BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

In the matter of 

NORWEGIAN AIR INTERNATIONAL 

LIMITED 

for an exemption under 49 U.S.C. § 40109 

and a foreign air carrier permit pursuant to 

49 U.S.C. § 41301 (US-EU Open Skies) 

) 

) 

) Docket DOT -OST -2013-0204 

) 

) 

) 

) 

) 

___________________________________ 

) 

) 

ANSWER OF SCANDINAVIAN AIRLINES SYSTEM (SAS) TO AUGUST 4, 2014 

NOTICE 

Communications with respect to this document should be sent to: 

Hans Ollongren 

Head of Public and Regulatory Affairs 

SCANDINAVIAN AIRLINES SYSTEM 

STODX 

SE-195 87 

Stockholm, Sweden 

August 18, 2014 

Michael F. Goldman 

SILVERBERG, GOLDMAN & BIKOFF, L.L.P. 

1101 301h St., NW, Suite 120 

Washington, DC 20007 

Tel: (202) 944-3305 

Email: mgoldman@sgbdc.com 

Counsel for 

SCANDINAVIAN AIRLINES SYSTEM 
BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

In the matter of 

NORWEGIAN AIR INTERNATIONAL 

LIMITED 

for an exemption under 49 U.S.C. § 40109 

and a foreign air carrier permit pursuant to 

49 U.S.C. § 41301 (US-EU Open Skies) 

) 

) 

) Docket DOT -OST -2013-0204 

) 

) 

) 

) 

) 

________________________________ 

) 

) 

ANSWER OF SCANDINAVIAN AIRLINES SYSTEM (SAS) TO AUGUST 4, 2014 

NOTICE 

Scandinavian Airlines System ("SAS") files this answer in response to the Department's 

August 4, 2014 Notice seeking the views of interested parties on the Department's summary of 

the July 14, 2014 meeting with DG-MOVE regarding its interpretation of Article 17 bis ofthe 

U.S.-EU Open Skies Agreement. As explained below, DG-MOVE's interpretation of Article 17 

bis would render meaningless the important labor protections afforded by Article 17 bis; does not 

represent the position of the full European Commission nor all the Member States; and does not 

bar the Department from denying under U.S. aviation law Norwegian Air International 

("NAI")'s application for exemption authority and a foreign air carrier permit. 

1. By way of background, SAS filed comments in opposition to NAI's application in this 

Docket on February 21, 2014 in a joint reply with Deutsche Lufthansa AG. SAS and Lufthansa 

stated that their opposition was based on their view that NAI's labor practices were in 

contravention of the "high labor standards" protected by Article 17 bis based on the record 

before the Department. Employment of Thai cabin crews at sub-U.S./EU wages and working 
SAS Answer 

August 18, 2014 

Page2 

conditions undermined the labor standards protected by Article 17 bis, as well as the U.S. 

statutory policy goals under section 40101(a) of Title 49, we said. Therefore, NAI's application 

should not be approved by the Department. 1 

2. The Department now seeks comments on DO-MOVE's view that Article 17 bis cannot be 

invoked by the Department or any other Party to the Open Skies Agreement alone to deny the 

application of a carrier of another Party for a license under Article 4? The DG-MOVE position, 

which has no support in the text of Article 17 bis itself or the Agreement's negotiating history, 

would make Article 17 bis a meaningless, non-binding provision. 

Before proceeding further, SAS is compelled to make two crucial observations. First, 

while the Department's August 4, 2014 Notice states that DOT officials met with European 

Commission (EC) officials at the request of Secretary Foxx, Department officials, in fact, only 

met with officials ofDG-MOVE, the EC directorate responsible for transportation. The Director 

of Aviation for DG-MOVE was at best expressing the views ofDG-MOVE only, and was not 

speaking for the whole European Commission, let alone the European Union (consisting of the 

EC and the 28 Member States). If the Department desires the views of the European Union on 

Article 17 bis, which it should as the EC and the Member States jointly were signatories to the 

Open Skies Agreement, it should request an official statement of the EC and consult separately 

with the Member States as well. (In fact, the August 4, 2014 Notice reports at page 2 that DGMOVE post-July 14 "was in the process of discussing the issues with representatives of the 

1 See Joint Reply at 1-3. 2 See August 4, 2014 Notice at 2. 
SAS Answer 

August 18, 2014 

Page 3 

European Union (EU) and Member States .... " Significantly, these discussions did not result in 

support for the DG-MOVE position.)3 

Second, the DG-MOVE position that Article 17 bis cannot be invoked unilaterally by a 

Party to the Open Skies Agreement would render it a nullity. If, before invoking Article 17 bis 

to deny an EU carrier's application, the Department must first receive the consent of the other 

Parties to the Agreement-- namely the EC and each of the Member States-- through the Joint 

Committee procedures or otherwise (see August 4, 2014 Notice at 2) --after seeking 

consultations under Article 6 bis (l)(a) with Irish Authorities, it is apparent that the bar to 

unilateral action would frustrate the Department's ability to act to protect the "high labor 

standards" Article 1 7 bis was intended to secure. 

3. The August 4, 2014 Notice states that the basis for DG-MOVE's view that Article 17 bis 

does not provide a legal basis for unilaterally denying an EU carrier license application is that (1) 

Article 4 makes no reference to Article 17 bis and (2) Article 17 bis does not "formulate a legal 

rule" that can be applied by one Party unilaterally.4 Neither explanation is persuasive. 

The fact that Article 4 makes no reference to Article 17 bis is not at all compelling; if 

Articles had to be cross-referenced to be applicable to one another, the Agreement would 

become a complex and unworkable document The fact that Article 20's "Competition" 

provisions are not cross-referenced in Article 4 does not and cannot mean that the competition 

provisions do not apply to the activities of carriers licensed under Article 4. More relevant is the 

fact that there is no language in Article 4 stating that Article 17 bis does not apply. There is no 

3 See Comments of the Signatories to the Joint Declaration Against EU-Based Flags of 

Convenience in Aviation As Endorsed on 5 June 2014 by the Air Crew Working Group of the 

Sectoral Dialogue Committee, dated August 18, 2014, at 2. 

4 See August 4, 2014 Notice at 2. 
SAS Answer 

August 18, 20i4 

Page4 

"Notwithstanding the labor standards protections secured by Article 17 bis" text preceding the 

operative implementing language in Article 4 (or Article 6 bis for that matter). Inconsistently, 

DG-MOVE also suggests that if a Party wants to discuss Article 17 bis in the context of a 

particular foreign air carrier application, it could avail itself of Article 6 bis (l)(a). 5 DG-MOVE 

makes this argument despite the fact that, like Article 4, Article 6 bis makes no reference to 

Article 17 bis. 

DO-MOVE's alternative explanation is equally wanting. In fact, Article 17 bis does 

"formulate a legal rule" that can be applied to an Article 4( c) application; that "rule" is that 

implementation of the Agreement's provisions, including Article 4, should not "undermine 

labour standards or the labour-related rights and principles in the Parties' respective laws." 

4. Moreover, the text of Article 17 bis and the negotiating history ofthe 2010 Amendments 

do not support the result advanced by DG-MOVE either. Nothing in Article 17 bis states that it 

should not be applied when implementing other provisions of the Agreement; indeed it says just 

the opposite. Article 17 bis, Paragraph 2, states that "The principles in paragraph 1 shall guide 

the Parties as they implement the Agreement" and then adds, "including regular consideration by 

the Joint Committee." Since Articles 4 and 6 bis are obviously provisions of the Agreement, 

Article 17 bis, paragraph 1, can and should be used to "guide the Parties as they implement" 

these provisions. By adding the subsequent reference to the Joint Committee specifically, the 

Parties were emphasizing the broad applicability of Article 17 bis both to the operative 

implementing provisions of the Agreement as well as to conditions and practices that should be 

studied by the Joint Committee. 

5 See August 4, 2014 Notice at 2. 
SAS Answer 

August 18, 2014 

Page 5 

Article 17 bis' negotiating history supports this view as well. In a March 25, 2010 

statement, Siim Kallas, the EC's Vice-President responsible for Transport, when the SecondStage Open Skies Agreement was concluded that week, lauded Article 1 7 bis as one of the 

"significant improvements in terms of regulatory cooperation" achieved by the U.S./EC 

negotiators. 6 He treated it on a par with new Agreement provisions dealing with environmental 

matters, aviation security and improved market access under the Fly America program. He 

described Article 17 bis as a "dedicated article" on labor matters that will "not only ensure that 

the existing legal rights of airline employees are preserved, but that the implementation of the 

agreement contributes to high labour standards."7 Clearly, Vice President Kallas viewed Article 

17 bis as an integral Agreement provision fully enforceable by the Parties to the Open Skies 

Agreement as revised by the Second-Stage Agreement. 

5. As noted, the DG-MOVE position has not been adopted or endorsed by the full 

Commission, and it has not been endorsed by the Member States as a whole. Indeed, SAS is 

aware that a number of Member States including Germany, France, Italy and the Netherlands 

have contested DG-MOVE's interpretation of Article 17 bis. Some have put their objections to 

the DG-MOVE position in writing. 8 In these circumstances, the views ofDG-MOVE should be 

accorded no weight in the Department's consideration of the merits ofNAI's application. 

6. What then in the words of Article 17 bis are the "labour standards or the labour-related 

rights and principles contained in the Parties' respective laws" that grant ofNAI's application 

would undermine? In Europe, these are the labor and labor-related laws of the Member State or 

6 See Attachment A. 

7 !d. (emphasis supplied). 8 See Air Crew Working Group Comments at 2. 
SAS Answer 

August 18, 2014 

Page 6 

States where the employee carries out his or her duties. These would be the labor-related laws of 

Denmark, Norway, Sweden and the U.K., the Member States from which NAI proposes to 

conduct most of its transatlantic services despite its Ireland-issued AOC and license. (In fact, no 

transatlantic services to or from Ireland have been proposed by NAI). These are labor laws 

dealing with union representation; labor-related provisions of immigration law regarding 

employment permits for foreign workers; and social insurance laws addressing employee 

contribution for health insurance and retirement benefits. Use of Thai-based cabin crews and 

European-licensed pilots employed by Singapore-based subsidiaries (fictitiously based in 

Thailand) totally undermines the labor protections guaranteed by Article 1 7 bis. Such 

employment practices also run afoul of the need for European competitiveness, growth and jobs 

that the Commission is constantly promoting, despite DG-MOVE's support for NAI's efforts to 

export airline jobs to Asia. 

It would indeed be ironic were the Department to license NAI with its foreign crew labor 

practices and social insurance tax-avoidance schemes when President Obama is criticizing 

certain American companies as "corporate deserters" that are buying European businesses to 

reduce their U.S. tax obligations. Those inversion deals allow U.S. companies to shift their 

domicile to more lenient tax systems just as NAI would use its Ireland domicile to take 

advantage of the looser Irish labor law regime that would allow NAIto employ Thai-based cabin 

crews at sub-EU/U.S. wages and avoid European social insurance taxes, all to the disadvantage 

of U.S. and European legacy carriers and their employees. To quote President Obama at a recent 

August 7, 2014 speech at Los Angeles Technical College, "We need to stop companies from 
SAS Answer 

August 18, 2014 

Page 7 

renouncing their citizenship just to get out of paying their fair share of taxes."9 The Department 

should heed the President's policy guidance on this question as it considers NAI's application. 

7. What then is the Department's obligation under Article 4(c) ofthe Agreement as far as 

NAI's application is concerned? The Department may have an obligation to grant appropriate 

authorizations to an EU applicant but only if "the airline is qualified to meet the conditions 

prescribed under the laws and regulations normally applied ... " Those "laws and regulations" 

include the protection of the "high labor standards" secured by Article 17 bis but also the policy 

objectives provided for by U.S. statutory law (49 U.S.C. §§ 4010l(a)(5), 40101(a)(15) and 

(e)(l)). 

Article 6 bis on reciprocal recognition of citizenship and fitness determinations does not 

require a contrary result. Its negotiating history supports this view. Paragraph 5 of the U.S.-EU 

MOC dated March 26, 2010, on conclusion ofthe 2010 Open Skies Agreement Amendments, 

states that Article 6 bis was " not intended to modify the conditions prescribed under the laws 

and regulations normally applied by the Parties to the operation of international air 

transportation ... " under Article 4. Thus, Article 6 bis does not prevent the Department from 

applying "public interest" considerations in deciding whether to grant or deny NAI' s application. 

8. Thus, to the extent that the Department needs to act on NAI's exemption application to 

meet a statutory deadline (e.g, 49 .S.C. § 41710), the Department should deny the exemption 

application based on the applicable "public interest" standard that governs actions under 49 

U.S.C. § 40109. The public interest standard requires the Department to take into account 

9 www.telegraph.eo.uk/finance/1 0990994/Barack-Obama-attacks-corporate-deserters-in-taxinversion-takeovers.html. 
SAS Answer 

August 18, 2014 

Page 8 

considerations such as whether grant ofNAI's application would be contrary to Article 17 bis; 

whether Article 17 bis should be taken into account in an Article 4( c) licensing proceeding; 

whether NAI meets the "principal place of business" test under Article 4(b) and EU regulation 

1008/2008; and whether grant ofNAI's application would be consistent with Sections 

4010l(a)(5) and (a)(l5)'s policy objectives to strength U.S. carriers and encourage fair wages 

and working conditions for U.S. airline employees. Consideration of these "public interest" 

considerations requires, in our view, that the Department deny NAI's exemption application. 

(To the extent Article 6 bis applies, the Department should then notify the EC and Irish 

Authorities that it has questions whether the requirements of Article 4( c) have been met by 

NAI's application.) 

9. SAS submits that these "public interest" considerations require that the Department deny 

NAI's application. To the extent that the Department desires to continue to consider NAI's 

application for a foreign air carrier permit under Section 41301, however, SAS respectfully 

suggests that the Department should determine, on the record, after consultations with the EC 

and the Member States whether DO-MOVE's interpretation of Article 17 bis is supported by the 

full Commission and the Member States such that it represents the views of the European Union, 

and if so, how that should bear on the consideration ofNAI's foreign air carrier application. 
SAS Answer 

August 18, 2014 

Page9 

August 18, 2014 

Respectfully submitted, 

Michael F. Goldman 

L. Jeffrey Johnson 

Silverberg, Goldman & Bikoff, L.L.P. 

1101 301h St., NW, Suite 120 

Washington, DC 20007 

Telephone: (202) 944-3305 

Email: mgoldman@sgbdc.com 

Counsel for SCANDINAVIAN AIRLINES SYSTEM 
CERTIFICATE OF SERVICE 

I hereby certify that I have on this day served the forgoing Answer of Scandinavian 

Airlines System (SAS) to the August 4, 2014 Notice by e-mail on the following persons: 

romanow@pillsburylaw .com 

peter.nelson@pillsburylaw.com 

russe 11. bail ey@al pa. com 

jonathan.cohen@alpa.com 

steve.morrissey@united.com 

dan. weiss@united.com 

sascha. vanderbellen@delta.com 

howard.kass@usairways.com 

robert.wirick@aa.com 

Francis.heil@aa.com 

rpommer@atlasair. com 

mlbenge@zsrlaw.com 

jesse.elliot@faa.gov 

douglas.schwab@faa.gov 

nicholas.tsokris@faa.gov 

john.allen@faa.gov 

anita.mosner@hklaw.com 

jennifer.nowak@hklaw.com 

nssparks@fedex.com 

gbleopard@fedex.com 

dberg@airlines.com 

j casey@airlines. com 

kglatz@airlines.org 

paul.gretch@dot. gov 

robert. finamore@dot. gov 

brian.hedberg@dot.gov 

esta.rosenberg@dot.gov 

brett.kruger@dot. gov 

urskr@state. gov 

cristinaSA@state.gov 

eugene alford@ita.doc.gov 

info@airlineinfo.com 

pvs@eurocockpit. be 

cc@eurocockpit. be 

Date: August 18, 2014 
ATTACHMENT A 

Breakthrough m EU-US seeo~ Open Skiei·.D.egotiations: V'tee-President Ka.Ibs 

welcomes draft agreement 

Referenee: IP/10/371 Date: 25/0312010 

Bl'ML: m 

PDF: £;H 

noc: m 

IP/10/371 

Brussels. 2S March 2010 

·----------- __ ,.. -·- ~- ---.... ---~--· ... 

~ougb.m EU-US second-stage Open Skies negoiiaticms: Vic;e..P.residem; Kallas welcome:s dmfl: agteement 

Slim Kallas. European Conmlission Vice-President :responsible for Transport. welcomed as "a major step furwards11• the prelim.inary agreement rea.clled today by EU and US negotiators on a. 'second-stage' Open Skies avimion 

agreement "A process has been agreed towards the further expansion and consolidatiml of the tnmsat:lantic aviation market. Both sides have agreed to inc::rease regulamry co--operation. and remove~ barriers to :ma:rket access that have been holding back the development of '!he world's most imparl.ant aviation markets. Building on. the SUccess of 

the 200'1 EU..US Open. Skies Agreement. this drat deal :represents a signi:l:icant brea.k1hrougb. in tb.e process of norma.lising the global airline indnstty". In economic te.rms, the c::reation of a :full EU-US Open Aviation Area has 

been estimated to bewmfh up to 12 billion euro in economic bene:fifs and up to 80.000 new jobs. N~ also 

made significant progress in agreeing a new fmmeworlc for jointly addressing the e.o.v.ironmental effecls of aviation, as well as advances in tb.e areas of~. competiti~ and social :matters. Vice-PresUkmt'KaThls will submit the draft agreement for approval to the Transport Council in June tmderthe Spanish Fresidtmcy. 

Following the lal:mch of second-stage negotiations in May 2008 and seven further' rounds of negotiations, 

negotiato.ts today completed the detailed work on a new agreement. The Em:opean. Union md 1:'l:w Un.fted States signed an air transport agreem.ent in 20071hat has been applied since 30 M.areb. 2008. 11WI ~ent1illfils the mandate given in the lastEU-US Summit in November 2009 to reach a balanced agreement in 2010. 

The stage one agreement was arguably the most important air services agr~m the world. allowing open ~access for air semces betwetm all27 Member States and tbe us- ma!:kets that together make up a.lmost 60 

per cent of global avia±ion. Furl:b.er.more, it created m u:nprece&nt.ed :regn1atmy platform to address an lll1ltlm1 conc:ems :related to :EU.::OS air serv:it;es. 

"However. the 2007 agreement did not directly address the key issue of:refQ!.m of ai:rline ownemrlp and control :roles. The provisional agreement reached tbis week includes a ~to engage m a process towards such ref'OD:Il. 

3126/2010 
I ' 

I 

The European Unions based on the positive experience of the EU int.em.a1 market; has long pressed rot such an outcome, arguing that it would represent a key step towards h"berating the airline industry from the outdated 

regulatoey constraints in the area of foreign investment that prevent it from acting like any other induStry. The 

provisio~l agreement sets out a number of incentives to encourage reform: When the United States ~ges its 

legislation to allow EU investors ma:Jorlty ownership of US airlines, the EU willreeiprocally allow n$jority 

ownership ofEU airlines by US investors and US airlines will. benefit from additional marlcet access ~gbts to and ii:om the BU. 'Progress towards this outcome will be reviewed regularly. l 

The negotiators also achieved significant improvements in terms ofregulatocy' cooperation: 

.. 

• 

lit 

.The agreement will strengthen cooperation on environmental matters by xequirl:og the ooxnP.atiliility and mteraotion ofmatket-based measures (such as emission trading schemes) to avoid duplication; by 

promoting greater tl:mlspa:rency for noise-based airport :measures; and by enhaneing green technologies, fuels and air traffic management. '!his cooperation is key to effectively decarbonising international 

a~oo. · 

For 1he first time in aviation history, me agreement inchldes a dedicated article on '!he social dimension of BU-US aviation relations. This will not only ensure that the existing legal rlgbts of ah:tine employees are 

preserved, but that the .implementation of the agreement oontrlbutes to high labour standards. 

The agreement will mise the already high level of cooperation on security to better allocate reso'tlreeS at 

threats to the aviation system by promoting maximum :mutual reliance on each other's secmity measures as well as swift and coordinated responses to new threats. 

The agreement Dn:ther extends the role of '!he BU·US Joint Commil:tee, the body "that monitors the implementation of the agreement and coordinates the various work streams ofregulatmy cooperation. The 

new rules will reduce red 1ape (e.g. by mutual recognition of eacll othets regolatory decisions) and avoid the wasteful dupiicaD.on of resources (e.g. joint safety initiatives, one-stop secmity. facllimtion of passengers' travel). 

Market access will be :further opened with EU carriers gaining further access to US Government-financed traffic ("Fly America"). Subject to certain changes to the legal fram.ewoxk for noise-based airport 

restrictions, EU airlines will gain in the future new com.mercial opportunities to fly between 1he US and non-EU countries. Furthermore, a number of obstacles to EU and US investments in 3rd coontries' airlines 

will be removed. 

the gmt~Il(\..breaking tirst-stage agreement xeached in 2007 had established a clear agenda and a t:i:awtable for second-stage negotiations between the European Union and the United S1ates aimed at :tin'ther libe.ralisation and 

enhaneedregulatozy cooperaiion. Second-stage negotiations were launched in May 2008, followed by seven rounds 

of negotiations. At the initiaiive of the Comn:rlssiOD, two labour :Wmms were also convened to better assess the consequences of a change of airline ownership and control mles for airline eroployees. At their Summit in 

November 2009, EU and US leaders had expressed their aim to reach a second-stage air transport agreement in 

2010. which includes benefits for both sides. 

The European Union and the United States' markets are the largest aviation IJlalkets in the world. Together, they 

represent approximately 60% of global avia1ion. The economic benefits associated with the implementation of this 

second-stage agreement lmve been independently estimated to be equivalent to the ttansatlantfc benefits to be 

expected from a successful conclusion of the Doha round of1Iade liberalisation negotiations. · 

'fhe Commission will seek the approval of the agreement by the 27 Transport Ministers and the European Parliament. 

Facts and figures ~ Benefits of opening up the BU-US aviation Imllket 

The potential economic benefi:l:s of removing the barriers to the EU-US transatlantic market are very significant 

(Booz Allen Hamilton. Januazy 2007) 

3/26/2010 
: 

I 

• In economic 'l:eJ:ms, it could be worth up to 12 billion ew:o in eoo:no.mic benefits and up to 80~ new jobs. 

• It would create the possibility of an additioDal26 nrlmm extra passengers on ttailsatlan.tic fQgbts over a period of s yean~ compares with eurrent ammal traffic ofjustw.der 50 million (2007). At. the end of 

'!he 

~ 

fiveyean,1his will mean that the madret'Will be 34% bigger with the agreement 1hm witlwntthe . 

• By elimmating the bilateral agreements and their restrlction.s on tra:ffi.c rights, we could~ a 

reduction in the cost of tickets for companies and private cnstomers, with consolidated e<:on<im.ie benefits 

ofbetween 6.4 and 12 billion euro over a period ofS -years. 

• The removal of barriers could lead to the crealion. of arolm.d 80,000 jobs (spread :more or less equally betweta the US and the EU). 

• The cargo matket would see growth of between 1 and 2 percent. whicll is higbl;y signiflc;ant given the 8 oftlw mm:ket globally and '!he size of the Baropean and.Amerlcan indnsfiy. 

europa.eu 25 March 2010 

·- -=-~~----------------