated systems the Air Traffic Services (ATS)
category will be replaced in the future by a "Air Traffic Management Services" (ATM) category
divided in the following manner:
1 Air Traffic Services
11 air traffic control services:
111 area control services
112 approach control services
113 aerodrome control services
12 flight information services
13 alerting services
2 air traffic flow management services3 airspace management services.
2
10. Similarly the Telecommunications Services (COM) category will be replaced in the future by
a "Communication Navigation and Surveillance" (C NS) category which is broader in scope and
divided in the following manner:
1 Communication, Navigation and Surveillance
11 communication services:
111 Aeronautical Fixed Services (AFS)
112 Aeronautical Mobile Services ( AMS)
12 navigation services13 surveillance services.
3
11. This revision will not be completed and implemented for several years.
2. Main characteristics
12. Air traffic control provision appears to be a complex business in at least three respects:
• In organic terms:  it involves:
- apparently always natural monopolies but which can be bundled or unbundled to
various degrees depending of the organizational forms retained;
- in certain instances governmental suppliers and in other regions private suppliers;- national providers (public or private) and intergovernmental international
organizations, two types of providers whose activities overlap (as in the case of
Eurocontrol).
                                                          
2 For details on the provisional definitions see the MAN page 40 para 4.6 to 4.12 and glossary
pages 83-86.
3 For details on the provisional definitions see the MAN page 40-41 para 4.13 to 4.17 and glossary
pages 83-86.S/C/W/163/Add.2
Page 11
• In operational terms
Since these activities involve traffic police activities, the allocation of scarce resources on a
daily basis and management activities, they perform a mix of regulatory and operational functions
without clear borders and definitions.
• and finally in financial terms: where
- The collection of fees can in certain instances be delegated to a national public or
private body or to an international intergovernmental body;  and
- the nature of the fees is an irrelevant4 question in the actual regulatory context, and is
therefore open to conflicting elements of appreciation.
The following section will expand in more detail on these complexities.
(a) A great organic diversity
(i) Bundled and unbundled natural monopolies
13. It is widely recognized, including by the commercial providers of Civil Air Navigation
Services Organization (CANSO), that those servi ces are natural monopolies even if they can be
unbundled.  In other terms Air Traffic Services (ATS), Aeronautical telecommunication service
(COM), Meteorological services for air na vigation (MET), Search and Rescue (SAR) and
Aeronautical Information Services (AIS) are frequently provided altogether by one single provider.
They may also be provided also by different providers (unbundling) but for each type of service there
can only be one provider (natural monopoly).
14. The following chart drawn from a summary of the answers to the ICAO ANSConf
questionnaire (WP/18) gives an idea of the degree of "bundling" of air navigation services, region by
region:
Table 2
Provision of Other Air Navigation Services by the ATS Provider
Region COM:
Aeronautical
telecommunication
serviceMET:
Meteorological
services for air
navigationSAR:  Search and
RescueAIS:  Aeronautical
information service
Asia/Pacific
(14 States)1 321 1 1 4
Middle East
(8 States)8588
Africa
(19 States)1 951 5 1 9
Europe
(29 States)27 9 1 28
North America
(2 States)2212
Caribbean/Central
/South America
(9 States)8656
Total ( 8 1  S t a t e s ) 7 72 95 17 7
                                                          
4 Except probably for fiscal purposes.S/C/W/163/Add.2
Page 12
(ii) Governmental suppliers coexisting with private suppliers
15. Governmental provision of ATC services remains the rule in over two-thirds of the cases.
There are however to date about 40 countries that have given their providers some kind of
autonomous status and in certain instances made them, legally speaking, private suppliers and at least
one case where full privatization with significant foreign ownership is envisaged.  This evolution willbe described in paragraph 81-89.
(iii) National providers (public or private) coexisting and sometimes overlapping with
intergovernmental international organizations
16. Air navigation services are relatively frequently delivered by international intergovernmental
cooperative ventures.  ICAO distinguishes four types of international cooperation
5:
- International operating agencies:  separate entities to which the task has been
assigned to provide air navigation services, principally routes facilities and serviceswithin a defined area, on behalf of two or more sovereign States. These agencies are
also responsible for the collection of charges.  Examples are:  the Agence pour la
Sécurité de la Navigation Aérienne en Afrique et à Madagascar (ASECNA), the
Corporaciòn Centro Americana de Servicios de Navegacion Aera (COCESNA) and
EUROCONTROL;
- Joint charges collection agencies:  such an agency collects route air navigation
services charges on behalf of all the participating States including those which are
overflown.  The only example of such a dedicated agency is the IATA ATC
Enhancement and Financing Service which collects charges for close to thirty, mainlydeveloping, countries.  However, ICAO encourages the creation of such agencies;
- Multinational facilities and services facilities or services included in an ICAO
regional air navigation plan for the purpose of serving international air navigation in
airspace extending beyond the airspace serviced by a single State.  The World AreaForecast System (WAFS) represent a current global example while elements of the
satellite communications systems required to implement the CNS/ATM concept and
operated for groups of States represent examples of prospective multinational air
navigation facilities/services;
- Joint financing types of arrangement whereby several States finance a facility or
service operated by one State for the benefit of international civil aviation at large
(concept of "joint support", chapter XV of the Chicago Convention).  Examples
include the facilities managed respectively by Denmark and Iceland to which 23
States contribute, and the height monitoring systems program operated jointly by six
States providing air navigation services on the North Atlantic.
17. For all these forms of international cooperation it may be worth recalling that in the similar
case of Intergovernmental Satellite Organizations (ISO) providing satellite services, Members finally
considered, during the telecommunications negotiations, that ISO were not covered by the scope of
the GATS since they were intergovernmental and therefore not "a juridical person constituted or
otherwise organized under the law of a member", in  the sense of Article XXVIII (l) and (m) of the
Agreement (see notably document S/GBT/M/2, dated 17 October 1996, paragraph 6).
                                                          
5 For further information on this point see ANSConf-WP/5.S/C/W/163/Add.2
Page 13
18. This is an important point since the implementation of CSN/ATM systems may very likely
result in additional intergovernmental cooperation.  Those systems will in effect offer the possibility
of expanding the capacity of individual Area Cont rol Centers (ACCs) in any part of the world and
particularly over the high seas.  As a result it would be possible and technically and economically
feasible to merge many flight information regions (FIR) in a single multinational FIR.  In addition,
ICAO identifies other potential areas for further international intergovernmental cooperation:planning; research and development; training; technical support; meteorological services for air
navigation (MET) and aeronautical information services.
(b) The dual and complex nature of the activities
19. ATC involves both traffic regulation in the police sense, allocation of scarce resources both
from a regulatory and an operational point of view, and various management functions.  For instance
the December 1999 communication fr om the European Commission
6 distinguishes four types of
activities:  air space management, air traffic flow management, air operation regulation and air trafficservices.
20. Air space management:  this activity consists in managing the scarce resources of airspace
and is considered by the Commission as a regulatory function.
21. Air traffic flow management:  it is questionable for the Commission whether this activity is a
regulatory function or a services provision function.  It could be considered both as a service delivered
to air traffic service providers to avoid overload but also as the regulation and management of demand
and supply through various means ranging from ma ndatory regulatory measures (ATC clearance,
routings) to collaborative decision-making.  However, in view of the numerous police functions
involved, the Commission has up to now considered this as a regulatory function.
22. Air operations regulation:  this activity is a regulation imposed by States enforcing the
mandatory carriage of equipment with the required functionalities and levels of performance.  It is
however often devolved to air traffic services operators.
23. Air traffic services (strictly speaking):  this activity is considered by the Commission in its
last communication as a services provision function.  However, even in this latter case it should be
recalled that this activity consists essentially of police powers similar to those of road traffic police,though much more sophisticated, that is to say verifying the respect of preestablished rules and
sanctioning infractions.  For instance, the traffic co ntroller verifies the respect of the rules on flight
altitude, on operational minima of separation between aircraft, the existence or non-existence of a slot
and in the case of infraction of these rules is empowered to issue a writ
7 and to sue the airline or the
pilot before the competent judicial authorities.  The same goes a fortiori  for the granting of air traffic
clearances, for verification of the conformity of the flight plan with this clearance, for the granting of
derogations from the flight plan, for the obligation for the aircraft to report its position and if
necessary to obey to any re-routing order.8
24. That is probably the reason why the European Court of Justice ruling in 1994 on the
operational activities9 of the Eurocontrol Maastricht centre, decided that "for the purpose of such
control, Eurocontrol is vested with rights and powers of coercion which derogate from ordinary law
                                                          
6 "The Creation of a Single European Sky" COM (1999) 614 final 2, dated 6 December 1999, available
on http/europa.eu.int/eur-lex/en/com/pdf/1999/com1999_0614en01.pdf.
7 For more elements on these procedures see Annex 11 of the Chicago Convention "air traffic
services", chapter 3, air traffic control services.
8 For more elements on these rules, see Annex 2 of the Chicago Convention "rules of the air".
9 Day to day air space control for the Benelux and the Northern part of Germany, distinct from the
allocation of air slots by Eurocontrol's Central Flow Management Unit.S/C/W/163/Add.2
Page 14
and which affect users of air space.  In exercising those particular powers, it must ensure compliance
with international agreements and national rules concerning access, overflying and the territorial
security of the contracting States concerned".10
25. Hence the court concluded that:
"Taken as a whole Eurocontrol's activities, by their nature, their aim, and the rule to which
they are subject are connected with the exercise of  powers relating to the control and supervision of
airspace which are typically those of the public authority.  They are not of an economic nature
justifying the application of the treaty rules of competition".11
(c) A complex fee system
26. The organization of the collection of the fees is extremely variable and so apparently is the
nature of the fees collected.
(ii) The various collection systems
27. The ICAO enquiry has shown that among 86 responding Members, the fees are collected at a
national level in 56 cases, but also that 37 States have contracted this collection to a third party,
primarily an international agency of the type described above in paragraph 16 and in a few other
instances to other States.  It is worth noting that in all instances all third parties are public entities.  A
regional breakdown of these practices can be found in the last two columns of Table 7 below.
28. Eurocontrol accounts for a large part of those 37 States.  It is worth noting that the European
Court of Justice has also decided that Eurocontrol's collection of route charges "cannot be separated
from the organization's other activities.  Those charges are merely the consideration, payable by users,
for the obligatory and exclusive use of air navigation control facilities and services.  (…) Eurocontrol
must, in collecting the charges, be regarded as a public authority acting in the exercise of itspowers".
12
(iii) The nature of the fees is an irrelevant question in the actual regulatory context, and therefore
open one subject to conflicting elements of appreciation
29. It is very difficult to appreciate if the fees are administrative user fees or commercial user
fees. The situation may in addition vary from country to country depending on each country'sinternational obligations, its internal legislation and its practices.
30. The non-binding but, generally respected statement by the ICAO Council to contracting
States on charges for air navigation services stipulates that:
"As a general principle, where air navigation services are provided for international use, the
providers may require the users to pay their share of the related costs
, but international civil aviation
should not be asked to meet costs which are not properly allocable to it. The Council therefore
encourages States to maintain accounts for the air navigation services they provide in a manner which
ensures that air navigation services charges levied on international civil aviation are properly cost-
based" (a provision mutatis mutandis similar to point 2.2(b) of the telecom reference paper);
                                                          
10 Recital 24 of ECJ decision of C364-1992 "SAT Fl uggeselleschaft mbH V Eurocontrol" of
19 January  1994, also quoting a similar previous decision case 29/76 LTU versus Eurocontrol ECR 1541.
11 Ibidem recital 30.
12 Ibidem recital 28.S/C/W/163/Add.2
Page 15
and that:  "Air navigation services may produce sufficient revenues to exceed all direct and indirect
operating costs and so provide for a reasonable return on assets (before tax and cost of capital) to
contribute towards necessary capital improvements."
31. The use of the word "may" in the quote above seems to open the possibility of a commercial
basis (cost + reasonable return on assets being a classical benchmark).  It is a fact also that 13 of the21 autonomous providers listed in Table 8 have been established as profit making organizations and
have in fact reported profits, as shown in the 6
th and 9th columns of this table.  However, this is not the
case for other autonomous providers, nor is it the case for non-autonomous providers which by their
very nature cannot report profits.
32. ICAO has gathered elements on the main determinants applied in setting charges as shown in
the chart below but it is impossible to determine from this chart how may countries apply a cost +
reasonable return on assets policy since the "ICAO cost recovery policy" mentioned in the fifthcolumn only mentions the return on assets as a possibility.
Table 3
Main determinants applied in setting charges
RegionCost-
based
chargesTransparent
Accounting
SystemMandatory
Consultation
with usersICAO Cost
Recovery
PolicyInter-
governmental
FactorsOther
Asia and Pacific
(11 States)
Airport charges 7 6 4 5 3
ANS charges 6 5 5 7 1
Middle East
(8 States)
Airport charges 5 3 3 6 1
ANS charges 4 2 4 5 1
Africa(18 States)
Airport charges 9 6 7 10 1
ANS charges 9 5 8 11 1 1
Europe(30 States)
Airport charges 12 14 12 14 6 2
ANS charges 25 18 14 19 6 3
North America(2 States)
Airport charges 2 2 2 1
ANS charges 2 2 2 2 2
Caribbean/
Central/
South America(6 States)
Airport charges 4 3 2 3 3
ANS charges 4 2 1 3 1
Total*(75 States)
Airport charges 39 34 30 38 10 7
ANS charges 50 34 34 47 11 5
*  Double answers are possible.Source: ANSConf-WP/9S/C/W/163/Add.2
Page 16
33. Actual practice is also in that respect an important element.  For instance, until 1997, the
United States, which has one of the most advanced air traffic control systems, had no cost basis for
overflight charges.  The FAA only came forward with a proposal in 1997 and had to withdraw it in
view of protest.  A new interim final rule on this was published by FAA on 6 June 200013 and came
into effect in August 2000.  This rule is still however subject to public comments until
27 October 2000.
34. In addition all providers, including autonomous ones, are exerting traffic regulation powers
akin to ones used by the police as explained in paragraphs 23 to 24 above, in the application of the
internationally binding obligations of the annexes of  the Chicago Convention.  It could be argued that
regardless of the commercial basis suggested as a possibility by the non-binding ICAO statement on
air navigation charges, the fees are in consequence administrative user fees.
35. This is clearly the actual legal situation in the European Union where the European Court of
Justice has ruled as explained above in paragraphs 28 that charges levied by Eurocontrol in theexercise of its operational function "are merely the consideration, payable by users, for the obligatory
and exclusive use of air navigation control facilities and services.(…) Eurocontrol must, in collecting
the charges, be regarded as a public authority acting in the exercise of its powers".
14
36. Finally, with regard to the relationship between  air navigation and traffic rights, one may note
that air navigation services are delivered not only to airlines, but also to customers not flying under atraffic rights regime, such as general aviation (business aviation, aerial work, instructional and
recreational flying) and military aircraft.  The reconciliation of military needs for airspace and of
commercial traffic requirements is indeed one of the main tasks and challenges of air traffic control
management.
3. Recent economic and regulatory developments:  delays and congestion as the driving
forces of institutional reform and technological innovations
37. In the case of air navigation services it is difficult to separate economic from regulatory
developments, since the latter are often responses to economic change.
(a) An ever increasing number of aircraft movements
38. There are many sources of traffic forecasts (aircraft manufacturers, ICAO, IATA, ACI) and
all of them concur in predicting considerable growth of the traffic.
39. ICAO has prepared for the Montreal ANSConf a detailed document focused not only on the
growth passenger numbers but also on the growth of aircraft movements, which must take into
account the growing capacity of the aircraft (wide bodies and soon Super Jumbos). The conclusions of
the study are the following:  "The global demand fo r air transport measured in terms of passenger-
kilometres is projected to increase at an average annual rate of 4.5% for the period 1997-2020.
Aircraft movements for the same period are projected to increase at an average annual growth rate of
3.5%.  In response to this demand, the world aircraft fleet is expected to almost double from some
10,000 aircraft in 1998 to almost 20,000 aircraft in the year 2020. (…)  These growth prospects
present a major challenge to air transport as airports and air traffic management systems will be
expected to accommodate almost a 2.7 fold increase in traffic and doubling of aircraft movements."
(ANSConf-WP/13)
                                                          
13   FAA-2000-7018-94 available on http://www.faa.gov/aba/html_overflight_fees/index.htm.
14 Recital 28 of ECJ decision C364-1992 "SAT Fluggesellschaft mbH V Eurocontrol" of
19 January 1994, also quoting a similar previous decision case 29/76 LTU versus Eurocontrol ECR 1541.S/C/W/163/Add.2
Page 17
40. The following chart drawn from the same document15 details those forecasts for all major
international traffic route groups.
Table 4
ICAO  Aircraft Movement Forecasts by Major International Traffic Route Group
(% increase per annum – base year 1996)
Route Group 5-year Horizon 15-year Horizon
Transpacific15.2 4.7
North Atlantic14.6 3.2
North America-Africa 4.0
Europe-Africa 3.7
Middle East-Africa 4.2
Asia/Pacific-Africa 4.7
Intra Africa 5.0
Asia/Pacific-Middle East 4.5
Europe-Middle East 3.3
Intra Middle East 5.5
South Atlantic 3.3
Mid Atlantic 4.8
Intra South America 2.5
Intra Central America/Caribbean 3.6
North America-South
America/CentralAmerica/Caribbean4.5
South America-Central
America/Caribbean2.3
1  Base year 1998.
Source:  (ANSConf-WP/13)
41. Among the causes of this congestion are the growth of traffic due to the democratisation of air
travel but also its concentration on hubs, which implies not only a geographical but also a time
concentration, especially on the morning and evening slots for short hauls.  In addition the hub and
spoke system and code sharing encourage the use of smaller planes with a higher frequency (shuttle).
To take an example, Nice airport has seen in three years a growth of 42% in its aircraft movements
while the number of passengers grew by only 18% during the same time.
42. Delays and congestion have evolved in the two most saturated areas, Europe and North
America, from a technical debate to a political debate.
(b) A debate focused in Europe on the unification of the airspace
43. Between 1990 and 1999 total European air traffic grew by 51%.  At the same time the
question of air traffic delays in Europe has become the object of debate between the air transport
operators and regulators but also in the general public in the recent years. This can easily be explainedby the following figures:
                                                          
15 ICAO, ANSConf-WP/13, dated 17 February 2000, table 2, page 8.S/C/W/163/Add.2
Page 18
Table 5
Proportion of the European flight delayed for more than 15 minutes:
1993 1994 1995 1996 1997 1998 1999
12.7% 13.3% 18.4% 18.5% 19.5% 22.8% 30.4%
Source:  Association of European Airlines.
44. Not all these delays are to be attributed to air traffic:  of the 30.4% of delayed flights in 1999
4% was attributable to meteorological conditions, 14% to airports and the rest to air traffic congestion
and chain effects.  In 1998, the costs of saturation were estimated at €500 million in additional
operating costs for airlines.  It has been computed  that in the absence of delays fuel consumption
could be reduced  by 6 to 12% and that waiting  times generate 320,000 tons of additional carbon
dioxide emissions per year.
45. According to certain sources this is due to the fact that traffic grows on average 8% a year
while the system cannot cope with growth of more than 5%.  One should note also that because of the
saturation of the system the relation between the growth of the traffic and delays is not proportional
but rather logarithmic:  for instance, in the fi rst six months of 1999 a growth of 5.6% in aircraft
movements generated a growth of 145% in delays.16
46. The chronology of the regulatory debate and developments which is reconstituted below in a
simplified manner shows a clear acceleration in the last two years.
47. Eurocontrol17, founded in 1960, has implemented the European Air Traffic Control
Harmonization and Implementation Program (EAT CHIP) since 1991.  This program has faced a
growth of traffic of 50% without degradation of safety.  However, partly due to the lack of
enforcement powers for Eurocontrol the realization of the objectives of its ConvergenceImplementation Program is beyond schedule and reached only at 76%.
48. In 1997, Eurocontrol put into place the Central Flow Management Unit (CFMU) which
arbitrates in last resort conflicting requirements on airspace, decides on the final attribution of slots
and if necessary imposes delays.
49. In June 1997, the Ministers of Transport of the Member States of Eurocontrol signed the
revised Convention with a view to improving the Agency's ability to carry out its responsibilities
more effectively. The revised Convention provided for the reformulation of Eurocontrol's tasks and
the creation of a new institutional structure to enable the Organisation to achieve:
• the expansion of available airspace to meet traffic demand and the optimum utilisation of
available capacity within the framework of a uniform European Air Traffic Management
System (EATMS);
• the strengthening of ATM planning by combining en-route and airport policies within a
2000+ Strategy based on a Gate-to-Gate concept;
• effective participation in the design and implementation of a global satellite navigation
system;
• enhancement of cooperation with other European institutions;
• the introduction of an ATM performance review and target-setting system;
                                                          
16 Conventionally defined as the flights that are delayed for more than 15 minutes.
17 EUROCONTROL, the European Organisation for the Safety of Air Navigation has 29 Member
States:  Germany, Austria, Belgium, Bulgaria, Cyprus, Croatia, Denmark, Spain, France, Greece, Hungary,Ireland, Italy, The former Yugoslav Republic of Macedonia, Luxembourg, Malta, Moldova, Monaco, Norway,Netherlands, Portugal, Slovak Republic, Czech Republic, Romania, United Kingdom, Slovenia, Sweden,Switzerland, Turkey.S/C/W/163/Add.2
Page 19
• the development of harmonised safety regulatory objectives and requirements for the ATM
system;
• a more efficient decision-making process based on majority voting;
• the systematic involvement of representative organisations of airspace users and airports in
the matters that concern them;
• the reinforcement of cooperation between civil and military authorities.
50. This revised convention has however not entered into force yet as EU Member states and the
European Commission are still discussing the modalities of a simultaneous ratification implying full
membership of the Community.
51. In October 1998 the Transport Ministers of the European Community on civil aviation
adopted the strategy document ATM2000+.  Among the elements of this plan are reform of
procedures, integration of the IT systems, research on the human-machine interface, redefinition of
vertical separation between aircraft, global datalink systems and communication upgrades.  This
programme is planned to last until 2015.
52. In July 1999 the European Council of Ministers adopted a resolution on "The situation of air
traffic delays in Europe" (1999/C22/01, 19 July 1999) and invited the Commission to report on the
subject.
53. In October 1999 IATA began a campaign on air traffic delays and presented a five point plan:
- Adopt the ATM 2000+ strategy in full and implement immediately a top-down
approach for planning and operating air space as a continuum across national
boundaries;
- give Eurocontrol and the European Union the necessary regulatory powers and
processes so that:  (a) common rule making becomes possible;  (b) Eurocontrol
decisions have direct applicability in Member States;  and (c) Eurocontrol standards
are effectively applied and swiftly complied with in Member States;
- establish a permanent European-wide capacity planning process to ensure that
capacity is added to the European network when and where it is needed;
- liberalize the provision of Air Traffic Services (ATS) through commercialization,
privatization or corporatization as appropriate in each European State;
- develop incentives for ATS providers to deliver sufficient capacity and flight
efficiency for air space users and do so cost-effectively.
54. In December 1999, CANSO formulated its own proposal for the December 1999 meeting of
EU transport Ministers and for the ECAC-MATSE  Transport Ministers Conference of January 2000,
proposals which are similar in a sense to the IATA ones:
- Adopt the ATM2000+ strategy in full;
- services provision should be freed from political control and States should make
available to the services providers appropriate resources such as air space and
spectrum free from constraints of national boundaries;
- services providers should be made accountable for the safety and performance of the
ATM system since they have direct control over meeting demand and developing the
service;S/C/W/163/Add.2
Page 20
- change the current charting mechanism for ATM so as to introduce appropriate
incentives for service providers to perform in terms of services, value and safety;
- establish separate regulatory authorities to protect the interests of consumers by
encouraging competition wherever possible  and appropriate, while maintaining firm
adherence to safety standards.
55. On 6 December 1999, the European Commission presented to the Council of Ministers and
the European Parliament a communication entitled  the "Creation of a Single European Sky".18
56. The Commission communication first derives the need for political action at the highest level
from statistics similar to those described above.  It evaluates for instance the 1998 indirect cost of air
traffic delays at €5,400 million and the direct operating costs for airlines at €600 million.  Itunderlines the financial contribution of the Community to the research effort in the area of air traffic
management and pays homage to the "gate to gate" ATM 2000+ Eurocontrol strategy, but
acknowledges the fact that no technological revolution can reasonably be expected in the short term.
It points out the lack of interoperability between national systems which creates a knock-on effect on
the whole system and introduces artificial limits on or under-utlization of the capacity of theirneighbours.  It points out that the conflicting needs of military and civilian traffic have now been
partially accommodated by the "flexible use of air space" concept where some military air space is
made available for civilian users.  It states however that the implementation of this concept remains at
a national level and is seldom operated by an independent and neutral regulator.  It also points out that
states are sometimes resisting cross-border reorganization of routes in order to continue collecting thecorresponding charges.  It concludes in that respect that air space is a common asset which should be
managed collectively as a continuum regardless of borders, with a view to satisfying all its users,
civilian and military, and optimizing air traffic management.
57. To that effect it suggests that a central organization should be given the full responsibility for
the management of European air space at both the strategic and tactical level.  With regard to
investment in equipment, human resources and finally capacity, the communication notes that
Eurocontrol has started an evaluation of capacity n eeds entitled "Medium-term capacity planning".  It
suggests that this process should be encouraged and that targeted increases of capacity should be
decided according to the provisions of the revised Eurocontrol Convention.
58. After a discussion on the air traffic management flow concept (see above paragraphs 21) the
Commission concludes that this function should be centralized and governed by high level rules.  The
Commission then suggests separating the regulations imposing the carriage of mandatory equipment
from air traffic providers' activities.
59. The Commission then suggests that the provision of air traffic services in the strict sense
should be regulated so as to ensure that they meet the necessary level of safety and interoperability. It
proposes also that those services, when provided on a monopoly basis, should be submitted to an
economic regulation ensuring that the agreed operational performance or services levels areimplemented.  The Commission suggests separating the regulatory function from the services
provision function and economic regulators from safety regulators.  This should apply in particular to
Eurocontrol.  New incentives based on rewards or penalties should also be developed.  Finally the
Commission will also examine the technical and economic feasibility of unbundling air traffic
services.
                                                          
18 COM(1999) 614 final 2, dated 6 December 1999, available on http/europa.eu.int/eur-
lex/en/com/pdf/1999/com1999_0614en01.pdf.S/C/W/163/Add.2
Page 21
60. This important communication has provoked an intense debate and has created tension in the
workforce and social unrest.
61. In January 2000, Airport Council Internatio nal (ACI) – Europe and the Association of
European Airlines issued a statement comparable to those of IATA and CANSO urging governments
to set up a chain of command and to put in place an enforcement mechanism, calling for the
separation of regulators from the air traffic services providers and requesting an air space based on theneeds of the markets and not on artificial frontiers between air spaces.
62. Following its December 1999 communication the Commission established a high level
working group comprising representatives of airlines, air navigation services providers, unions and
consumers.
63. In June 2000 the Commission reported to the Council of Ministers that the first results
emerging from the high level working group were the following:
- Europe requires both a strong regulator and regulation/legislation which is consistent
across Europe.
- Airspace must be treated as a common resource, without internal frontiers, and we
must work towards integrated management of Europe's airspace.  Upper airspace will
be the first focus of attention.
- Military needs for the use of airspace must be assured, while minimising segregated
use of airspace for military purposes:  both military and civil users are willing to
improve arrangements for co-ordinating usage and establish arbitration procedures.
- The reform needs an active involvement and commitment by air traffic controllers.
Recruitment efforts are needed for air traffic controllers to preserve Europe's strong
safety culture.
- Incentives are needed to enhance interoperability of all aspects of managing air traffic
across Europe.
64. In August 2000, IATA and CANSO produced a joint statement "A Joint Vision for the Future
of Air Traffic Management in Europe" calling for a central European regulator, opening of the market
and regulation of competition.
65. In September 2000 the Commission proposed the creation of a European Aviation Safety
Agency whose function would mainly consist in certification, currently the Joint Aviation Authorities'
function (for more details and references on this organization see the maintenance section of
document S/C/W/163) but which could also serve as a central regulator for the safety aspects of air
traffic control, including air operation regulation.
66. The final report of the high level group, initially expected for autumn 2000 is now due to be
published at the end of the year.  The discussions that will follow its issuance are likely to be intensein view of the political sensitivity of the question.  The possibility of a simple functional separation of
the regulator and the provider could constitute a compromise.S/C/W/163/Add.2
Page 22
(c) An embryonic debate in the United States
67. The debate on institutional reform of air traffic management in the US has not yet reached the
same intensity as in Europe, probably because the US airspace is less fragmented than that of
Europe.19  However the public debate on air traffic delays has also recently reached a peak:
passengers' complaints have more than doubled in 1999 as compared to 1998.  The main causes of
complaint are delays and cancellations, many of them being caused by air traffic delays, althoughmeteorological causes seem to play a more important role than in Europe.
68. It is difficult to gather a consistent series of figures on delays, since one of the problems that
the airlines and the FAA are facing is the lack of a harmonized measurement system.  Some
fragmented data is however available.  The number of delays has increased between 1995 and 1999
by 58%, while cancellations have grown by 68%, although total flight operations have only increased
by 8.3%.  The duration of delays has also grown by 18% during the same period.  A new
measurement devised by the DOT and combining the scheduled and unscheduled delays experiencedby 10 major carriers shows on average a 42% delay increase, from 11 minutes to 16 minutes, between
1998 and 1999.  Delays of more than one hour on taxiing out, which constitute a marginal part of the
delays, have however increased by 130% between 1995 and 1998.  The Air Transport Association
(ATA) has estimated the cost of delays to be US$4.6 billion in 1998, a progression of 5% as
compared to 1997.
69. In mid-1998, the industry faced the prospect of legislation being introduced that would make
compulsory certain procedures designed to improve overall services.  Fearing what they termed re-
regulation, airlines put in place a voluntary programme:  "customer first" including offering the lowest
fares available, notifying customers of know delays and cancellations, allowing reservations to be
held or cancelled within 24 hours without penalty and increasing baggage liability limits.  In thesummer 2000 certain Congressmen, in view of the mid-term reports of the DOT Inspector General,
have indicated that they may push forward additional passenger-fairness legislation.
70. In August 2000, the Secretary for Transportation convened an emergency summit to be
attended by the major carriers, air traffic control administrators and union representatives to seek short
term improvements and relaunch the debate on the longer term challenges.  At this occasion the FAAproduced a plan containing 21 initiatives, 11 of which should be completed by late October for
tackling 7 "choke points" at airports east of the Mississippi, from Atlanta to Boston.  These 21
possible changes were in fact announced by the FAA administration on 9 October 2000.  These
changes include also more efficient utilization of space through the reduction of vertical separation
between aircraft from 2000 feet to 1000 feet above 29,000 feet, flying lower between 8,000 and20,000 feet on short flights, reducing miles in-trail, increasing the number of low altitude arrival and
departure routes.  To face the statistical and information systems problems mentioned above, a task
force on services quality performance has been created, as well as another task force in charge of
expediting investment infrastructure such as runways and airport expansion, following the adoption of
the US$40 billion FAA re-authorization bill.
71. In September 2000, the airlines have suggested that in cases of severe congestion, the
prohibition of the coordination of schedules among airlines should be lifted and given case-by-caseanti-trust immunity.  The absence of coordination is considered as one of the main causes of delays,
                                                          
19 There was however, a certain degree of fragmentation since in September 1999, a study by the FAA
has identified as the main causes of air traffic delay the poor communication between traffic management in the
various regions and the FAA command centre in Washington and the lack of standardized equipment.  As aresult of this report the management flow and the meteorological information system have been centralized inWashington.  However, according to certain industry sources  this centralization has in fact made the situation
worse.S/C/W/163/Add.2
Page 23
since airlines are all programming flights at peak times when the system cannot physically
accommodate this volume of traffic.
72. The institutional debate is less active.  Although certain organizations like the American
Automobile Association (AAA), the largest leisure travel organization, have called for the
privatization of the air traffic system, the question is clearly not on the agenda of the Administration
nor of the Congress.  Airlines themselves are divided:  Continental is in favour of partial privatizationbut Northwest is against it, as it considers that it would mean higher costs and a concentration of
investments on certain big hubs.  American Airlines and United take the middle line in favour of the
institutional status quo accompanied by the application of private management disciplines and
accounting methods and performance measurement systems for the FAA.  The FAA has partially
anticipated these requests by deciding to turn itself into a "semi-autonomous performance based
organization".
73. As in many cases, data is lacking for the rest of the world in the specialized press and in the
international organizations there is little material available.  Members may wish to reflect on the
possible need and ways and means to gather such information.
(d) An improved financial situation faced with new challenges
74. In the context of the ANSConf conference, ICAO has collected data on the financial situation
of air navigation services providers (documen t ANSConf-WP/3, dated 3 May 2000).  About seventy
States have answered the enquiry but they represent more than 75% of the traffic.  A similar enquiry
had been conducted in 1989 but with a smaller number of responses (49 States).
75. As for airports, comparison of the 1989 and 1999 data shows considerable improvement of
the financial situation of air navigation providers.  Income equalled or exceeded expenses in 49 of 62
States in 1999, whereas in 1989 the comparable figure was 24 States out of 49.  The situation hasimproved in all regions.
20
76. However, as for airports again, expenses may have been underestimated in certain instances.
Among the causes of these improvements, ICAO identified the growing emphasis States are placing
on recovering air navigation services costs, the continued growth of traffic and an increase in the
number of States levying approach and aerodrome charges.
77. ATS and COM services account for the majority of expenses (from 75 to 90%), MET for
between 5 and 20%, AIS around 5% and SAR between 0 and 3%.  The share of ATS and COM has
also grown in relative terms which reflects the heavy investment in those areas.  Similarly the relative
share of depreciation and/or amortisation costs has grown from 9 to 17%.
78. In terms of sources of financing the ICAO enquiry shows a considerable diversification of the
sources of financing, as illustrated by the following chart:
                                                          
20 For a detailed regional breakdown see table 5, page 7 of ANSConf-WP/3.S/C/W/163/Add.2
Page 24
Table 6
Primary Sources for Financing Air Navigation Services (ANS) in 71 States
1999
Commercial loansSelf-
financingNational
governmentForeign
governments
loans or aidDevelopment
banks or funds domestic foreignShare
capitalOther
Applied 53 33 17 20 15 20 5 4
PlannedNumber
of ANS 26 7 7 9 11 11 6 0
79. According to ICAO this tendency will become even more pronounced since governments are
relying increasingly on the private sector or on financially autonomous public or semi-public bodiesto finance investments in air navigation services.
80. There is no data available on which to base a comparison between operating surpluses and
capital expenditure, whereas for airports such a comparison can be made (S/C/W/163, paragraph 88).
However, CANSO considers that among the US$250-350 billion deemed as necessary by ICAO for
investment in airport and air navigation infrastructures from 1999-2005
21 at least US$50 billion
should be devoted to air navigation infrastructure.  Similarly recognizing that there may be
insufficient funds available in many States, notably to implement the CNS/ATM concept, ICAO is
actively exploring all available and potential funding sources including new applications of the joint-
financing concept (see paragraph 16 above) and an International Financial Facility for Aviation Safety
(IFFAS).  This last concept is the object of an intense debate among ICAO Members.
(e) A limited but significant movement in institutional structures largely driven by financial
considerations.
81. In the context of the ANS-Conf, ICAO has gathered data on the ownership and operation of
air navigation services.  The results of this study, by region, appear in the following chart.
Comparison with earlier systematic data are unfortunately impossible as this was the first generalstudy ever undertaken on this subject.
                                                          
21 See S/C/W/163, paragraph 91.S/C/W/163/Add.2
Page 25
Table 7
Ownership and Operation of Air Navigation Services22
Ownership and Operation Charges Collection
RegionGovt owned
autonomous
entityDirectorate
of Civil
AviationMinistry or
other govt
departmentInternational
operating
agencyPrivately
owned
entityOther Collects
itselfCollected by
another
body/agency
Asia/Pacific (14 States)
Current 87 20 0 0
Planned 41 20 0 010 2
Middle East (8 States)
Current 06 10 0 1
Planned 20 00 0 062
Africa (19 States)
Current 89 22 0 0
Planned 41 00 0 015 5
Europe (29 States)
Current 1 783 00 2
Planned 72 40 2 115 25
North America (2 States)
Current 00 10 1 0
Planned 00 00 0 110
Caribbean/Central/South America (9 States)
Current 42 33 1 0
Planned 00 10 0 093
Total (81 States*)
Current 37 32 12 5 2 3
Planned 1 747 02 256 37
82. The following chart compiled by the (CANSO) gives the essential characteristics of the
various members of this organization of  commercial air navigation providers.
                                                          
22 The country by country breakdown of this chart is contained in document ANSConf-WP/18Add1.S/C/W/163/Add.2
Page 26Table 8
Characteristics of the Main Commercial Air Navigation Services Providers
Country NameYear of
Foundation/Corporatisat
ionType of
CompanyShareholder Profit? Revenues Employees ProfitInvestment
Abroad
Australia Airservices 1988 State corporation NoTargeted return
on investment
(ROI)US$ 349,023 M 3.954 US$ 26,981 M
Austria Austrocontrol 1955/1994Limited liability
company100% State-
ownedNo US$ 139,567 M 1.059
Belgium Belgocontrol 1998Public Business
EntityYes, but cost-
recovery user
chargesBEF 6,317 B 972 BEF 281 M
Canada NAV Canada 1996Private non-share
capitalcorporationNo No US$ 632,096 M 5.200
Czech Rep.ANS of the Czech
Rep.1997 State corporation NoYes, but cost-
recovery user
chargesUS$ 53,134 M 736 US$ 13,571 M
EstoniaEstonian Air
Navigation Services1998Limited liability
company100% State-
ownedEKR 113,736 M 120
GermanyDeutsche
Flugsicherung (DFS)1993Limited liability
company100% State-
ownedYes, but cost-
recovery user
chargesUS$ 707,332 M 5.038 US$ 57,346 M
IrelandIrish Aviation
Authority1994Limited liability
company100% State-
ownedYes, but cost-
recovery user
charges€ 76,282 M 493 € 6,217 M
ItalyEnte Nazionale di Assistenza al
Volo (ENAV)3.240
LatviaLatvijas Gaisa
Satiksme (LGS)1991/1997Joint-stock
company100% State-
ownedYes, but state-
controlledLVL 9,433 M 109 LVL 0,703 M
NetherlandsLuchtverkeersleiding
Nederland (LVNL)1945/1993 State corporation No No NLG 338,162 M 879
New ZealandAirways Corporation
of New Zealand1987 State corporation US$ 45,362 M 614 US$ 3,378 M
Portugal NAV Portugal 1978/1999 St ate corporation 100% StateYes, but cost-
recovery user
chargesUS$ 117,024 M 986
RomaniaRomanian Air
Traffic ServicesAdministration(ROMATSA)1953/1991 State corporation Yes, but cost-recovery user charges 1.937S/C/W/163/Add.2
Page 27Country NameYear of
Foundation/Corporatisat
ionType of
CompanyShareholder Profit? Revenues Employees ProfitInvestment
Abroad
South AfricaAir Traffic &
Navigation Services1994 State corporation100% State-
ownedYes SAR 165,302 M 564 SAR 26,520 M
SpainAéropuertos
Españoles y
Navegación Aérea
(AENA)1990/1997 State corporation NoYes, but cost-
recovery user
charges€ 353,483 M9,200 total, of
which 2,948 in
ANS€ 10,008 M
Switzerland Swisscontrol 1921/1987Joint-stock
company99,85% state-
owned, 0,15%
othersNo CHF 265,174 M 902
Thailand Aerothai 1963/Limited
company withregistered share
capitalGovernment,
91%, airlines,
9%No TBT 1,818 B 682
United King.National Air Traffic
Services (NATS)1962/1996Wholly-owned
subsidiary of UK
CAANoYes, but cost-
recovery user
charges£ 535,012 M 5.372 £ 14,717 M
SERCO £ 807,544 M* £ 29,332 M*
UkraineUkrainian State Air
Traffic ServicesEnterprise(UkSATSE)1993/1998 State corporation No Yes US$ 56,678 M 3.656 US$ 23,373 MS/C/W/163/Add.2
Page 28
83. It is worth noting that the list of CANSO members is narrower (21) than the list of
"government-owned autonomous entities" (37 existing , 17 planned), of "privately-owned entities" (2
existing, 2 planned) and of "other entities" (3 current, 2 planned) in the ICAO table 7 above.
84. The countries concerned by these discrepancies are the following:
- For the existing government owned autonomous entities:  Algeria, Bolivia, Brazil,
Brunei Darussalam, Bulgaria, Finland, Greece, Grenada, Maldives, Malta Morocco,
Norway, Pakistan, Saint Vincent and the Grenadines, Sao Tome and Principe,
Singapore, Sri Lanka, Sweden, Tunisia, Uganda, Tanzania, Zimbabwe;
- for the planned government autonomous entities:  Bostwana, Iran, Kenya, Kuwait,
Namibia, Poland, FYROM; Tajikistan;23
- for the existing privately owned entities:  Brazil;24
- for the planned privately owned entities:  Lithuania;
- for the existing "other" entities Poland and Qatar;25 and
- for the planned other entities, the United States who are planning to turn the FAA
division concerned into a "semi-autonomous performance based organization".26
85. This movement towards "commercialization" cannot be compared in scale to the one affecting
airports.  All autonomous bodies listed in th e CANSO chart are either state corporations or
commercial corporations 100% owne d by the State.  In two instances only are there shares held by
other actors and this external participation is ve ry marginal (9% in Thailand, 0.95% in Switzerland).
No foreign interest is involved and none of thes e bodies has commercial interests outside its own
national territory.
86. It is also worth noting that to address the same compelling financial need for stable and
foreseeable resources and to obtain the same borrowing capacity certain countries have had recourse
to other formula than corporatization and privatization.  For instance France has retained the classical
system of the provision of air traffic control servi ces by a governmental branch (a directorate of the
Ministry of Transport without a legal personality distinct from the state) but has created a "budgetannexe" de la navigation aérienne, an exceptional budget formula that entails a borrowing capacity.
87. The first case where partial private ownership and a substantial foreign share is envisaged is
the privatization of 46% of the NATS, the air navigation corporation of the UK, in the framework of a
Public- Private Partnership, planned for March 2001.  Four consortia are competing:  "Novares"
(Lockeed Martin - New Zealand Airways Corporation - Apax partners);  "Nimbus" (SERCO - PPM
Venture/Raytheon systems ltd);  "Airlines Group" (British Airways - British Midlands - Virgin
Atlantic - Airtours - Britannia - JMC - easyJet - Monarch) and the Irish Aviation Authority. It isinteresting to note the presence in these consortia of equipment manufacturers (Lockeed, Raytheon
                                                          
23 8 countries instead of 17 mentioned above as ICAO in 9 cases ticked both the "current" and
"planned" column, see ANSConf WP/18, appendix 1.
24 ICAO mentions also in this category NAV Canada, member of CANSO.
25 ICAO also mentions in this category Ukraine member of CANSO.
26 For more information on this US policy see "air traffic services performance plan, fiscal years 2000-
2002", October 1999.  ICAO also mention in this category the UK NATS future "public private partnership",
already member of CANSO.S/C/W/163/Add.2
Page 29
and at and an earlier stage of the bidding process Boeing and Thomson CSF) of airlines traditionally
rivals but united here by the fear of charges escalation, of  financial companies (Apax partners, PPM
Venture - the venture capital subsidiary of the insurer Prudential) and of foreign air navigation
services providers (New Zealand Airways Corp oration, SERCO, Irish Aviation Authorities).
88. However even in this case the state will keep a 49% share in the short term and a 30% share
in the long term, as well as a permanent golden  share (the employees receiving the remaining 5%).
The exact amount of foreign participation is still unknown since it varies between consortia.  Again
the main reason for this process is the financial needs of the system, since the objective is to finance
£1.3 billion of investment by 2010 to face a planned traffic growth of 43%.
89. To be complete, legally speaking the creation of NAV-Canada in 1996 was also a
privatization and is considered so by ICAO (see ANSConf-WP/6, annex, page 6, para 3.15).
However the new body is a "private non-share capital corporation", without external or foreign
ownership and is acting on a non-profit basis.
B. AN INTERNATIONALLY AGREED CHARGING SYSTEM UNDER STRAIN
90. This subsection will describe (1) the classical internationally agreed charging system and (2)
the debates held and the decision taken at the Montreal ANSConf conference held in June 2000.
91. This charging system is an essential feature of the operating conditions of airlines as it
determines in a very precise manner how the billions of dollars represented each year by en routecharges are established and levied.  The following chart gives an idea of the amounts at stake.
Table 9
En Route Facility Charges (1993-1998)
En route
facility charges1993 1994 1995 1996 1997 1998
Amount
(millions $)5420 5950 7120 7010 7650 8460
Proportion of
operatingcharges (%)2.4 2.5 2.8 2.6 2.8 3.0
92. This section will largely draw on information contained in ICAO document 9161/3 "Manual
on air navigation services economics" (third edition, 1997) and 9082/5 "Statements by the Council tocontracting States on charges for airports and route air navigation facilities" (1997) as well as on the
relevant ANSConf documents.
1. An internationally agreed charging system
93. The ICAO air navigation charges principles are contained in two different sets of documents
of a different legal nature.  The first set is Article 15 of the Chicago Convention which is legallybinding on ICAO Members and therefore subject to the seldom-used ICAO dispute settlement system.
The second set is constituted by the non-binding but very detailed statement by the Council to
contracting States on charges for air navigation services.
(a) Article 15 of the Chicago Convention:
94. The basic policy established by ICAO in the area of air navigation charges is expressed in
article 15 of the Chicago Convention as follows (this text is common to airport charging and air
navigation charging, sections specific to air navigation have been put in bold).S/C/W/163/Add.2
Page 30
"Every airport in a contracting State which is open to public use by its national aircraft shall
likewise, subject to the provisions of Article 68, be open under uniform conditions to the aircraft of all
the other contracting States.  The like uniform conditions shall apply to the use, by aircraft of
every contracting State, of all air navigation facilities, including radio and meteorological
services, which may be provided for public use for the safety and expedition of air navigation.
Any charges that may be imposed or permitted to be imposed by a contracting State for the
use of such airports and air navigation facilities  by the aircraft of any other contracting State shall
not be higher:
(a) As to aircraft not engaged in scheduled international air services, than those that would be
paid by its national aircraft of the same class engaged in similar operations; and
(b) As to aircraft engaged in scheduled international air services, than those that would be paid by
its national aircraft engaged in similar international air services.
All such charges shall be published and communicated to the International Civil Aviation
Organization:  provided that, upon representation by an interested contracting State, the chargesimposed for the use of airports and other facilities shall be subject to review by the Council, which
shall report and make recommendations thereon for the consideration of the State or States concerned.
No fees, dues or other charges shall be imposed by  any contracting State in respect solely of the
right of transit over or entry into or exit from its territory of any aircraft of a contracting State
or persons or property thereon."
95. This last principle has in some instances been interpreted to mean that no charges are to be
levied when an aircraft flies into, out of, or over  a State.  That, however, is not the intent of this
principle since all States are fully within their rights to recover the costs of the services they provide
to aircraft operators through charges.  The substance of this principle is in fact that a State should notcharge solely for granting an authorization for flight into, out of, or over its territory.  It is comparable
though not exactly similar to the provisions of Article V:4 of the GATT which stipulates that "all
charges and regulations imposed by contracting parties on traffic in transit to or from territories of
other contracting parties shall be reasonable having regard to the conditions of traffic" and which
apply to the air transit of goods but not to the operation of aircraft in transit (Article V:7 of theGATS).
96. The various obligations of the States in terms of MFN, national treatment, publication and
consultations are exactly the same as those applying to airports and which are described in detail in
document S/C/W /163/Add1 paragraphs 133 to 138.
97. As for airports, the ICAO dispute settlement system has never been used in the case of air
navigation charges.  IATA is also monitoring closely the respect of Article 15 with regard to air
navigation services, but the situation there seems proportionally less tense than for airport charges.
98. The ICAO enquiry confirms this appreciation since out of 75 answers, 47 States were
following the ICAO cost recovery policy (compare d with only 38 for airports) and 34 following
mandatory consultations with users
27 (compared with 30 for airports).  ICAO attributes that difference
to the fact that autonomous bodies and privatization are more common and longer-established in
airport operation than in air navigation services.  Another illustration of this proportionally less tensesituation is the fact  that IATA and CANSO have been able to produce several common position
papers in recent years on regulatory reform.  One may note however that the IATA position in favour
                                                          
27 Double answers are possible.S/C/W/163/Add.2
Page 31
of "commercialization" is qualified by a series of prerequisites.  Among the prerequisites listed in
document ANSConf- WP/2628 are:
- the full involvement of users from the beginning to the end of the commercialization process;
- a charging policy which would be cost-based and agreed with users;
- charges:
- determined on the basis of transparent, fair and reasonable costs;- in line with international obligations for the particular States;- compatible with ICAO's principles on user charges; and- subject to a regulatory process (ideally through an independent regulatory body).
(b) Statement by the ICAO Council to contracting States on charges for air navigation services:
99. Additional and more detailed policy guidance in the area of air navigation charges is provided
in the statement by the Council to contracting States on charges for air navigation services reproduced
in annex.  As for airports this statement has been periodically revised.
100. The prevention of discrimination between air navigation services customers is not the only
purpose of the statement, which is in fact largely focused on the establishment of a finely tuned and
very detailed economic balance between airlines and air navigation services providers.  As for airportsthe statement is non-binding and ICAO relies on a "strong moral obligation" to ensure an enforcement
that it judges to be the general practice.
101. The principles contained in the Council Statement address such subjects as the cost basis for
air navigation services charges, allocation of air navigation services costs among aeronautical users,
air navigation services charging systems, approach and aerodrome control charges, route airnavigation services charges, charges for air navigation services used by aircraft when not over the
provider State, and consultation with users regarding charges and air navigation services planning.
102. The statement contains provisions on the balance of interests between providers and users and
consultation obligations between them which are similar to those applicable to airports.
103. An important principle expressed in the Statement is that where air navigation services are
provided for international use, the providers may re quire the users to pay their share of the related
costs, but international civil aviation should not be asked to meet costs which are not properly
allocable to it.  The cost to be shared is the full cost of providing the air navigation services, including
interest on capital investment and depreciation (paragraph 34 (i)).
104. Other principles and recommendations of particular relevance in the context of the cost basis
for air navigation services charges, charging systems and the collection of charges are:
a) That States are encouraged to maintain accounts for the air navigation services they
provide in a manner which ensures that air navigation services charges levied on
international civil aviation are properly cost-based (paragraph 32);  also, that for the
                                                          
28 ANSConf-WP/26, dated 16 December 1999, part V.S/C/W/163/Add.2
Page 32
purpose of consultation users should be provided with adequate financial information
(paragraph 45 (ii));
b) that air navigation services may produce sufficient revenues to exceed all direct and
indirect operating costs and so provide for a reasonable return on assets to contribute
towards necessary capital improvements (paragraph 34 (iv));
c) that the allocation of air navigation services costs among aeronautical users should be
carried out in a manner equitable to all users, and the proportions of cost attributable
to international civil aviation and other utilization of the facilities and services
(including domestic civil aviation, State or other exempted aircraft, non-aeronautical
users) should be determined in such a way as to ensure that no users are burdened
with costs not properly allocable to them according to sound accounting principles(paragraph 36);
d) any charging systems should, so far as possible, be simple, equitable and, with regard
to route air navigation services charges, suitable for general application at least on a
regional basis.  The administrative cost of collection charges should not exceed areasonable proportion of the charges collected (paragraph 37 (i));
e) that the charges should not be imposed in such a way as to discourage the use of
facilities and services necessary for safety or the introduction of new aids and
techniques (paragraph 37 (ii));
f) any charging system should take into account the cost of providing air navigation
services and the effectiveness of the air services rendered.  The charging system
should be introduced in such a fashion as to take account of the economic and
financial situation of the users directly affected on the one hand, and that of theprovider State or States on the other (paragraph 37 (v));
g) the charges levied on international general aviation should be assessed in a reasonable
manner having regard to the costs of the facilities needed and used and the goal of
promoting the sound development of international civil aviation as a whole(paragraph 37 (vii));
h) that approach and aerodrome control charges, whether a part of the landing charges or
levied separately, should as far as possible be a single element of the landing charge
or single charge per flight and could take aircraft weight into account but less than in
direct proportion (paragraph 39);
i) that route air navigation services charges should essentially be based on distance
flown and aircraft weight but that weight should be taken into account less than
proportionately (paragraph 40);  and
j) that all users may be required to pay their share of the costs of providing air
navigation services regardless of whether or not the utilization takes place over the
territory of the provider State (paragraph 42).
105. An interesting provision concerns the currency and remittances problem.  It is proportionally
more sophisticated than the provisions of Article XI and XII of the GATS.  On this issue the CouncilStatement recommends that under normal circumstances, user charges should be expressed and
payable in the local currency of the State concerned, but that under special circumstances, for example
where economic conditions are not stable, when user charges are denominated in other than localS/C/W/163/Add.2
Page 33
currency, airlines could apply the currency of denomination using the same exchange rate for their
local ticket sales;  the Council also recommends that remittance problems be resolved.  It is also
recognized that when route air navigation services charges are billed on a regional basis (i.e. on behalf
of several States or by a jointly operated agency), it may be advantageous to both users and providers
to denominate and pay charges in a single convertible currency (paragraph 38).
106. Finally, as concerns cost recovery of search and rescue services the principle is that costs
attributable to the provision of search and rescue services provided by a permanent civil establishment
can be included in the cost basis for air navigation services charges but that such services provided by
parties or entities not falling within that category (for example military forces) should not.
2. The Montreal ANSConf debate
107. The Montreal ANSConf debate has shown that the air navigation charging system was
experiencing the same kind of strain as that for airports, though more recently and less acutely.
108. The diagnosis made by ICAO for airports on the situation and its consequences (paragraph
155 and 156 of document S/C/W/163/Add.1) is also valid for air navigation services.  ICAO makes
the same plea that the State cannot abdicate or delegate its responsibility with regard to the standards
of facilities and services provided because Article 28 of the Chicago Convention has granted those
responsibilities to the State exclusively.
109. The proposal made by ICAO to insert in the Council statements a paragraph recommending
States to consider setting up an independent regulatory authority to oversee financial practices of
airports, was also valid for air navigation services providers and had the same fate. That is, States
considered that this body was not necessary if a generic competition authority pre-existed but also that
the overseeing duties of this regulatory body should extend beyond simple financial practices (for
more detail see S/C/W/163/Add.1, paragraphs 159 and 160).
110. The second proposal made by ICAO, to strengthen its policy regarding consultations notably
by raising in the revised statement the possibility for a State to impose on an operator respect for
Article 15 of the Chicago Convention and of the statement by the Council was equally valid for air
navigation services.  The result of the discussion was that States agreed to amend the text but only to
the extent of reaffirming the compulsory nature of Article 15 of the Chicago Convention and the lessmandatory nature of the statement (for more detail see S/C/W/163/Add.1, paragraphs 161 and 162).
111. A third ICAO proposal was air navigation-specifi c.  ICAO asked the conference if "with the
increasing autonomy in the services provision… [it] may wish to consider whether there may be a
need for an extended ICAO role in this area particul arly in the case of air space over the high seas
where the responsibility for the provision of air navigation services has been assigned to differentStates by ICAO".  In response Members considered that they did not feel prepared to address that
issue at the present juncture (WP/115 recommendation/4/3.4.6.7).
112. A fourth proposal was the establishment of a first resort mechanism, that is to say a neutral
party at local level to prevent and resolve disputes before they enter the international arena.  There
again, this proposal was valid both for airport services and air navigation services.  The conference
agreed with the inclusion of that suggestion in the revised council statement (for more detail see
S/C/W/163/Add.1, paragraphs 163 and 164).
113. Finally, the same remarks made on the airports charges statement, in paragraph 168 of
document S/C/W/163/Add.1, concerning its sophistication, its adaptability through periodical
redrafting but also its lack of an effective enforcement and dispute settlement mechanism, could be
made mutatis mutandis for the air navigation charging statement.S/C/W/163/Add.2
Page 34
II. GENERAL AVIATION AND AERIAL WORK SERVICES
1. Introduction
114. According to ICAO, "general aviation and aerial work (GA/AW) operations form the
foundation of the world’s transportation system.  Airline pilots are created through its training, critical
care is provided to the populace through emergency medical service aircraft and business aviationsupports national and international commerce; GA/AW forms an essential and significant force in the
world of air transportation.  The more than 600,000 pilots and 300,000 aircraft engaged in general
aviation and aerial work operations throughout the world comprise a majority of aviation operations;
they contribute significantly to national and international economies."  (ICAO Conference on the
Economics of Airports and Air Navigation Services (ANSConf-WP/64) .  Montreal, 19 - 28 June 2000)
115. According to the International Business Aviation Council (IBAC), GA/AW generates
approximately US$6 trillion per annum and employs over 20 million people world-wide.  In the US,general aviation is "estimated to be a US$17 billion industry, generating more than US$51 billion
annually in economic activity ( NBAA
29 Fact Book 2000 )."  These figures confirm the observation
made in S/C/W/59 paragraphs 61 and 69 – 70 that this sector is economically important both in terms
of revenue generation and employment figures.
116. The definition of GA/AW in this paper is drawn from ICAO standards, numerous national
regulations, and business associations.  While terminology may vary from country to country, there
appears to be a consensus that general aviation includes business (e.g. air taxis) and corporate aviation
while aerial work includes a range of commercial operations (e.g. aerial advertising, surveying, flight
training).  In order to provide a clear understanding of how States define both general aviation and
aerial services, short passages from a number of sources are provided.
117. Like commercial air transport, general aviation requires support services including  inter alia :
fuelling, catering, hangar services, air traffic control, and navigational aids.  However, since these
supporting services have been covered in the relevant areas of this review, they will not be addressed
here.  For purposes of understanding the differences between 'general aviation' and 'aerial work', the
former is considered to be 'private carriage' (excluding air taxi operations), while the latter arecommercial service providers (including air taxi operations).
118. The paper will begin with a selection of definitions that indicate that most countries follow
ICAO's definitional separation between GA/AW.  This will be followed by an overview of national
regulatory standards governing the two categories and their sub-sectors.  There is also a separate
section for fractional ownership schemes due to the exceptional growth rate of this corporate sub-sector over the past five years.  The possible linkages between the different sub-sectors of aerial work
and air taxis are provided in a chart, and finally, the economic overview will highlight the present
value of the world markets.  There will be few comparisons made with 1993 due to the paucity of
information available.
                                                          
29 National Business Aviation Association of the United States.  http://www.nbaa.orgS/C/W/163/Add.2
Page 35
2. Definitions and Regimes
119. Due to the number of variations between definitions and regulatory frameworks we have
synthesised a number of standards from different geographic regions and business associations.  This
is to provide an overview of both general aviation and aerial work.
ICAO
120. “The Standards and Recommended Practices for the Operation of Aircraft - International
General Aviation were first adopted by the Council on 2 December 1968 pursuant to the provisions of
Article 37 of the Convention on International Civil Aviation (Chicago, 1944) and designated as
Annex 6, Part I, to the Convention.” (ICAO, Annex 6 Part II International General Aviation -
Aeroplanes )  In this Annex  ‘aerial work’ was specifically excluded because it was not considered to
have a large enough presence in the international world.  At the time, aerial work was primarily a
domestic industry.  However, “it was clearly the view of the conference that the Annex should beframed in such a manner as to facilitate its extension to cover aerial work operations at a later date,
should such extension prove desirable.”  ( Annex 6 Part II , ICAO)
121. Aerial work is now included within Annex 6 Part II  and is defined as follows:  "An aircraft
operation in which an aircraft is used for specialized services such as agriculture, construction,
photography, surveying, observation and patrol, search and rescue, aerial advertisement, etc."
122. A "General aviation operation is defined as:  An aircraft operation other than a commercial air
transport operation or an aerial work operation." ( Annex 6 Part II )  While this does not specify
business (air taxi) and corporate aviation, this is the direct intent since they do not fit into either
commercial aviation or aerial categories since they are primarily operated on a not for hire basis
(excluding air taxi services).
US
123. The FAA defines business transportation as "any use of an aircraft (not for compensation or
hire) by an individual for transport required by the business in which the individual is engaged."
Corporate/executive transportation is defined as "any use of an aircraft by a corporation, company orother organisation (not for compensation or hire) for the purposes of transporting its employees and/or
property, and employing professional pilots for the operation of the aircraft." (Extract from National
Business Aviation Association - NBAA Fact Book 2000 )  The definition for aerial work (specialty air
services) complies with the definition set out in the NAFTA Specialty Air Services (SAS) below.
NAFTA
30 (US, Canada, Mexico)
124. NAFTA provides for the elimina tion of barriers to trade in goods and services between the
parties of NAFTA.  Although air transportation and related activities are excluded from coverage, the
NAFTA covers specialty air services (SAS) providers between Canada, Mexico and the US.  These
services are listed as:  forest fire management, fire fighting, glider towing, parachute jumping, aerial
advertising, aerial mapping, aerial surveying, aerial photography, aerial construction, heli-logging,
flight training, aerial sightseeing, aerial inspection, aerial surveillance, and aerial spraying.  ( North
American Free trade Agreement (NAFTA) Interim Guidance (Amended).   (http://www.faa.gov),
(http://www.tc.goc.ca/aviation)
                                                          
30 North American Free Trade Agreement between the Government of the United States of America,
the Government of Canada, and the Government of the United Mexican States, signed 17 December 1992,
entered into force 1 January 1994.  The operation of specialty air services is provided for in Chapter 12, Cross-
Border Trade in Services, Article 1201, paragraph 2(b)(ii).S/C/W/163/Add.2
Page 36
EU
125. Business Aircraft are defined by the European Commission DGIII as "aircraft used for
business reasons.  They are not operated on scheduled routes and their services are not marketed to
the public.  Piston aircraft are excluded as they are by nature designed for leisure activities."(www.ebaa.org/Pages/Public/information/info.htm)
126. JAR 1.1 – General Definitions (18 October 1999) defines aerial work as:  "an aircraft
operation in which an aircraft is used for specialised services such as agriculture and patrol, search
and rescue, aerial advertisement, etc."
127. Business aviation (e.g. air taxi) is that sector of aviation which concerns the operation or use
of aircraft by companies for the carriage of passengers and goods as an aid to the conduct of their
business, and piloted by individuals having at the minimum a valid commercial pilot licence with aninstrument rating.
Chile
128. In S/C/W/166 (paragraph 20) Chile states that specialised air services "such as fire-fighting,
fisheries and mining prospection, and aerial spraying among others, … do not come under the
exercise of traffic rights, according to the definition in the GATS Annex."  Under the Chilean Civil
Aviation Act, there have been no limits placed upon the operation of foreign aircraft, except in cases
where Chilean aircraft have been restricted.  Chile has also signed a free trade agreement with
Canada, Mexico and Central America.  This treaty allows "persons and companies from those
countries to supply specialised air services in Chile without any limitations31 other than those of
safety, and the same applies to Chilean companies or persons in those countries."
New Zealand
129. In S/C/W/165 (paragraph 14) New Zealand states the following:  "The functions of general
aviation are many and varied including aerial photography/mapping, agricultural aviation, flighttraining, scenic flights, aircraft taxi services, traffic surveillance, fire fighting and emergency
services."  None of these services are included in bilateral agreements and "there are no economic
barriers to a foreign enterprise establishing general aviation operations.  There is no reference made to
business/corporate aviation, suggesting that New Zealand also makes a distinction between these two
elements of general aviation.
Australia
130. Australia’s definition is based on the ICAO model whereby “aircraft have been separated into
commercial air transport aircraft, aerial work aircraft and general aviation aircraft.”
(http://casa.gov.au/newrules/reference/icao.htm, 26, May 1999)  For purposes of clarity, Australia
provides a description of each category (only general aviation and aerial work are included).
1.3.3 An aerial work operation shall be a specialised aviation operation, other than an
air transport operation, in which an aircraft is flown by the operator or owner of that
aircraft so as to provide a service for purposes such as agriculture, construction,
photography, surveying, observation and patrol, aerial ambulance and rescue.
                                                          
31 "Glider-towing and parachuting services are excluded from this limitation, since in Chile these are
only offered, on a non-profit basis, by aviation clubs to their members."S/C/W/163/Add.2
Page 37
1.3.4 A general aviation operation shall be any type of aviation operation other than
commercial air transport operations and aerial work operations.  ( Classification of
Operations  - ICAO Model from Doc 9388-AN/918, Section 1 Chapter 3)
National Business Aviation Association (NBAA)
131. "General aviation includes all aircraft not flown by the airlines or the military.  Business
aviation, one of the most important segments of general aviation, consists of companies and
individuals using aircraft as tools in the conduct of their business."  ( NBAA Fact Book 2000)
International Business Aviation Association (IBAC)
132. "Business aviation is that sector of aviation which concerns the operation or use of aircraft by
companies for the carriage of passengers and goods as an aid to the conduct of their business, andpiloted by individuals having at the minimum a valid commercial pilot licence with an instrument
rating." (IBAC)  Specifically, they cite air taxi and corporate aviation operations (including fractional
ownership schemes).
European Business Aviation Association (EBAA)
133. According to EBAA general aviation encompasses all civil aviation operations apart from
airlines operations.  This covers such various activities as aerial work, agricultural aviation,
advertisement flying, flying schools, joy-riding flights, aerial photography, parachute jumping,
recreational flying, sport flying, aerobatics, private flying, air ambulance, air taxi, and business
aviation (EBAA).  While this association generally accepts the ICAO model that differentiatesbetween general aviation and aerial work, they are presently working with ICAO, and the European
Commission to separate business aviation from general aviation.
General Aviation Manufacturers Association (GAMA)
134. According to GAMA, among the numerous definitions of general aviation (official and
unofficial) "general aviation is usually taken to mean all aeroplane and helicopter flying except that
performed by the major airlines and the military (www.gamta.org/industry/whatis.htm)."
135. To summarise the above definitions it can be said that, while general aviation and aerial work
are separate sectors in most States, they retain operational similarities.  The size and type of aircraft
are often the same, and both use secondary airports extensively.  However, when referring to 'generalaviation aircraft' or 'general aviation airports' it is important to note that all aspects of aerial work are
included despite the regulatory and operational differences.
3. Regulations
136. In accordance with the definitional differences between general aviation and aerial work most
countries have specific regulations governing each type of operation.  The regulations are for the
purpose of ensuring safety standards for foreign and domestic aircraft and their operators, and
regulating market access in the case of aerial work and air taxi operations. Table 10 provides a quickoverview of the regulations for the countries where data is available.S/C/W/163/Add.2
Page 38
Table 10
Regulatory Bodies and Regulations Governing General Aviation and Aerial Work
1999 Regulatory Authority Regulations/International agreements
Global ICAO Annex 6 Part II
US32 FAA (Federal Aviation
Administration)FAR Part 91 (aerial work – fractional ownership)
FAR Part 135 (business/corporate – fractional ownershipNAFTA Article 1213 (aerial work/specialty air services)Chapter 12, Article 1201, paragraph 2(b)(ii).
CanadaTransport Canada
(Department of
Transport)NAFTA Article 1213 (aerial work/specialty air services)
Chapter 12, Article 1201, paragraph 2(b)(ii).
FTA with Chile over specialty air services
CAR Part VII, Subpart 3 (Air Taxi Operations)
MexicoCivil Aviation
AuthorityNAFTA Article 1213 (aerial work/specialty air services)
Chapter 12, Article 1201, paragraph 2(b)(ii).
Chile Civil Aviation Board FTA with Canada over specialty air services
European CommunitiesJAA (Joint Aviation
Administration)JAR OPS 1 (commercial air transportation – aircraft
JAR 21.11 (aircraft type certification and rules)JAR OPS 3  (commercial air transport – helicopters)
EU Member StatesNational Transportation
Departments
New ZealandCAA (Civil Aviation
Authority)Part 91 (general operating flight rules division)
Part 119 (requirements for an aircraft operating certificate(AOC))Part 125 (operating rules for aircraft with 10 – 30 seats)
Part 135 (general aviation operators of helicopters andaircraft with less than 10 seats)
Part 133 (helicopter sling load operations)
Part 119 (operator certificate for Part 133 operations)Part 137 (certification and opera tion of agricultural aircraft
operations)
AustraliaCASA (Civil Aviation
Safety Authority)Model Regulations (ICAO standards)
1.3.3 An aerial work operation shall be a specialisedaviation operation, other than an air transport operation, in
which an aircraft is flown by the operator or owner of that
aircraft so as to provide a service for purposes such asagriculture, construction, photography, surveying,observation and patrol, aerial ambulance and rescue.1.3.4 A general aviation operation shall be any type of
aviation operation other than commercial air transport
operations and aerial work operations.1.3.5 When an aircraft is being used for commercial airtransport operations, it shall be classified as a commercialair transport aircraft; when it is being used for aerial workoperations, it shall be classified as an aerial work aircraft;
when it is being used for general aviation operations it
shall be classified as a general aviation aircraft.
                                                          
32 Beginning in 1993 the 'use' categories were changed, such that External Load and Sight Seeing were
created as separate categories and in 1995 Sight Seeing is divided into Sight Seeing under 14CFR 91 (general
aviation) and 14 CFR 135 (air taxi)S/C/W/163/Add.2
Page 39
4. Business/Corporate Aviation (including fractional ownership)
137. The definitions provided by Members, ICAO, and the industry  associations generally
acknowledge that business aviation includes air taxi operations and corporate aviation.  While air taxi
and corporate charters are considered to be commer cial service operations, corporate aviation operates
on the basis of its 'own account'.  Under the regulatory conditions in all States, corporate aviation is
for the purposes of aiding in the conduct of the corporation's business.  The aircraft are owned andoperated by the corporation and for the use of owners, employees, and guests.  Within corporate
aviation there is a new mode of aircraft ownership called 'fractional ownership'.
(a) Fractional Ownership
138. The Fractional Ownership structure began in 1986 in the US.  It is a programme designed to
allow joint ownership of aircraft, and provides for aircraft management services (including aircraft
maintenance) by a single aircraft management company to the fractional owners.  The scheme is
based on the concept of shared aircraft ownership and usage (through a dry lease arrangement)between the owners.  This is facilitated through the use of a common management company.  It is the
management company that provides all the servic es necessary for the fractional owners to conduct
safe operations and to administer the dry leasing of aircraft among the participants in the programme.
This method of aircraft ownership has grown in si ze since its inception to the degree that the FAA is
considering issuing a Notice of Proposed Rulemaking  (NPRM) containing inputs from many members
of the general aviation sector on how to accommodate this new form of aviation operation.  The US
regulations may be issued as early as 2001 and the new JAA regulations are likely to be issued in
early 2001.
139. Under a recommendation provided to the Federal Aviation Administration (FAA) by the
Fractional Ownership Aviation Rulemaking Committee (FOARC) in the US, fractional ownershipoperations would be permitted to be conducted under 14 FAR Part 91.  However, many of the safety
standards will be drawn from both 14 FAR Parts 135 and 121, and will define
responsibility/accountability.  The latter will be detailed in a new subpart K in 14 FAR Part 91.
However, the draft also allows a program to operate under Part 135 and 121 ( Regulation of Fractional
Ownership Programs 23 February 2000).
140. "Regarding foreign ownership, there are restrictions on operations under Part 135 or 121, and
Section 119.33 requires a direct air carrier and persons other than a direct air carrier that conduct any
commercial passenger or cargo aircraft operation for compensation or hire under Part 121 or Part 135,
to be a US citizen." ( Regulation of Fractional Ownership Programs  23 February 2000)
141. Under the draft proposal (when all the conditions of the draft regulations are satisfied), it
would be recognised that the owners, not the prog ramme manager, are the operators.  The programme
manager would provide aviation expertise and servic es to the owners, and under the proposal, would
not be considered a commercial operator for compensation or hire.  In the FOARC recommendation,
fractional ownership management companies are not considered air carriers, thus they are not subject
to US citizenship requirements.  To the extent they are not US citizens, however, the owners of the
aircraft will, as aircraft operators, be subject to the requirements of 14 CFR Part 375 of theDepartment of Transportation's economic regulations governing the operation of foreign civil aircraft
in the US.
142. The FOARC recommendation asks the FAA to co nclude "that fractional ownership programs
that are in compliance with the provisions of proposed subpart K of 14 CFR Part 91 are not engaged
in commercial aviation, but rather are engaged in that portion of non-commercial aviation commonlyreferred to in the United States as general aviation or business aviation." (FOARCS/C/W/163/Add.2
Page 40
Recommendation33)  Until the legislation is enacted, the majority of fractional programmes will
continue to operate under Part 91 of the regulations, and under Part 135 for those which have been
certified under this part.
143. What is most notable about this sub-sector of general aviation is the spectacular growth that
has been experienced since its inception.  "In 1986, there were four owners of fractionally held
aircraft.  By 1993, there were 89.  From 1998 to 1999, the number of companies using fractionalownership has grown by over 50% from 1,125 to 1,693 companies ( Fact Book 2000 ).  Aviation Week
& Space Technology notes that fractional ownership holdings will soon account for about 10%of the
world-wide business jet fleet. (17 January 2000)
5. Possible UN CPC Classification Linkages (GA/AW)
144. Members may wish to consider sub-sectors that may have been inadvertently omitted from
the original classification list, S/C/W/59.  To provide a comprehensive list of possible categories the
following chart includes:  a detailed list from th e NAFTA specialty air services agreement; air taxi
services, and fractional ownership service providers.  Additionally, Members may wish to consider
elements that exist in their own countries that may need to be included.
                                                          
33 Note:  This is from a proposal to the FAA and not a pending Notice of Proposed Rulemaking.S/C/W/163/Add.2
Page 41
Table 11
Possible Classification Linkages Between GA/AW and the UN CPC
Services Provided Possible Corres ponding CPC Classifications
S/C/W/59 paragraph 69 classifications
Photographic services 875
Flight Training 92400 – Adult education services not elsewhere covered
Aerial advertising 87190 – Other advertising services
Fire fighting, police services 91260 – police and fire protection services
Agriculture 88110 – Services incidental to agriculture
heli-logging 88140 – Services incidental to forestry and logging
NAFTA Specialty Air Services (SAS) CATEGORIES34
Forest fire management 88140 – Services incidental to forestry and logging
Fire fighting 91260 – Police and fire protection services
88140 – Service incidental to forestry and logging
Glider towing 96412 – Sports event organisation services
96413 – Sports facility operation services96419 – Other Sporting services
Parachute jumping 96412 – Sports event organisation services
96413 – Sports facility operation services96419 – Other Sporting services
Aerial advertising 87190 – Other advertising services
Aerial mapping 86753 – Surface surveying services
Aerial Surveying 86753 – Surface surveying services
87504 – Specialty photography services
Aerial photography 87504 – Specialty photography services
Aerial construction 51800 – Renting services related to equipment for construction or
 demolition of buildings or civil engineering works, with
 operator.
Heli-logging 88140 – Services incidental to forestry and logging
Flight training 92310 – Post –secondary technical and vocational education services
92390 – Other higher education services
92400 – Adult education services not elsewhere covered92900 – Other education services
Aerial sightseeing 72219 – Other Passenger transportation
73120 – Non-scheduled passenger transportation by air
91136 – Administrative services related to tourism affairs
Aerial inspection 86753 – Surface surveying services
88300 – Services incidental to mining
88120 – Service incidental to animal husbandry
Aerial surveillance 87309 – Security services not else where classified
91260 – Police and fire protection services
88120 – Service incidental to animal husbandry
Aerial spraying 88110 – Services incidental to agriculture
Not included in NAFTA SAS or S/C/W/59
Air Taxi (considered to be ingeneral aviation)73120 – Non-scheduled passenger transportation by air
Fractional Ownership
Programs83104 – Leasing or rental services without operator
87909 – Services generally provided to businesses, not elsewhere
 classified.
86609 – Other management services n.e.c.
                                                          
34 All of these categories fall under the ICAO definition of aerial work.S/C/W/163/Add.2
Page 42
6. Economic
145. The largest markets for GA/AW are located in the US, followed by Europe, South America,
and throughout the rest of the world.  Despite the regulatory differences between general aviation and
aerial work, the industry associations that represent the majority of operators do not always provide a
clear delineation.  We have attempted to provide distinctions where possible by labelling inclusive
figures as GA/AW and specifying (e.g. aerial work) where necessary.  In cases where only 'generalaviation' is used, it means all corporate and business activity.  Table 12 has been constructed to
highlight the revenue and employment  figures in GA/AW for the 1999 period.
(a) US Business Aviation
146. Although corporate and business aviation are operated on a 'not for hire' basis they contribute
to national economic revenue and have a high level of international movements.  In 1999 the NBAA
reports that nearly 70% of their members fly outside the US to all parts of the world.  The percentages
for each geographic region are the following:  60% to Canada,  40% to the Caribbean, Mexico orCentral America;  27% to Europe;  17% to South America;  10% to the Pacific;  7% to the Middle
East;  and 6% to Africa.  The economic spill-over effect into the local economies will be experienced
through inter alia :  landing fees, ground services, and hangar facilities.
Table 12
GA/AW:  Sectoral Figures
1999 GlobalUS,
CanadaEuropeLatin
AmericaNew
Zealand,
AustraliaSouth
AfricaAfrica Asia
Employees
(millions)20 3
Business
Aircraft
(piston and
jet)19,49813,766
(70%)2,405
(10%)1,547
(8.2%)1,780
Combined numbers equal 11.2% of global
total
Hours Flown
(millions)27
Passengers
(millions)145
Number of
airports served5,400
(scheduled
carriers use
580)
Source:  NBAA Fact Book 2000 ; www.ibac.org/gen.htm
147. The overall numbers of US GA/AW aircraft and operators is provided in Table 13 (below) to
highlight the actual number of aircraft and operators that are part of the general aviation side of the
GA/AW sector.  In the US (70% of the world fleet) these aircraft account for approximately 40% of
the more than 51 million instrument operations35 at FAA facilities each year, whereas air carriers
account for approximately 30%.  Air taxis account for approximately 22% and military approximately
7%.
                                                          
35 Instrument operations usually occur when pilots ar e operating under instrument flight rules (IFR) and
are using air traffic controlled (ATC) airports.S/C/W/163/Add.2
Page 43
Table 13
1999 - Business Aviation Operators and Aircraft
Aircraft in use Operators Number of Aircraft
US 9,525 13,766
Europe 1,225 2,405
South America 1,066 1,547
Rest of World 1,289 1,780
Total 13,105 19,498
Source:  NBAA Fact Book 2000
148. The NBAA statistics in Table 13 (above) represent the business aviation industry at the global
level for aircraft type and the number of operators, highlighting where the primary markets are
geographically located
149. That GA/AW aircraft have "the ability to use smaller, less-congested airports located closer to
one's final destination is a vital part of the utility and flexibility of general aviation aircraft.  In fact,
most operators of business aircraft prefer to use these so-called "reliever airports" in major
metropolitan areas instead of airline hubs whenever possible.  That is why general aviation operations
at the busiest U.S. air carrier airports are usually a single-digit percentage of total operations at thosefacilities."  ( Fact Book 2000 )  In fact, while general aviation aircraft fly over 27 million hours (nearly
double the number of airline flight hours), and carry 145 million passengers per year, they only
account for 9
% of the total traffic at the top 30 major hub-carrier airports in the US. ( NBAA Fact Book
2000 ).  Although there is no detailed (or compiled) data for the actual hours flown in GA/AW
Table 14 provides an overview for the 1993 – 1996 period.
Table 14
Active General Aviation Aircraft Total Hours Flown by Use in the US (1993 – 1996)
(Hours in Thousands)
Use Category 1996 1995 1994 1993Change
1993 - 1996
Corporate 2,718 2,869 2,486 2,653 +65
Business 3,152 3,191 3,012 3,350 -198
Personal 8,893 9,320 8,248 8,202 +691
Instructional 4,425 4,106 4,382 4,625 -200
Aerial
Application1,787 1,557 1,364 1,283 +504
Aerial
Observation1,036 1,385 1,746 1,627 -591
External Load 203 118 135 83 +120
Other Work 262 268 241 180 +80
Sight Seeing 186 206 309 325 -139
Air Tours 70 155 N/A N/A
Other 1,703 1,372 1,545 1,334 +369
All Aircraft 644 1,121 622 603 +41
Total Hours 26,100 25,667 24,092 24,455 +1,645
Note:  Beginning in 1995 Sight Seeing is divided into Sight Seeing under 14CFR 91 (general aviation) and 14
CFR 135 (air taxi)
150. Although the sample given in Table 14 (above) does not provide current data, the numbers
still indicate substantial non-commercial airline movement of aircraft.  There is no indication thatthese numbers would be smaller for the subsequent years.S/C/W/163/Add.2
Page 44
(b) European Business Aviation
151. Eurocontrol estimates that between 5 and 10% of the total number of movements in Europe
are business aircraft.  In 1999, the daily average total number of movements was about 22,000
(Eurocontrol CFMU).  The average load factor is ab out 3.5 passengers per flight and the total number
of passengers carried by business aviation is between 400,000 and 800,000 persons (EBAA).  There
are not specific numbers for aerial work or specialty air services.
7. Conclusion
152. It would appear that in most States, separate regulations for general aviation (corporate and
business) and aerial work support the concept of separating commercial operations and non-
commercial operations.  Thus, corporate aviation is  considered to be not-for-hire corporate activity
whereas business aviation (e.g. air taxi) and aerial work are distinctly commercial operations.S/C/W/163/Add.2
Page 45
III. COMMERCIAL AIR TRANSPORT SERVICES:
153. This section will address the general economic and regulatory development of commercial air
transport services.  Further papers are to be published at a later date which will deal with:  1) the
various types of standard bilaterals, elements of bilaterals, and regional agreements ( inter alia  route,
capacity, tariffs, and designation);  2) ownership and control among airlines including alliances and
codesharing;  3) slot allocation;  and 4) specific subsectors (non-scheduled services, cargo servicesand multimodal operations).
A. 
ECONOMIC DEVELOPMENTS
154. The following elements are largely drawn from the ICAO annual Study The World of Civil
Aviation  and in particular its last edition (1999-2002).  It should be noted that ICAO data are collected
and published annually.  Each publication provides a 10-year history, and a three-year forecast.
Whenever possible the 1993-1999 period has been isolated.  This section will successively deal with
traffic, financial trends and employment.
1. Traffic and Financial Trends
(a) Global tendencies
155. Structurally the commercial air transport industry is extremely cyclical and the demand for air
passenger travel is highly elastic due to income levels, demographic tendencies and the cost of
international air travel (business and leisure). This is particularly true of business travel, wherecorporations, or individual enterprises will restrict or prohibit first or business class travel during
periods of economic difficulty.  The absolute number of business related trips may also be restricted.
Although first and business class seats account for only 20% of capacity, they do contribute
approximately 80% of the revenue.  Thus, changes in this area add to the cyclical nature of the
industry.  In contrast, air cargo growth is relativel y constant (e.g. normally above the growth rate of an
economy) and subject only to seasonal or severe economic change.  On the cost side, the importance
of fuel prices, labour costs, and the cyclical natu re of investment in new aircraft also manifest
sensitivity to economic fluctuations.
156. The period under review, 1993-1999, followed the 1991–Gulf War recession, and had a
serious effect on air traffic.  The recovery of traffic in 1992 occurred despite continuing pooreconomic performance, and was achieved at a cost of significantly reduced revenue yield.  Although
real yields declined further in 1993 and 1994, the effect on traffic demand was less dramatic than in
1992.  Economic growth began to provide a more solid foundation for traffic growth.  These trends
continued until 1997 but were reversed in 1998 when world GDP grew at only 1.9%, providing for
growth of total scheduled passenger traffic of only 2.1% in that year. However, a strong economicperformance resulted in 6.1% traffic growth in 1999.  The following two tables describe in detail the
evolution of the traffic for this period. They are limited to scheduled airlines, as data on non-
scheduled airlines are scarce and heterogeneous.  Inte rnational traffic has been  isolated from the total
traffic since it is the only segment that  is exposed to international competition.
36
                                                          
36 Except for the rare cases where the eighth (cabotage) or ninth freedoms have been granted.S/C/W/163/Add.2
Page 46
Table 15
World Total International and Domestic Revenue Traffic
(Scheduled Services of Airlines of ICAO Contracting States:  1993-1999)
Passengers carried Passenger-kmFreight tonnes
carriedFreight tonne-km
performedMail tonne-km
performedTotal tonne-km
performed
Year MillionAnnual
increase
(%)MillionAnnual
increase
(%)Mil-
lionAnnual
increase
(%)MillionsAnnual
increase
(%)MillionAnnual
increase
(%)MillionAnnual
increase
(%)
1993 1 142 -0.3 1 949 420 1.1 18.1 2.8   68 450 9.3 5 230 1.9 250 630 3.5
1994 1 233 8.0 2 099 940 7.7 20.5 13.3   77 220 12.8 5 410 3.4 273 420 9.1
1995 1 304 5.8 2 248 210 7.1 22.2 8.3   83 130 7.7 5 630 4.1 293 930 7.5
1996 1 391 6.7 2 431 690 8.2 23.2 4.5   89 200 7.3 5 800 3.0 317 150 7.9
1997 1 457 4.7 2 573 010 5.8 26.4 13.8 102 880 15.3 5 990 3.3 344 190 8.5
1998 1 471 1.0 2 626 910 2.1 26.5 0.4 101 770 -1.1 5 770 -3.7 348 470 1.2
1999 1 558 5.9 2 787 880 6.1 28.2 6.4 108 040 6.2 5 700 -1.2 368 800 5.8
Source:  ICAO Air Transport Reporting Form A-1.
Table 16
World International Revenue Traffic
(Scheduled Services of Airlines of ICAO Contracting States:  1993-1999)
Passengers carried Passenger-km Freight tonnes
carriedFreight tonne-km
performedMail tonne-km
performedTotal tonne-km
performed
Year MillionAnnual
increase
(%)MillionAnnual
increase
(%)Mil-
lionAnnual
increase
(%)MillionAnnual
increase
(%)MillionAnnual
increase
(%)MillionAnnual
increase
(%)
1993 319 6.7 1 047 380 6.6 10.3 10.8 56 050 10.4 2 200 0.5 155 490 8.3
1994 347 8.8 1 143 180 9.1 11.8 14.6 64 700 15.4 2 240 1.8 173 080 11.3
1995 375 8.1 1 249 160 9.3 13.0 10.2 70 340 8.7 2 400 7.1 189 430 9.4
1996 412 9.9 1 380 680 10.5 13.6 4.6 75 510 7.4 2 450 2.1 206 870 9.2
1997 438 6.3 1 468 150 6.3 15.7 15.4 87 740 16.2 2 490 1.6 227 390 9.9
1998 458 4.6 1 511 680 3.0 15.8 0.6 87 010 -0.8 2 480 -0.4 231 410 1.8
1999 489 6.8 1 613 990 6.8 17.2 8.9 92 680 6.5 2 480 0.0 246 230 6.4
Source: ICAO air Transport Reporting Form A-1.
157. The scheduled airline industry has a long history of reducing costs through increased
productivity levels.  This has affected the growth in the output of the industry (traffic volumes,
measured by tonne-kilometres performed or TKP) has been greater than the growth in the various
inputs used by the industry (mainly labour, fuel and aircraft).  The average annual growth in
productivity since 1988 has been about 3.8%.  The progressive absorption of new technology aircraft
into airline fleets has been a major reason for the improvement in productivity.  In particular, the newaircraft are more fuel- and labour-efficient. Improved aircraft utilisation and load factors have also
made important contributions.
158. Although there has been neither an improvement nor a decline in the long-term trend in the
financial performance of scheduled airlines as a whole, there have been relatively large changes in the
operating results over the medium term.  The following table shows the annual development since1988 in operating revenues and expenses, the operating results (earnings before interest, other
non-operating items and taxes) and the net result (after interest, other non-operating items and taxes).S/C/W/163/Add.2
Page 47
Table 17
Operating and Net Results37
(scheduled airlines of ICAO Contracting States. 1993-1999)38
Operating result Net result39
YearOperating
revenues
US$
(million)Operating
expenses
US$
(million)Amount
US$
(million)Percentage
of operating
revenuesAmount
US$
(million)Percentage
of
operating
revenuesDirect
subsidies
US$
(million)Income
taxes
US$
(million)
1993 226 000 223 700    2 300 1.0 -4 400 -1.9 150   -270
1994 244 700 237 000    7 700 3.1    -200 -0.1   70 -1 300
1995 267 000 253 500 13 500 5.1 4 500 1.7 100 -2 170
1996 282 500 270 200 12 300 4.4 5 300 1.9   30 -2 500
1997 291 000 274 700 16 300 5.6 8 550 2.9 180 -4 200
1998 295 500 279 600 15 900 5.4 8 200 2.8   10 -4 800
199940306 600 294 050 12 550 4.1
Source :  ICAO Air Transport Reporting Form EF-1.
159. The growth in revenues and expenses over the period reflects an expansion in activity levels
and general inflationary pressures, offset by improvements in the efficiency of the industry.  In the
early 1990s, demand weakened and th e utilisation of airline resources  tended to decline.  The
emergence of excess capacity and consequent competitive pressures placed downward pressure on
yields.  These factors combined to produce negative operating results 1990 to1992.  In 1993, the
airline industry started to move towards a more appropriate balance of supply and demand andachieved a small operating surplus.  A much better operating result was obtained in 1994 and by 1995
the industry delivered an operating surplus of US$13.5 billion and obtained a positive net result of
about US$4.5 billion.  In 1996, a reduced operating surplus of about US$12.3 billion was achieved,
with a net result of US$5.3 billion, but in 1997, there was an operating surplus of US$16.3 billion and
a net result of almost US$8.6 billion.  In 1998 the operating surplus reached US$15.9 billion with anet result of US$8.2 billion. According to preliminary estimates for 1999, an operating surplus of
US$12.5 billion is expected.
160. The change in the structure of operating revenues and expenses over the past decade is
illustrated in the following Table.
                                                          
37 Revenues and expenses are estimated for non-reporting airlines.
38 Up to and including 1997, it excludes operations within the Commonwealth of Independent States.
39 The net result is derived from the operating result by adding (with plus or minus sign as appropriate) non-
operating items (such as interest and direct subsidies) and inco me tax. The operating and net results quoted, particularly the
net results, are the small differences between the estimates of large figures (revenues and expenses) and are thereforesusceptible to substa ntial uncertainties.
40 Preliminary data – net results are not yet available.S/C/W/163/Add.2
Page 48
Table 18
Distribution of operating revenues and expenses from 1993 to 1998
(scheduled airlines of ICAO Contracting States1,
total domestic and international services)
Distribution by item
(per cent)Description
1993 1994 1995 1996 1997 1998
Operating Revenues
Scheduled services (total) 85.8 85.4 87.5 87.7 87.3 87.3
 Passenger 75.9 74.9 76.8 77.1 76.2 76.5
 Freight 9.0 9.6 9.7 9.6 10.2 10.0
 Mail 1.0 0.9 1.0 1.0 0.9 0.8
Non-scheduled operations 3.6 4.1 4.0 3.9 3.9 3.3
Incidental 10.6 10.5 8.5 8.4 8.8 9.4
TOTAL 100.0 100.0 100.0 100.0 100.0 100.0
Operating Expenses
Direct aircraft
 Flight operations (total) 26.5 25.5 26.3 27.7 27.8 26.9
  Flight crew 7.4 7.4 7.7 7.8 7.8 8.0
  Fuel and oil 12.0 11.2 11.4 12.8 12.6 10.4
  Other 7.1 6.9 7.2 7.1 7.4 8.5
Maintenance and overhaul 10.1 10.0 10.6 10.5 11.0 11.1
Depreciation and amortization 7.0 7.6 7.3 7.1 6.5 6.5
Sub-total 43.6 43.1 44.2 45.3 45.3 44.5
Indirect
 User charges and stationexpenses (total)17.3 17.3 18.2 17.7 17.4 17.9
   Landing and associated  airport
charges4.1 4.3 4.5 4.3 4.1 4.4
   En route  facility charges 2.4 2.5 2.8 2.6 2.8 3.0
   Station expenses 10.8 10.5 10.9 10.8 10.5 10.4
Passenger services 10.5 10.7 11.0 10.8 10.7 10.7
Ticketing, sales, promotion 16.4 15.7 15.6 15.3 14.8 14.3
General, administrative and other
operating expenses12.2 13.2 11.0 10.9 11.8 12.6
Sub-total 56.4 56.9 55.8 54.7 54.7 55.5
TOTAL 100.0 100.0 100.0 100.0 100.0 100.0
1. Excludes operations within the Commonwealth of Independent States.
Source :  ICAO Air Transport Reporting Form EF-1.
161. The share of incidental revenues (which include sales of services and maintenance, and the
leasing of aircraft to other airlines) has increased, while there has been a comparable decline in the
share of revenues from scheduled services. The counterpart of some of these changes on the expense
side was an increase in the share of “Flight operations - Other”, which includes rental of aircraft fromother companies.  This suggests some restructuring within the airline industry. The share of indirect
expenses, and especially general, administrative and other operating expenses has increased slightly,
corresponding to the decline in the share of direct aircraft expenses, which benefited from
productivity improvements and reductions in fuel prices.S/C/W/163/Add.2
Page 49
(b) Developmental aspects
162. The following developments will deliberately not cover traffic and financial performances of
airlines of OECD countries or more generally developed countries since an ample literature exists on
that subject which is not worth recounting here.  They will insist on the contrary of the situation of
developing countries, where the documentation is traditionally scarce and available with difficulties.
163. ICAO statistics do not isolate developing countries as a single statistical category.  However
they divide the world into six statistical regions:  North America, Asia-Pacific, Latin America and
Caribbean, Europe, Africa, Middle East.
164. With the exception of the European zone, which includes CIS countries and therefore mixes
developed countries and countries in transition, and of the Asia Pacific Zone, which also contains both
developing and developed economies, these regions are homogeneous in terms of level of
development and significant in aeropolitical terms. Th at is why they will be used across this paper to
study the developmental aspects of the subsectors.  The regional breakdown of traffic during the
period under review is summed up in the following table:
Table 19
Regional distribution of scheduled traffic – 1993 to 1999
Passenger-Kilometres performed (millions) By ICAO statistical
region of airline
registration 1993 1994 1995 1996 1997 1998 1999
TOTAL (INTERNATIONAL AND DOMESTIC) SERVICES OF AIRLINES OF ICAO CONTRACTING STATES
Europe (including CIS*)
Percentage of world traffic507 620
25.8521 498
25.0550 813
24.7591 750
24.5646 899
25.2691 480
26.3742 970
26.6
Europe (not including CIS)
Percentage of world traffic403 220
20.5437 674
21.0
Africa
Percentage of world traffic41 739
2.145 728
2.253 004
2.455 430
2.356 782
2.255 180
2.160 920
2.2
Middle East
Percentage of world traffic58 438
3.062 193
3.069 613
3.172 012
3.074 945
2.977 740
3.079 070
2.8
Asia and Pacific
Percentage of world traffic452 903
23.0490 460
23.5546 822
24.5605 967
25.1644 919
25.1630 050
24.0665 510
23.9
North America
Percentage of world traffic816 190
41.4863 467
41.4897 510
40.3970 147
40.31 019 137
39.61 042 100
39.61 104 880
39.6
Latin America and Caribbean
Percentage of world traffic93 950
4.8102 754
4.9112 288
5.0115 704
4.8127 818
5.0133 820
5.1134 530
4.8
Total (including CIS) 1 970 840  2 086 100 2 230 050 2 411 010 2 570 500 2 630 370 2 787 880
INTERNATIONAL SERVICES OF AIRLINES OF ICAO CONTRACTING STATES
Europe (including CIS)
Percentage of world traffic353 460
33.8390 719
34.4427 132
34.4474 837
34.8535 280
36.2572 080
37.9622 790
38.6
Europe (not including CIS)
Percentage of world traffic344 000
32.9375 500
33.1
Africa
Percentage of world traffic34 600
3.337 522
3.343 467
3.545 769
3.447 369
3.246 840
3.152 550
3.3
Middle East
Percentage of world traffic49 020
4.751 809
4.658 788
4.760 916
4.563 156
4.365 330
4.367 670
4.2
Asia and Pacific
Percentage of world traffic300 900
28.8333 863
29.4371 228
29.9417 045
30.6443 775
30.0433 510
28.7462 280
28.6
North America
Percentage of world traffic248 810
23.8256 242
22.5269 255
21.7286 664
21.0302 660
20.5310 320
20.5327 740
20.3
Latin America and Caribbean
Percentage of world traffic58 840
5.665 945
5.871 700
5.878 119
5.785 300
5.882 690
5.580 960
5.0
Total (including CIS) 1 045 630 1 136 100 1 241 570 1 363 350 1 477 540 1 510 770 1 613 990
* Commonwealth of Independent States
Source: ICAO Air Transport Reporting Form A-1.S/C/W/163/Add.2
Page 50
(i) Africa
165. Africa accounted across the period 1993-1999 for between 2.1 and 2.4% of the total traffic.
Over the 1988-1998 period, the aggregate African econom y grew at an average annual rate of 2.5%
(GDP in real terms), although GDP per capita declined at a rate of 0.3% over that decade.
166. Over the 1988-1998 period, scheduled passenger traffic (in PKPs) of the airlines of the
African region increased at an average annual rate of 3.9% (compared to the world annual average of4.4%).  Traffic growth in recent years markedly exceeded this decade’s average; 6.2% growth was
recorded in 1996 followed by a 6.1% growth in 1997. This trend reversed in 1998 with traffic
declining by 0.9% (compared to world average growth of 2.1%).
167. For the 1988-1998 period, average scheduled passenger yields for airlines of the region,
measured in terms of cents per passenger-kilometres performed (PKPs), declined at an average annual
rate of 4.8% in real terms (compared to a 2.9% decline for the world).  Throughout the period
concerned, the region’s airlines average yield level was lower than the world average.  In terms offinancial performance, over the 1988-1998 period, operating revenues (in dollars) of the scheduled
airlines of the African region increased at an average annual rate of 1.6% (compared to world annual
average of 5.9%).  Operating expenses for the same period increased by 1.8% per annum.  These rates
reflect the relatively low traffic growth experienced over most of the period, but also the efforts by the
African industry to improve efficiency and financial performance. Since 1992, positive operatingresults have been achieved, with the exception of 1994 and 1997.
(ii) Latin America and the Caribbean
168. This region accounts across the period 1993-1999 for between 4.8% and 5.1% of total traffic.
Over the 1988-1998 period, the aggregate Latin Amer ican and Caribbean economy (GDP) grew at an
average annual rate of 2.6% in real terms, whereas GDP per capita grew at 0.8%.  A robust recoveryof the economy of the region started in 1991.After  a record of 5.3% growth in GDP in 1997, the
regional economy started to decline dramatically, to 2.0% growth in 1998 and further to an irreducible
growth of 0.2% in 1999.  The economic performance of the region is expected to recover markedly in
2000, reaching a growth of 4.0%.
169. Over the 1988-1998 period, the scheduled passenger traffic (in PKPs) of airlines of the Latin
American and the Caribbean region increased at an average annual rate of 5.6% (compared to the
world average growth rate of 4.4%).  In recent years, flag carrier privatization, intra-regional mergers
and alliances, along with extensive fleet and route rationalization, were among measures that enabled
airlines of the region to capture a larger share of the United States-Latin America and Caribbean
traffic, one of the world’s fastest growing aviation markets.  Following very high traffic growth ratesfor 1997 and 1998 (11.6 and 9.2% respectively), the estimated traffic growth in 1999 dropped to
0.6%.
170. Average scheduled passenger yields for airlines of the region, measured in terms of U.S. cents
per PKP and expressed in constant price terms, fluctuated substantially between 1988 and 1998 and
declined to about 1.6%.  Over the 1988-1998 period, operating revenues of the scheduled airlines of
the Latin American and Caribbean region increased at an average annual rate of 7.1% (compared to
the world annual average of 5.9%).  Operating expenses for the same period increased by 7.1% perannum.  The overall financial performance of the airlines of the region has been poor over the whole
period with five consecutive years (1989 to 1993) of serious operating losses.  A concerted effort of
drastic cost-cutting, airline industry restructuring and demand recovery led to a significant turnaround
and brought positive operating results for four consecutive years.  Many airlines had returned to
profitability by 1995 and were reporting healthy net results in 1997 and 1998.S/C/W/163/Add.2
Page 51
(iii) Middle East
171. This region accounts across the period 1993-1999 for between 2.8% and 3.1% of the total
traffic. As of 1992 continuous growth, though varying in strength, was sustained for five years.  From
1988-1998, the aggregate GDP for the Middle East grew at an average annual rate of 3.5% in real
terms, while GDP per capita levelled off at 0.8% per annum.  In 1999, the economy of the region
remained basically stable with a GDP growth of 2.5% compared to the previous year.
172. Over the 1988-1998 period, scheduled passenger traffic (in PKPs) of the airlines of the
Middle East region increased at an average annual rate of 5.6%.  Traffic growth has been reasonably
buoyant since the declines in 1990 and 1991 associated primarily with the Gulf War.
173. For the 1988-1998 period, average scheduled passenger yields for airlines of the region,
measured in terms of U.S. cents per PKP, declined at an average annual rate of 3.5% in real terms
(compared to a 2.9% decline for the world). It is estimated that real yield increased in 1999
accompanied by a small increase in traffic and revenues.  Over the 1988-1998 period, operatingrevenues of the scheduled airlines of the Middle East region increased at an average annual rate of
5.2% (compared to the world annual average of 5.9%). Operating expenses for the same period
increased by 4.8% per annum.  Since 1994 the airlines in the region have experienced a string of
operating losses.  Traffic has grown continuously but capacity expansion has been even greater and
unit costs remain comparatively high. Efforts to cut operational costs include inter-airline cooperation,
for example, on the common handling of a number of airlines from the Middle East and North Africa
at airports in Europe. These resulted in an estimated operating surplus for 1999 of about
US$230 million.
(iv) Asia Pacific
174. This region accounts across the period 1993-1999 for between 23.9% and 25.1% of the total
traffic.  Over the 1988-1998 period, the Asia/Pacific economy (GDP) grew at an average annual rate
of 4.2% in real terms, and GDP per capita increased at 2.6%, the highest growth rates of all ICAO
regions.  For more than 10 years Asia/Pacific has been the fastest growing region despite the recent
slowdown and recession when GDP growth dropped from 5.4% in 1996 to 3.9% in 1997 and further
to -0.3% in 1998.  In 1999 the region regained some of its economic strength with a GDP growth of3.5%.
175. The recovery process of the region’s affected economics in 1999 was stronger and swifter
than expected.  Developing economies in the Asia/Pacific region continued to make a significant
contribution as their average GDP grew at 6.0%.  Several developing economies in East and
South-East Asia recovered from the 1998 recessi on, as did Japan, which saw its economy recovering
only slowly with a GDP growth of 0.3%.
176. Over the 1988-1998 period, scheduled passenger traffic (in PKPs) of airlines of the
Asia/Pacific region increased at the average annual rate of 7.3%, significantly higher than the world’s
annual average of 4.4%.  Having exhibited the highest growth rates among all ICAO regions for
almost a decade, in 1998 airlines of the region experienced a decline in traffic by 2.6%, dampening
the world traffic growth which averaged at a low 2.1%.  As a result of the speedy economic recovery
in the Asian economies affected by the 1997/1998 recession, and revived demand for air travel andfreight, traffic is estimated to have increased by almost 7.0% in 1999.
177. Average scheduled passenger yields for airlines of the region, measured in terms of cents per
PKP, have fluctuated significantly since 1988 and resulted in an annualized decline of 4.4% during
the 1988-1998 period.  The sharp fluctuations in airline yield reflect, in part, the fluctuation of the yen
and other Asian currencies against the U.S. dollar.  Over the 1988-1998 period, operating revenues ofS/C/W/163/Add.2
Page 52
the scheduled airlines of the Asia/Pacific region increased at an average annual rate of 6.1%
(compared to the world average annual growth rate of 5.9%).  Operating expenses for the same period
increased by 6.9% per annum.  Airlines in the region enjoyed positive operating results throughout the
last decade.  However, it is estimated that the aggregate operating profit for 1999 of the Asia/Pacific
airlines was around US$3 000 million, significantly higher than that of 1998.
2. Employment
178. The following chart tries to compile, in one sing le chart, the data contained in the successive
editions of the ICAO "World of Civil Aviation" annual publication and whose statistical framework
have evolved over time, which explains the various blanks in the chart.  Those figures reflect the
employment by the airlines only.  IATA itself gi ves much bigger figures for the employment in the
whole air transport sector (28 millions in 1999) a nd so does Airport Council International for airports
only (22 millions including indirect employment in 1997)
Table 20
Airline Employment 1987-1999
19871 1993
million1994
million1995
million1996
million1997
million1998
million1999
million
Total staff employed by allthe commercial air carriers1.9
million2
Total staff employed by
scheduled airlines1.51 1.51 1.52 1.54 1.5
Staff employed by
international scheduledairlines1.13 1.12 1.12 1.15
Staff employed by
domestic scheduled airlines0.38 0.39 0.40 0.39
IATA total of which (in
percentage)1.473
million1.611
million
Pilots and co-pilots 6.6% 7.8%
Other cockpit staff 1.7% 0.7%
Cabin attendants 13.8% 17.3%
Maintenance 18.3% 16.4%
Ticketing and sales 13.4% 13.7%
Airport handling 18.7% 19.4%
All other 27.5% 24.7%
1 Although 1987 is beyond the scope of this review these were the only relevant figures available.
Source:  ICAO.
179. It is difficult to interpret this chart in the absence of more detailed studies.  It seems to
demonstrate that the growth of traffic has not ge nerated a parallel growth of employment, but that
employment is in the medium term more or less stable if not in slight progression across the period.
The growing recourse to outsourcing, which translat e into employment outside the airlines may also
be one of the factors in the slow growth of employment.
180. It is worth noting that movements of natural persons in the GATS sense have always been
important in the sector and are increasingly so.  Pilots, cabin crew, engineers and local as well as
headquarters managers do not always have the nationality of the carrier.
B. REGULATORY DEVELOPMENTS
181. The two main regulatory developments during the period have been the privatization
movement and a clear tendency towards liberalization through bilateral and regional agreements.
Other specific regulatory developments such as the growing intervention of competition authorities inS/C/W/163/Add.2
Page 53
alliances and slots questions or the evolution of ownership legislation will be dealt with in the relevant
annexes.
1. Privatization
182. Privatization has been one of the major regulatory development for air transport during the
1993-2000 period as it has been for other sectors.
183. The following chart compiled by ICAO gives an idea of the extent of the process.
Table 21
Progress of Airline Privatization by Regions from 1985 to 2000
Asia AfricaMiddle
EastEastern
EuropeWestern
EuropeLatin
AmericaU.S.
CanadaPacific* Total
Number of
airlines94 78 30 69 126 90 86 38 611
Airlines in
which State hasshareholding44 43 22 53 22 35 1 14 234
Announcement
of privatizationplan24 25 18 38 15 25 1 7 153
Aims achieved 16 7 1 19 11 22 1 3 80
Note: * Includes Australia, New Zealand and South Pacific Islands countries
"Number of airlines" includes airlines currently operating plus ones that ceased operations since 1985
"Airlines that State has shareholding" includes airlines fully privatized since 1985."Announcement of privatization plan" means State expres sed its intention to privatize or reduce its shares.
"Aims achieved" means State (and/or shareholders owne d by State) reduced its shares during this period.
Data collected based on available information, the list (as of 22AUG 00) is not exhaustive.
Source:
 ICAO Air Transport Bureau
184. It is difficult to draw a typology of the privatization processes as they are extremely diverse.
Privatization can be full or partial, the state keeping a golden share or even a majority of the stakes.  It
can be reserved to nationals or opened to foreign investors or be a complex combination of both, it
can be reserved to other air carriers or to the cont rary  involve only financial investors such as banks
or be a combination of the two options.  It  can be devised in order to have a stable core ofstakeholders and one single investor in control or to the contrary be devised so as to avoid any
majority ownership.  It can be made on a contractual basis or through a flotation on local or
international stock markets.
185. Regardless of those ample variations it is possible to identify certain common features:
privatizations of airlines are difficult processes, often staged, delayed or stalled.  Among the causes ofdelays are general economic conditions, the economic situation of the air transport sector, the
financial and/or social difficulties of the carrier concerned and changes of government or of
governmental policies.
186. These operations are always carefully devised so as to avoid conflicting with foreign
ownership limitation rules, except of course, in the rare cases where those limitations have been lifted.
Personnel often receives a share (often around 10%) in order to ensure social peace during the
transitional period and productivity gains.  Recourse to a "strategic partner" i.e. another air carrierholding only a minority of the share but providing operational management and offering its networkS/C/W/163/Add.2
Page 54
of alliances in addition to infusion of management skills is also a common feature.  Such partnerships
can be preceded on a trial basis by management contracts, that can sometimes turn sour and not be
followed by equity infusion, as recent cases have shown.
187. Another clear tendency is the geographical extension of the phenomenon.  It touches the
entire world developing as well as developed, including CIS countries and China, the only difference
being the pace with which the different regions follow that trend.  In 1998, ICAO made the followingassessment of the geographical extension of privatization:
"Since the early 1990's, over 80 carriers have been targeted for privatization.  Currently all airlines in
North America are privately owned.  In Latin America and the Caribbean nearly all major carriers are
now majority owned by private interests.  In Europe over half the major western European Airlines
are privately owned while most national carriers of the Eastern European states are majority state
owned (although 15 of them have been targeted for privatization).  In the Asia Pacific region, partial
or full privatization objectives have been made known by some 15 governments while carriers inJapan, the Republic of Korea, Brunei Darussalam, Malaysia, the Philippines, Australia and New
Zealand as well as those based in Hong Kong, Ch ina and Taiwan are now privately owned.  In the
Middle East and Africa almost all national carriers remain government owned although some
25 carriers from these two regions have been targeted for privatization."
188. It is worth noting also the role played by privatizations in the formation of alliances.
Privatization is a way for alliances to extend their networks through equity links and there is a
competition between alliances in that respect.  Symmetrically from the point of view of the privatized
airline, privatization is an opportunity to integrate the network of a big alliance and to achieve access
to a world-wide hub and spoke system.
2. Bilateral Liberalization and Regional Integration
189. As indicated by ICAO during the first session of the review, liberalization is an accelerating
and widespread trend, involving now 85% of ICAO Members in some form of liberalization.  This
does not mean that 85% of the bilateral agreement contain liberal provisions since most of the pre-
1990 agreements still in force are of the classical Bermuda 1 type.  ICAO has also indicated than morethan half of ICAO states are now parties to some arrangements, whether bilateral or regional, towards
full market access.  There again this does mean, by far that half of the agreements are geared towards
full market access.
190. The more liberal form of these agreement is traditionally called an "open sky" agreement.
ICAO has compiled a list of open sky agreements in effect to date. However ICAO itself indicatesthat this list must be read with caution.  There is no agreed definition of what constitutes an open sky
agreement except in the USA, where there exists a standard open sky agreement
41.  However even the
agreements signed by the United States contain variations from this model.  Other agreements not
involving the USA have been termed so by ICAO since they were inspired by a similar philosophy
and contained a lot of technical similarities.  However, these agreements can be different from the US
ones and sometimes be more far reaching, going as far as including the eighth freedom, cabotage, as
in the Brunei Darussalam - New Zealand agreement.  These precautions aside, the typical provisionsof an open sky agreement are summed up in the following chart, compiled by OECD:
                                                          
41 See "a US standard "post 1977" agreement";  Air Transport Association, 15 May  1989, a summary
of the typical provision of an US open sky agreement can be found in:
http:/www.state.gov/www/issues/econmic/tra   and the underlying policy is explained in the DOT "US
international transportation policy statement " dated April 1995.S/C/W/163/Add.2
Page 55
Table 22
Main Open Sky Principles
Source:   OECD, DSTI/DOT (99), 1 June 1999
191. The following chart compiled by ICAO gives the main characteristics of all open skies
agreements concluded to date.
Table 23
Open Skies Agreement
Type Conclusion
Year MonthEntity Remarks
Open Skies 1992 9 US Netherlands
Open Skies 1995 5 US Austria
Open Skies 1995 5 US Belgium Signed in September 1995
Open Skies 1995 5 US Denmark
Open Skies 1995 5 US Finland
Open Skies 1995 5 US Iceland
Open Skies 1995 5 US Luxembourg
Open Skies 1995 5 US Norway
Open Skies 1995 5 US Sweden
Open Skies 1995 5 US Switzerland
Open Skies 1995 12 US Czech Re public Have three-year-phased period
Open Skies 1996 2 US Germany
Open Skies 1996 11 US Jordan
Open Skies 1997 1 US Singapore 7th freedom rights for all cargo
Open Skies 1997 2 US Brunei
Open Skies 1997 3 US Panama
Open Skies 1997 3 US Taiwan, Province of
Open Skies 1997 4 US Costa Rica
Open Skies 1997 4 US El Salvador 7th freedom rights for all cargo
Open Skies 1997 4 US Guatemala
Open Skies 1997 4 US Honduras
Open Skies 1997 5 US New Zealand 7th freedom rights for all cargo
Open Skies 1997 5 US Nicaragua
Open Skies 1997 6 US Malaysia 7th freedom rights for all cargo
Open Skies 1997 7 US Aruba
Open Skies 1997 10 US Chile Signed in October 1999, 7th freedom rights for all cargo
Open Skies 1997 12 US Netherlands Antilles 7th freedom rights for all cargo
Open Skies 1997 12 US Romania Have four-year-phased period
Open Skies 1998 2 US Uzbekistan 7th freedom rights for all cargo
Open Skies 1998 4 US Korea, Republic of
Open Skies 1998 5 US Peru Have four and two-year phased periods for passenger and
cargo services, 7th freedom rights for all cargo
Open Skies 1998 11 US Italy Signed in December 1999
Open Skies 1999 4 US Pakistan
Open Skies 1999 4 US UAE 7th freedom rights for all cargo.  Restrictions exist due to
multinational nature of Gulf Air
Open Skies 1999 5 US Bahrain
Open Skies 1999 8 US Argentina Have four-year-phased period for passenger service;Combined passenger/cargo s ervices All-cargo services
Complete exchange of the five basic traffic rights
(including 5th freedoms)Same liberal provisions on traffic rights and rates(same
regime as for combination carriers)
Free market access for designated carriers
(free determination of routes, capacity, frequency)‘Pro-competitive’ ground support
(self-handling, intermodal rights, user charges)
Freedom of fares and rates
(double-disapproval if threat to competition)Liberal treatment of non-scheduled cargo services
(the least restrictive charter regulations of the two
countries apply)S/C/W/163/Add.2
Page 56
Type Conclusion
Year MonthEntity Remarks
Argentina suspended in February 2000
Open Skies 1999 10 US Qatar
Open Skies 1999 11 US Tanzania Have two-year-phased period for charter service, 7th freedom
rights for all cargo
Open Skies 1999 12 US Dominican
Republic
Open Skies 1999 12 US Portugal Include intermodal;  Open charter and 7th freedom of cargo
will be at the end of 2002/2003
Open Skies 2000 1 US Slovak Republic 7th freedom rights for all cargo, Have two-year-phased period
for single cargo charter flights
Open Skies 2000 2 US Namibia Have two-year-phased period for number of airlines and open
charter rights
Open Skies 2000 3 US Ghana Have six-year phased period for passenger and cargo
services, 7th freedom rights for all cargo
Open Skies 2000 2 US Burkino Faso 7th freedom rights for all cargo, Restrictions exist due to
multinationality of Air Afrique
Open Skies 2000 3 US Turkey Have three-year-phased period for passenger services
Open Skies 2000 5 US Gambia 7th freedom rights for all cargo
Open Skies 2000 5 US Nigeria
Open Skies 1995 2 US Canada Have three-year-phased period for US carriers' access
Open Skies 1996 11 Australia New Zealand Created single aviation market, Have a ceiling for 5th
freedom
Open Skies 1996 6 Brazil Chile
Open Skies 1996 3 Brazil New Zealand
Open Skies 1999 Brunei New Zealand Include the provision to permit 7th/8th freedom
Open Skies 1997 4 Brunei Singapore
Open Skies 1999 Chile Costa Rica
Open Skies 1998? Chile Panama
Open Skies 2000 Cook Islands New Zealand
Open Skies 1998 Denmark New Zealand
Open Skies 1998 Ethiopia UAE Signed by Dubai on its own account
Open Skies 1997 Guatemala Panama
Open Skies 1997 Kenya Netherlands
Open Skies 1996 Macau Nepal
Open Skies 1997 Macau Singapore
Open Skies 1998 Malaysia New Zealand
Open Skies 1998 New Zealand Norway
Open Skies 1997 New Zealand Singapore Include the provision to permit 7th freedom for cargo service
Open Skies 1998 New Zealand Sweden
Open Skies 1997 New Zealand UAE
Open Skies 1998 Pakistan UAE Signed by Dubai on its own account
Open Skies 1997 3 Panama Peru
Open Skies 1996 Panama Venezuela
Open Skies 1998 Turkmenistan UAE
Open Skies 1998 UAE Uganda
Open Skies 1998 Four Latin American States Dominican Republic, Guatemala, Costa Rica and Panama
Open Skies 1999 Three Southeast Asian States Limited to specific areas in Indonesia, Malaysia and Thailand
Grand Total 74 (including Open Transborder and Multi Open Skies)
Total US 48 (including Open Transborder)Total non-US 26 (including Multi Open Skies)
Total Developing
countries54 (including Multi Open Skies)
192. The liberalization process extends well beyond open sky agreements.  That is why ICAO has
drawn up the following chart containing a list of countries involved in liberal agreements (either
bilateral or regional).  It is worth noting that this chart does not contain references to agreements more
liberal than the classical Bermuda type agreement but less liberal than open sky agreements (e.gJapan-USA) and this because there are extremely difficult to typologize in a simple manner.  TheS/C/W/163/Add.2
Page 57
picture is therefore incomplete.  For a more precise idea of the "less than open sky agreements",
please refer to the future annex of this document on routes, tariffs, capacity and designation.
However, ICAO made in June 1999 the following assessment of the regulatory evolution contained in
the bilateral agreements notified to ICAO between 1994 and 1999.  "…measures to ensure effective
and sustained participation in international air transport through the progressive liberalization of
market access, were present in about 55% of the 295 bilateral instruments for which information isavailable.  The most popular measures included multiple designation of airlines, gradual, negotiated
capacity increases and the removal of restrictions on cargo services."
Table 24
List of countries involved in Liberal Agreements as of 12 September 2000
1 2 3 4 56789 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7
Algeria xx
Angola xx x
Antigua &
Barbudaxx
Argentina x xx
Aruba x
Australia x xxx
Austria xx x x
Bahamas xx
Bahrain xx x
Barbados xx
Belgium xx x x
Belize xx
Benin xx
Bolivia xx x
Botswana xx
Brazil x xx
Brunei xx xx
Bulgaria x x
Burkino Faso xx x
Burundi xx x
Cambodia xx
Cameroon xx x
Canada x xx
Cape Verde xx x
CAR xx x
Chad xx x
Chile xx xxx
China xx
Colombia x x
Comores xx x
Congo xx
Congo, Demo
Repxx x
Cook Islands x xx
Costa Rica xx x
Côte d'Ivoire xx
Cyprus x x
Czech Rep. xx x
1. US Open Skies Agreements
2. Non-US Open Skies Agreements3. European Union (EU)
4. European Common Aviation Area
5. EU Expanded Agreements6. Andean Pact7. Arab Civil Aviation Commission
(ACA)
8. Central African Economic Union
9. COMESA
10. Yamoussoukro II11. CARICOM12. Banjut Accord13. Fortaleza Agreement
14. CLMV Agreement (Southeast Asia)15. Asia Pacific Economic Cooperation
(APEC)
16. South Pacific Forum17. ICAO States or notS/C/W/163/Add.2
Page 58
1 2 3 4 56789 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7
Denmark xxxx x
Djibouti xx x
Dominica x
Dominican Rep xx x
Egypt xx x x
El Salvador x x
Ecuador x x
Equatorial Guinea xx x
Eritrea xx x
Estonia x x
Ethiopia xx x x
Fiji xx
Finland xx x x
France xx x
Gabon xx x
Gambia xx x x
Germany xx x x
Ghana xx x x
Greece xx x
Grenada xx
Guatemala xx x
Guinea xx
Guinea Bissau xx x
Guyana xx
Honduras x x
Hong Kong, SAR x
Hungary x x
Iceland xx x
Indonesia x xx
Iraq xx
Ireland xx x
Italy xx x x
Jamaica xx
Japan xx
Jordan xx x
Kenya xx x x
Kiribati xx
Korea, Rep of x xx
Lao People's Dem
Repxx
Latvia x x
Lebanon xx
Lesotho xx
Liberia xx
Libya xx x
Liechtenstein x
Lithuania x x
Luxembourg xx x x
Macau, SAR x
Madagascar xx x
Malawi xx x
Malaysia xx xx
Mali xx
1. US Open Skies Agreements
2. Non-US Open Skies Agreements
3. European Union (EU)
4. European Common Aviation Area5. EU Expanded Agreements6. Andean Pact7. Arab Civil Aviation Commission
(ACA)
8. Central African Economic Union
9. COMESA10. Yamoussoukro II11. CARICOM
12. Banjut Accord13. Fortaleza Agreement
14. CLMV Agreement (Southeast Asia)
15. Asia Pacific Economic Cooperation
(APEC)
16. South Pacific Forum17. ICAO States or notS/C/W/163/Add.2
Page 59
1 2 3 4 56789 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7
Malta x x
Marshall Islands xx
Mauritania xx
Mauritius xx x
Mexico xx
Micronesia, Fed.
States ofxx
Montserrat x
Morocco xx
Mozambique xx
Myanmar xx
Namibia xx x x
Nauru xx
Nepal x x
Netherlands xx x x
Neth. Antilles x
New Zealand xx xxx
Nicaragua x x
Nieu x
Niger xx
Nigeria xx x x
Norway xx x x
Oman xx
Pakistan xx x
Palau xx
Palestine x
Panama xx x
Papua New G. xxx
Paraguay xx
Peru xx x x x
Philippines xx
Poland x x
Portugal xx x x
Qatar xx x
Romania xx x
Russian Fed. xx
Rwanda xx x
Saharawi Arab x
St Kitts and Nevis x
Saint Lucia xx
St Vincent &
Grenadinesxx
Samoa xx
Sao Tome &
Principexx
Saudi Arabia xx
Senegal xx
Seychelles xx x
Sierra Leone xx x
Singapore xx xx
Slovak Rep. xx x
Slovenia x x
Soloman Islands xx
1. US Open Skies Agreements
2. Non-US Open Skies Agreements3. European Union (EU)
4. European Common Aviation Area
5. EU Expanded Agreements6. Andean Pact7. Arab Civil Aviation Commission
(ACA)
8. Central African Economic Union
9. COMESA
10. Yamoussoukro II11. CARICOM12. Banjut Accord13. Fortaleza Agreement
14. CLMV Agreement (Southeast Asia)15. Asia Pacific Economic Cooperation
(APEC)
16. South Pacific Forum17. ICAO States or notS/C/W/163/Add.2
Page 60
1 2 3 4 56789 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7
Somalia xx
South Africa xx
Spain xx x
Sudan xx x x
Suriname xx
Swaziland xx x
Sweden xxxx x
Switzerland xx x
Syria xx
Taiwan, Province
ofx x
Tanzania xx x x
Thailand x xx
Togo xx
Tonga xx
Trinidad & Tob. xx
Tunisia xx x
Turkey xx x
Turkmenistan x x
Tuvalu x
UAE xx x x
Uganda xx x x
UK xx x
Uruguay xx
USA x xx
Uzbekistan x x
Vanuatu xx
Venezuela xx x
Vietnam xx x
Yemen xx
Zambia xx x
Zimbabwe xx x
TOTAL 49 27 15 19 13 5 16 6 21 52 14 6 6 4 21 16 157
1. US Open Skies Agreements
2. Non-US Open Skies Agreements3. European Union (EU)4. European Common Aviation Area
5. EU Expanded Agreements
6. Andean Pact7. Arab Civil Aviation Commission
(ACA)
8. Central African Economic Union9. COMESA
10. Yamoussoukro II
11. CARICOM12. Banjut Accord13. Fortaleza Agreement
14. CLMV Agreement (Southeast Asia)15. Asia Pacific Economic Cooperation
(APEC)
16. South Pacific Forum
17. ICAO States or not
193. The following chart updates and completes the chart contained in document S/C/W/59, Annex
8, page 32 and describes the main provisions of the existing regional agreements except for EU.  It is
worth noting however that the actual stage of implementation of those provisions is extremely
variable.S/C/W/163/Add.2
Page 61TABLE 25
Selected Provisions from Regional Agree ments and Arrangements on Air Services
Andean Pact  – 1991
(5 States)Caribbean
Community
(CARICOM) – 1996
(14 States)Fortaleza Agreement
– 1997
(6 States)Banjul Accord – 1997
(6 States)CLMV Agreement
– 1998
(4 States)COMESA – 1999
(21 States)ACAC  –  1999
(16 States)
Non-Scheduled Services
Permits unrestrictedall-cargo flights and
inclusive tour
passenger charterswithin the regionwhich do not endangerthe economic stability
of existing scheduled
servicesNo provision No provision No provision
No limitation subject to
permission procedures
of each countryPermit free movement
of intra-COMESA air
cargo and non-
scheduledpassenger trafficNo restriction subject
to regulatory
procedures
Third and Fourth Freedoms
Yes Yes – when licensed
and with priornotification; daytours/air taxis may be
subject to uplift/
directional conditionsYes, but only on routes
not being served underbilateral agreementsYes, for two traffic
points in each StateNo limitation on
3rd/4th freedom trafficrights; no limitationson eight international
airports for  origin,
destination,intermediate andbeyond points withinregionUp to two daily flights
between any city pair,beyond that bilateralair service applies
(phase I).
No intra-COMESAlimitation (phase II)Capacity divided to a
60 to 40%  ratio by2001
No restriction by 2003
Fifth and Sixth Freedoms
Fifth: YesSixth: Not mentionedper seFifth: To be exchanged
on a reciprocal andliberal basis between
members
Sixth: Not mentionedCarriage of Fifth and
Sixth freedom trafficpermitted only with
consent of States
concernedFifth:  Yes,
unrestricted where no3rd and 4th freedom
operations; limited to
20% of capacity with3rd/4th; reciprocal fornon-African carriersFifth: No limitation on
traffic Sixth: Implicitlyrecognized from traffic
points description (see
3rd/4th freedomsabove)Fifth: Unrestricted
where no 3rd and 4thfreedom operations,
limited to 30% of
capacity with 3rd/4th(phase I).No restriction (phaseII)Fifth: No restriction by
2005S/C/W/163/Add.2
Page 62Andean Pact  – 1991
(5 States)Caribbean
Community
(CARICOM) – 1996
(14 States)Fortaleza Agreement
– 1997
(6 States)Banjul Accord – 1997
(6 States)CLMV Agreement
– 1998
(4 States)COMESA – 1999
(21 States)ACAC  –  1999
(16 States)
Multiple Designation
Yes Yes, except where it
would lead to seriousfinancial loss to the
existing air carriers
licensed by both StatesYes Maximum of two
airlines per State Yes Yes Yes
Tariffs
Country of origin Dual approval required
by States concerned,but tariffs to beapproved which meetgeneral criteriaCountry of origin;
tariffs applied can beexamined by Councilof AeronauticalAuthoritiesDouble approval;
tariffs fixed on basis ofprice cap policy basedon operating cost ofdesignated airlinesDual disapproval for
sub-regional tariffsNo specific provision By 2003, apply rules o
f
supply and demand for
tariffs
Ownership and Control
Determined by nationallaw (legally constituted
in Pact country
designating air carrier)Air carrier must be
owned and controlled
by one or more
Member States ornationals thereofNo specific provision Headquarters and
major operations in
designating State
which should haveminority interest withvetoNo specific provision Air carrier
substantially owned
and effectively
controlled by one ormore COMESAmembers or theirnationalsAir carrier
substantially owned
and effectively
controlled by ArabStates or nationals,with Headquarters andregistration in an ArabState
Capacity
Accords the “freeexercise of rights of
third, fourth and fifth
freedoms of the air”,but the offer ofnon-scheduled flightson scheduled service
routes may not
endanger the economicviability of scheduledservicesA primary objective is
the provision, at a
reasonable load factor,
of capacity adequate tomeet the current andreasonably anticipatedrequirements for the
carriage of passengers,
cargo and mail onspecified routes;limitations arepermitted onmultiple-designation,
air taxi operationsCapacity must be
adapted to the
respective traffic
potential.  Statesinvolved to considercapacity proposed byairlines to avoid any
excess capacity not in
accordance with trafficpotential (ananti-competitivepractice) taking intoaccount airport
technical limitationsFive frequencies per
week per airline;
schedules should be
harmonizedNo limitation on
capacity and frequencyNo restriction on type
and capacity of aircraft,
except for airport
operating limitationsand air-worthinessrequirements No restriction on type
of  traffic or points of
operation. Capacity
freeze can be imposedfor one year, nonrenewable in case ofrapid decline in
marketshareS/C/W/163/Add.2
Page 63Andean Pact  – 1991
(5 States)Caribbean
Community
(CARICOM) – 1996
(14 States)Fortaleza Agreement
– 1997
(6 States)Banjul Accord – 1997
(6 States)CLMV Agreement
– 1998
(4 States)COMESA – 1999
(21 States)ACAC  –  1999
(16 States)
Fair Competition
Competition rules ofAndean Pact areapplicable to air
transportAccords airlines fair
and equal opportunityto compete; requires
action to eliminate all
forms of discriminationor unfair competitivepractices; no undueeffect on airline
services of other
Member StatesMembers to adopt
measures to eliminateall forms of
discrimination and
unfair competitionpractices; establishes anational standard fortreatment of airlines of
other Member StatesNo specific provision No specific provision Members to apply
COMESA competitionrules and regulations to
alliances and
commercialarrangementsApply ICAO guidance
and rules of the ArabLeague for fair
competition and
non-discrimination.Existing bilateralprovisions or a setmechanism for
settlement of disputes
Other Agreements Among Parties
May not impose
restrictions to anyfacilities whichMember States havegranted, or may grant,through bilateral or
multilateral agreementsShall not affect any
bilateral, multilateral orother contractualagreement orarrangementsMay not establish
restrictions on what isestablished in airservice agreementsamong Parties,provisions of which are
applied subsidiarilyPrior consultation,
observer status forStates for bilateralnegotiations within,outside of group; Statesto reflect and promote
broader group interest
in such negotiations. Inevent ofinconsistencies,YamoussoukroDeclaration prevailsExisting bilateral air
services agreementsrecognized;progressiveimplementation; anytwo States may initiate
cooperative
arrangements, othersjoin when readyExisting bilateral air
services agreementsrecognized;progressiveimplementation;alliances and
commercial
arrangementsencouragedExisting bilateral air
services agreementsrecognized;progressiveimplementation,alliances and
marketing
arrangementsencouraged
Non-party States
Permits non-scheduledcargo flights between
Pact and non-Pact
States; fifth freedomrights exchanged withnon-Pact States onbasis of equity and
adequate compensationDoes not affect
bilateral
agreements/arrangeme
nts or operatinglicenses/similarauthorizations alreadyin force between a
Member State and a
non-Member StateNo specific provision See “Other
Agreements among
Parties,” aboveExisting bilateral air
service agreements
recognizedExisting bilateral air
service agreements
recognizedNo provisionS/C/W/163/Add.2
Page 64Andean Pact  – 1991
(5 States)Caribbean
Community
(CARICOM) – 1996
(14 States)Fortaleza Agreement
– 1997
(6 States)Banjul Accord – 1997
(6 States)CLMV Agreement
– 1998
(4 States)COMESA – 1999
(21 States)ACAC  –  1999
(16 States)
Inclusion of New Member States
Presumably requiresState to join AndeanPactOpen to State or
Territory whichbecomes part of
Caribbean CommunityOpen to other States of
South America;requires unanimous
approval of States
Parties to theAgreementNo provision Open to other countries
subject to acceptanceby all member States
(agreed in 1999)No provision No provision
Entry into Force
Decision 297 (June
1991)When eighth
ratification wasdeposited, 8 December1998 30 days after third
ratification depositedUpon signature of three
StatesUpon signature,
14 January 1998First phase of
liberalizationscheduled for 1October 1999First phase of
liberalizationscheduled for 1999
Amendment
Through Decision ofCartagena CommissionRequires agreement,
ratification and deposit
of all Member StatesAeronautical
Authorities can modify
Appendices by
unanimous agreementNo provision All parties must accept
proposed amendmentsNo provision No provisionS/C/W/163/Add.2
Page 65
194. In view of their technical complexity and ec onomic importance the provisions of the single
European air transport market deserve a specific de scription.  It is contained in the following chart.
Table 26
Summary of Three European Air Packages
Scope 1st package
From 1 January 1988International scheduled passenger
transport2nd package
From 1 November 1990International scheduled passenger transport3rd package
From 1 January 1993Intra-Community air transport
Fares Fare type        % of           Fare
    ref. fare       approved by 
           State
Discount        66-90       Automatically
Deep discount  45-65       Automatically
All other       Dbl approvalFare type        % of      Fares approved
     ref. fare          by States
Fully flexible  106-         Unless double 
          disapproval
Normal econ     95-105       Automatically
Discount         80-94         Automatically
Deep discount   30-79         AutomaticallyAll other         If dbl approvalFree pricing
However, provisions made for States
and/or the Commission to intervene
against- excessive basic fares (in
relation to long term fully allocated
costs)- sustained downward
development of fares
Designation Multiple designation by a State allowed
if:
- 250 000 pass (1st year after
notification)- 200 000 pass or 1 200 rt flights (2nd
year)
- 180 000 pass or 1 000 rt flights (3rdyear)Multiple designation by a State allowed if:
- 140 000 pass or 800 rt flight (from Jan
91)
- 100 000 pass or 600 rt flight (from Jan92)No longer applicable
Capacity Capacity shares between States
45/55% (from Jan 88)
40/60% (from Oct 89)Capacity shares of a State of up to 60%
Capacity can be increased by 7.5% per
yearUnrestricted
Route access • 3rd/4th Freedom region to hub routes
permitted
• 5th Freedom traffic allowed up to 30%
of capacity
• Additional 5th Freedom rights for Irish
and Portuguese
• Combination of points allowed
• Some exemptions• 3rd/4th Freedom between all airports
• 5th Freedom traffic allowed up to 50% of
capacity
• Public service obligations and certain
protection for new regional routes
• A 3rd/4th Freedom service can be
matched by an airline from the other State
• Scope for traffic distribution rules and
restrictions related to congestion and
environmental protection• Full access to international and
domestic routes within the EU including
routes between states other than the baseof the carrier exemptions for Greek
islands and Azores
• Cabotage is allowed for up to 50% of
capacity if the domestic sector is
combined with a route to the homecountry
Cabotage is unrestricted from April
1997
• More developed public service
obligations and certain protection fornew thin regional routes
• More developed scope for traffic
distribution rules and restrictions related
to congestion and environmental
protection
CompetitionrulesGroup exemptions regarding
• Some capacity coordinations
• Tariff consultations• Slot allocation at airports
• Common computer reservation
systems• Ground handling of aircraft, freight,
passengers and inflight catering
• Some sharing of pool revenuesGroup exemptions regarding
• Some capacity coordinations
• Tariff consultations• Slot allocation at airports
• Common computer reservation systems
• Ground handling of aircraft, freight,passengers and inflight cateringGroup exemptions regarding
• Some schedule coordinations
• Tariff consultations• Slot allocation at airports
• Common computer reservation
systems• Joint operation of new thin routes
Licensing of
air carriers
Not provided for in the 1st and 2nd packagesFull freedom to start an airline
Uniform conditions across EU
Concept of Community ownership andcontrol replaces national ownership and
control
Requirements for financial fitnessspecified
Small carriers subject to looser
regulatory requirements
Source: European Commission, Europe Single Market Review, Air Transport, 1997/OECD.S/C/W/163/Add.2
Page 66
195. Moreover, in addition to these arrangements which are already in place or about to become
so, others are in the pipeline, for example:
- an initiative by the 16 Pacific Forum Island Countries  for multilateral liberalization;
- a proposal endorsed by leaders of the Asia Pacific Economic Cooperation (APEC)  aimed at
increasing competitive air services within this 21 member group42;
- a liberalization initiative by the United States with a number of Caribbean States;- A common regional commercial air policy for South America being prepared under the aegis
of a regional Conference of Ministers.
196. Finally as this resulted also clearly from the first session of the review, three texts currently
under discussion:  the draft Transatlantic Common Aviation agreement (TCAA);  the Chicago II
Initiative;  and the draft "like minded" – APEC countries plurilateral agreement, contain far reaching
liberal provisions that may have a considerable future impact.
197. As described by Mrs De Palacio, European Commissioner for transport and energy at the
"beyond open skies" symposium held in Chicago on December 1999 the draft Transatlantic Common
Aviation Agreement (TCAA) with the United States
43 would comprise three types of provisions.
- Market access provisions:  this would include not only the classical open sky exchange of the
five first freedoms but also set the stage for the negotiation for a shared and completely open
market environment.  This would include a fundamental change of ownership and control
legislation, if not even the complete elimination of restrictions in this area.
- Regulatory provisions:  a broad framework of  harmonization and policy convergence would
be devised.  It would include issues such as co mputer reservation systems, code sharing, slots,
state aid, bankruptcy protection and leasing.  The convergence of EU competition rules andUS anti-trust policy will be a central question.  Other useful areas for regulatory convergence
would be safety standards, environmental measures and social policies such as flight time
limitations and cabin crew protection.
- Dispute settlement provisions:  these should be "strong, effective and swift".198. At this stage the discussion of the TCAA is academic, since the European Commission has
not yet been given a mandate to negotiate it and since the attribution of this mandate is partially linked
to the pending judicial action before the European Court of Justice, initiated by the Commission
against several member states on the grounds that the open sky agreements and the staged
liberalization agreements that they have signed with the United States have a negative bearing on the
European single market.
199. The "Chicago II" or "beyond open skies initiative" is also a recent and important
development.  At this conference, held under the auspices of the US Secretary for Transport, in
December 1999, in the same premises where the original Chicago Convention had been discussed and
                                                          
42  For details on this proposal, refer to Job No 3203, dated 19 May 2000, Communication from
Australia, Implementing the Eight Recommendations for more Competitive Air Services.
43 See "Towards a Transatlantic Common Aviation Area", Association of European Airlines policy
statement, September 1999, and speech by Mrs de Palacio, on the web-sitehttp.\\www.eurunion/org/news/speeches/991206ldp.htm.S/C/W/163/Add.2
Page 67
signed, representatives of open sky signatory countries agreed a common declaration paving the way
for plurilateral forms of open sky agreements.
200. More precisely the declaration states that "as the next step for advancing international aviation
liberalization there is a need to continue exploring the potential for aviation liberalization beyond
open skies […] the goals for this follow-up initiative are two-fold.  First to identify effective
mechanisms to exchange opportunities among like-minded partners, including considerations ofregional, multilateral and plurilateral systems.  Second, to create a framework that will allow
additional partners to join in such exchanges of opportunities.  This initiative will extend beyond
routes to include other elements of the operating environment to facilitate the safe, secure, sustainable,
efficient and cost-effective movement of passengers and goods".
201. To a certain extent, the negotiations that began in August 2000 among five "like-minded
APEC countries" (Brunei Darussalam, Chile, New Zealand;  Singapore and the United States
44) are a
follow-up of this "beyond open skies initiative".  The negotiations are still under way and it istherefore impossible to describe the definitive features of the agreement.  However from various
public declarations made by the participants it appears that this draft agreement entails the exchange
of the first five freedoms among members for passengers and the first five plus the seventh freedom
for all cargo services. An additional optional protocol will be drafted in order to allow members that
so wish to exchange passenger seventh freedom and cabotage rights.  It also include the right to multi-designate, the choice between a narrow (substanti al ownership and control) and a wide (principal
place of business) criterion for ownership.  The idea of including also airlines whose substantial
ownership is vested in one or more  parties or their nationals or both (multinational ownership limited
to members) is still between brackets but is widely considered as one of the most important potential
steps forward of this draft agreement.  The other provisions are similar to classical open skies texts.
                                                          
44 Australia and Japan are observers to these talks.S/C/W/163/Add.2
Page 68
ANNEX 1
 STATEMENT BY THE COUNCIL OF ICAO ON CHARGES FOR
AIR NAVIGATION SERVICES
Introduction
26. The global costs of providing air navigation services continue to increase relatively rapidly to
handle growing volumes of traffic more efficiently. Ho wever, the level of cost recovery is now greater
than it was in 1981, not only because of increases in existing charges but also because charges for
route air navigation services are presently almost universally applied, such charges currently
accounting for around 1.5% of total scheduled airline operating expenses. In addition a small but
growing number of States are also introducing separate charges for approach and aerodrome control.
27. The comments made in paragraph 6 concerning the potential benefits offered by assigning the
operation of airports to autonomous authorities also apply to air navigation services. Where this is in
the best interest of providers and users, governments may wish to explore the possibility of
establishing autonomous authorities to operate thei r air navigation services, recognizing that in some
circumstances a single authority may operate both airports and air navigation services, and that the
authority may be in the form of an autonomous civil aviation authority. The Council also encourages
international co-operation in the provision and operation of air navigation services where this is
beneficial for the providers and users concerned.
28. A number of additional factors are likely to exert an important influence on the organization
and economic development of air navigation services. For example, the number of autonomous airport
authorities is expected to increase. This could re sult in more situations where a different entity
provides both approach and aerodrome control and route air navigation services. Also, additional
resources will be required to deal with the problem of airspace congestion, and to implementsatellite-based communications, navigation and surveillance (CNS) and air traffic management
(ATM) systems, as well as other multinational facilities and services and other improvements in
infrastructure.
29. States are likely to increase their efforts to  recover their air navigation services costs from
users in order to meet the increasing financial obligations of providing air navigation services.
However, the Council recommends that States exerci se caution in their general policy on charges for
air navigation services and take into consideration the effect on users, in particular the air carriers
which may need to adjust their tariffs to deal with  increased costs arising from new or higher charges.
The Council also considers that a balance should be maintained between the respective interests of
providers of air navigation services and airlines and therefore recommends that States should
encourage a greater level of co-operation between them.
30. The Council also expresses concern over the proliferation of charges on air traffic, and the
retaliatory effects this could lead to, and recommends that States should:
i) Impose charges only for services and functions which are required for international
civil aviation.
ii) Refrain from imposing charges which discriminate against international civil aviation
in relation to other modes of international transport.
31. The problems involved in providing and mainta ining the facilities required by the Regional
Air Navigation Plans are particularly serious for the less advanced economies, principal among these
being the limited financial resources available for economic development generally, the higherS/C/W/163/Add.2
Page 69
priority assigned to other sectors of the economy whose needs are considered more urgent,
under-utilization of air navigation services, the high cost of obtaining equipment from other States and
the difficulties in recruiting sufficient numbers of qualified personnel. The Council will continue to
take appropriate action towards obtaining more assistance for the States concerned in planning and
financing air navigation services as well as with regard to the provision of adequate human resources.
The cost basis for air navigation services charges
32. As a general principle, where air navigation services are provided for international use, the
providers may require the users to pay their share of the related costs, but international civil aviation
should not be asked to meet costs which are not properly allocable to it. The Council therefore
encourages States to maintain accounts for the air navigation services they provide in a manner which
ensures that air navigation services charges levied on international civil aviation are properlycost-based.
33. The Council considers that an equitable cost recovery system could proceed from an
accounting of total air navigation services costs incurred on behalf of aeronautical users, to an
allocation of these costs among categories of users and finally to the development of a charging orpricing policy system. In determining the total cost s to be paid for by charges on international air
services, the list in Appendix 2 may serve as a genera l guide to the facilities and services to be taken
into account. The guidance on accounting provided in the ICAO Manual on Route Air Navigation
Facility Economics (Doc 9161), Chapters 3 and 4, and the Airport Economics Manual, Chapters 3 and
4, may also be found useful in this context.
34. When establishing the cost basis for air navigation services charges, the following principles
should be applied:
i) The cost to be shared is the full cost of providing the air navigation services,
including appropriate amounts for cost of capital and depreciation of assets, as well as
the costs of maintenance, operation, management and administration.
ii) The costs to be taken into account should be those assessed in relation to the facilities
and services, including satellite services, provided for and implemented under theICAO Regional Air Navigation Plan(s), supplemented where necessary pursuant to
recommendations made by the relevant ICAO Regional Air Navigation Meeting, as
approved by the Council. Any other facilities and services, unless provided at the
request of operators, should be excluded, as should the cost of facilities or services
provided on contract or by the carriers themselves, as well as any excessive
construction, operation or maintenance expenditures.
iii) The costs of air navigation services provided during the approach and aerodrome
phase of aircraft operations should be identified separately.
iv) Air navigation services may produce sufficient revenues to exceed all direct and
indirect operating costs and so provide for a reasonable return on assets (before taxand cost of capital) to contribute towards necessary capital improvements.
35. In determining the costs to be recovered from users, it should be noted that:
i) Governments may choose to recover less th an full costs in recognition of local,
regional or national benefits.
ii) It is for each State to decide for itself whether, when and at what level any air
navigation services charges should be imposed, and it is recognized that States inS/C/W/163/Add.2
Page 70
developing regions of the world, where financing the installation and maintenance of
air navigation services is difficult, are particularly justified in asking the international
airlines to contribute through user charges towards bearing a fair share of the cost of
the services.
iii) The approach towards the recovery of full costs should be a gradual progression.
Allocation of air navigation services costs
among aeronautical users
36. The allocation of air navigation services costs among aeronautical users should be carried out
in a manner equitable to all users.  The proportions of cost attributable to international civil aviation
and other utlilization of the facilities and services (including domestic civil aviation, State or otherexempted aircraft, non-aeronautical users) should be determined in such a way as to ensure that no
users are burdened with costs not properly allocable to them according to sound accounting principles.
The Council recommends that States should:
i) Acquire basic utilization data in respect of air navigation services, including the
number of flights by category of user (i.e. air transport, general aviation and other) in
both domestic and international operations, and other data such as the distance flown
and aircraft type or weight, where such information is relevant to the allocation of
costs and the cost recovery system.
ii) Take into account the guidance on cost allocation contained in the ICAO Manual on
Route Air Navigation Facility Economics , Chapters 3 and 4, and Airport Economics
Manual , Chapters 3 and 4, although they may use any accounting approach they
consider meets their particular requirements.
Air navigation services charging systems
37. States should ensure that systems used for charging for air navigation services are established
in accordance with the following principles:
i) Any charging system should, as far as possible, be simple, equitable and, with regard
to route air navigation services charges, suitable for general application at least on a
regional basis.  The administrative cost of collecting charges should not exceed a
reasonable proportion of the charges collected.
ii) The charges should not be imposed in such a way as to discourage the use of facilities
and services necessary for safety or the introduction of new aids and techniques.  Thefacilities or services provided for in the ICAO Regional Air Navigation Plan(s) or in
any recommendations of the relevant ICAO Regional Air Navigation Meeting as are
approved by the Council are, however, considered to be necessary for general safety
and efficiency.
iii) The system of charges must be non-discriminatory both between foreign users and
having the nationality of the State or States providing the air navigation services and
engaged in similar international operations , and between two or more foreign users.
iv) Where any preferential charges, special rebates or other kinds of reduction in charges
normally payable in respect of air navigation services are extended to particular
categories of users, governments should ensure, so far as practicable, that any
resultant under-recovery of costs properly allocable to the users concerned is not
shouldered onto other users.S/C/W/163/Add.2
Page 71
v) Any charging system should take into account the cost of providing air navigation
services and the effectiveness of the services rendered. The charging system should
be introduced in such fashion as to take account of the economic and financial
situation of the users directly affected, on the one hand, and that of the provider State
or States, on the other.
vi) Charges should be levied in such a way that no facility or service is charged for twice
with respect to the same utilization. In cases where certain facilities or services have a
dual utilization (e.g. approach and aerodrome control as well as en route control),
their cost should be equitably distributed in the charges concerned.
vii) The charges levied on international general aviation should be assessed in a
reasonable manner, having regard to the cost of the facilities needed and used and the
goal of promoting the sound development of international civil aviation as a whole.
38. The Council:
i) Recommends that under normal circumstances, user charges should be expressed and
payable in the local currency of the State concerned.
ii) Recommends that under special circumstances, for example where economic
conditions are not stable, when a State proposes, or allows, denomination of usercharges in other than local currency, airlines could apply the same currency of
denomination, using the same exchange rate, for their local ticket sales.
iii) Recommends that remittance problems be resolved.
iv) Recognizes that when route air navigation services charges are billed on a regional
basis (i.e. on behalf of several States or by a jointly operated agency), it may be
advantageous to both users and providers to denominate and pay charges in a single
convertible currency.
Approach and aerodrome control charges
39. Where charges for approach and aerodrome control are levied, whether as part of the landing
charge or separately, the charge should, so far as possible, be a single element of the landing charge or
a single charge per flight and could take aircraft weight into account but less than in direct proportion.
Route air navigation services charges
40. The charge for route air navigation services should, so far as possible, be a single charge per
flight; that is to say, it should constitute a single charge for all route air navigation services provided
by a State or group of States for the airspace to which the charge applies. The charge should be based
essentially on:
i) the distance flown within a defined area;ii) the aircraft weight.
The element of distance flown, taken as one of the acceptable measures of the service rendered,
should be applied by means of a distance scale using great circle distances or other commonly agreed
distances. The element of aircraft weight should be applied by means of a weight scale using broadS/C/W/163/Add.2
Page 72
intervals which should he standardized so  far as possible. This weight scale should take into account.
less than proportionately, the relative productive capacities of the different aircraft types concerned.
41. Without prejudice to the guidelines provided above, which constitute a charging system for
general application, the Council recognizes however that:
i) the characteristics of a given airspace will determine the most appropriate charging
method for that airspace, having regard to the type of traffic, the distances flown and
the characteristics of the aircraft in that airspace;
ii) when the distance flown and/or the aircraft types are reasonably homogeneous, the
distance and weight elements may be separately or jointly neglected as the case may be;
iii) in some circumstances, it may be considered appropriate to use a combination of a
flat charge per flight and a charge based on the parameters recommended above in
recognition of there being an element of fi xed costs in providing air traffic services.
Charges for air navigation services used by aircraft
when not over the provider State
42. The providers of air navigation services for international use may require all users to pay their
share of the cost of providing them regardless of whether or not the utilization takes place over the
territory of the provider State. Accordingly, wherever a State has accepted the responsibility forproviding route air navigation services over another State, over the high seas or in an airspace of
undetermined sovereignty (in accordance with the provisions of Annex 11 and Regional Air
Navigation Agreements approved by the Council), the State concerned may levy charges on all users
for the services provided. A State may delegate to another State or to an organization the authority to
levy such charges on its behalf.
43. The collection of air navigation services charges in cases where the aircraft does not fly over
the provider State poses difficult and complex problems. It is for the States to find the appropriate
kind of machinery on a bilateral or regional basis for meetings between provider States and those of
the users, aiming to reach as much agreement as possible concerning the facilities and servicesprovided, the charges to be levied and the methods of collecting these charges.
Consultation with users regarding charges
and air navigation services planning
44. The principles enunciated with respect to consultation concerning changes in airport charges
in paragraph 22 are applicable also to changes in ai r navigation services charges, but in the latter case
a need may also exist for more specific consultation between providers and airlines since air
navigation services are generally provided by governments and it will therefore be easier to obtain a
consultative opinion concerning their charges than in the case of airport charges where a number of
conflicting interests may arise.
45. On the understanding that consultation implies no more than discussions between users and
providers in an attempt to reach general agreement on any proposed charges, and that failing such
agreement governments would continue to be free to impose the charges concerned, the Council
therefore recommends that:
i) When any significant review of existing charges or the imposition of new charges is
contemplated by a provider of air navigation services, appropriate prior notice should,
so far as possible, be given at least two months in advance to the principal users,S/C/W/163/Add.2
Page 73
either directly or through their representative bodies, in accordance with the
regulations applicable in each State.
ii) In any such review, these users should, so far as possible, be given the opportunity to
submit their views to and consult with the competent authority. For this purpose the
users should be provided with adequate financial information.
iii) Reasonable advance notice of the final decision on any revision of charges or
imposition of new charges should be given to these users. This period of notice
should take into account the implications for both the users and the provider of the air
navigation services.
46. When major new air navigation services are being planned, it is desirable that the regular
users of air navigation services or their representative organizations be consulted as early as
practicable. Equally, in order that providers of air navigation services may better plan their future
financial requirements, the Council considers that users, particularly airlines, should, either directly or
through their representative bodies, provide advance planning data relating to future types,
characteristics and numbers of aircraft expected to be used; the special facilities which the usersdesire; and other relevant matters, to the extent possible on a 5- to 10-year forecast basis.
__________