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 ofPublic 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 30 1 h St., NW, Suite 120 Washington, DC 20007 Tel: (202) 944-3305 Email: mgoldman@sgbdc.com Counsel for SCANDINAVIAN AIRLINES SYSTEMBEFORE 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 ofinterested parties on the Department's summary of the July 14, 2014 meeting with DG-MOVE regarding its interpretation ofArticle 17 bis ofthe U.S.-EU Open Skies Agreement. As explained below, DG-MOVE's interpretation ofArticle 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 ofbackground, SAS filed comments in opposition to NAI's application in this Docket on February 21, 2014 in ajoint 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 ofthe "high labor standards" protected by Article 17 bis based on the record before the Department. Employment ofThai cabin crews at sub-U.S./EU wages and workingSAS 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) ofTitle 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 ofa carrier ofanother Party for a license under Article 

## 4? The DG-MOVE position, which has no support in the text ofArticle 17 

### bis itselfor 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 ofSecretary Foxx, Department officials, in fact, only met with officials ofDG-MOVE, the EC directorate responsible for transportation. The Director ofAviation 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 ofthe EC and the 28 Member States). Ifthe Department desires the views ofthe European Union on Article 17 

### bis, which it should as the EC and the Member Statesjointly were signatories to the Open Skies Agreement, it should request an official statement ofthe 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 ofdiscussing the issues with representatives ofthe

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 ofthe other Parties to the Agreement-- namely the EC and each ofthe 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 ofcarriers 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 ofthe 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 ofa particular foreign air carrier application, 

### it could avail itself ofArticle 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 ofthe 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 ofArticle 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 ofthe Agreement; indeed it saysjust 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 ofthe 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 ofArticle 17 bis both to the operative implementing provisions ofthe 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 ofthe "significant improvements in terms ofregulatory 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 ofairline employees are preserved, but that the implementation ofthe 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 ofMember States including Germany, France, Italy and the Netherlands have contested DG-MOVE's interpretation ofArticle 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 ofthe merits ofNAI's application. 6. What then in the words ofArticle 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 ofthe 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 ofits 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 ofimmigration law regarding employment permits for foreign workers; and social insurance laws addressing employee contribution for health insurance and retirement benefits. Use ofThai-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 ofthe need for European competitiveness, growth andjobs 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 systemsjust as NAI would use its Ireland domicile to take advantage ofthe 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 ofU.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 fromSAS Answer August 18, 2014 Page 7 renouncing their citizenshipjust to get out ofpaying their fair share oftaxes." 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 ofthe "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 ofcitizenship and fitness determinations does not require a contrary result. Its negotiating history supports this view. Paragraph 5 ofthe 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 ofbusiness" 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 ofthese "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 ofArticle 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 ofArticle 17 bis is supported by the full Commission and the Member States such that it represents the views ofthe 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 301 h 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 russe11.bailey@alpa.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 jcasey@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

## mEU-US

**seeo~** Open

### Skiei·.D.egotiations: V'tee-President Ka.Ibs welcomes draftagreement Referenee: IP/10/371 Date: 25/0312010 Bl'ML: 

# m PDF: 

### £;H 

## noc: 

# m IP/10/371 

### Brussels. 2S March2010 

# ·-----------

__,.. 

## -·-

**~-** 

# --- .... **---~--·**...

**~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 "amajor step furwards 11 • the prelim.inary agreement rea.clledtoday byEU andUS negotiators on a. 'second-stage' Open Skies avimion agreement "A process has been agreedtowards thefurther expansion and consolidatiml of the tnmsat:lantic aviation market. Bothsides have agreedto inc::rease regulamry co--operation. and

**remove~** barriers to :ma:rket access that havebeenholding backthe development of '!he world's most imparl.ant aviation markets. Building on. the SUccess of the 200'1 EU..US Open. Skies Agreement. this dratdeal:represents a signi:l:icantbrea.k1hrougb. intb.e process of norma.lising the global airline indnstty". In economic te.rms, the c::reation of a :fullEU-US Open Aviation Area has been estimatedto bewmfh up to 12 billion euro in economic bene:fifs andup to 80.000 newjobs.

**N~** also made significantprogress in agreeinga new fmmeworlc for jointly addressing the e.o.v.ironmental effecls ofaviation, as well as advances intb.e areas

**of~. competiti~**  and social :matters. Vice-PresUkmt'KaThls willsubmitthe draftagreementfor approval tothe Transport Council inJune tmderthe SpanishFresidtmcy. Followingthe lal:mch of second-stage negotiations in May 2008 and sevenfurther' rounds of negotiations, negotiato.ts todaycompletedthe detailed work onanew agreement. The Em:opean. Union md1:'l:wUn.fted States signed anairtransport agreem.ent in 20071hathas been applied since 30 M.areb. 2008. 11WI

**~ent1illfils** the mandate given inthe lastEU-US Summit inNovember 2009 toreach a balanced agreementin2010. The stage one agreementwas arguably the most important air services

**agr~m** the 

### world. allowing open

**~access** for air

## semces betwetm all27Member States andtbe

## us- ma!:kets thattogether make up a.lmost 60 per centofglobal avia±ion. Furl:b.er.more, itcreatedm u:nprece&nt.ed :regn1atmy platform to address 

### an lll1ltlm1 conc:ems :relatedto :EU.::OS air serv:it;es. "However. the 2007 agreement didnotdirectly address the key issue of:refQ!.m ofai:rline ownemrlp and control:roles. Theprovisional agreement reached tbis week includes a

**~to** engage 

### m a process towards suchref'OD:Il. 

### 3126/2010' I I The EuropeanUnions based on the positive experience ofthe EU int.em.a1 market; has longpressed

# rot such an outcome, arguing that itwouldrepresent a key step towards h"berating the airline industry from the outdated regulatoey constraints inthe area offoreign investment thatprevent itfrom acting like any other

### induStry. The

**provisio~l** 

### agreement sets out anumber of incentives 

## to encourage reform: Whenthe United States

**~ges** its legislationto allow EU investors ma:Jorlty ownership ofUS airlines, the EU willreeiprocally allow n$jority ownership ofEU airlines by US investors and US airlines will. benefitfrom additional marlcet access

**~gbts** to and ii:om theBU. 'Progress towards this outcome willbereviewed regularly. l The negotiators also achieved significantimprovements interms ofregulatocy' cooperation:



# ..

•

lit .The agreementwill strengthen cooperation on environmental matters byxequirl:og the ooxnP.atiliility and mteraotion ofmatket-basedmeasures (suchas emissiontrading schemes)to avoidduplication; by promoting greatertl:mlspa:rency for noise-based airport:measures; andby enhaneinggreentechnologies, fuels and airtraffic management. '!his cooperation is keyto effectively decarbonising international

**a~oo.** · For 1he first time inaviation history, me agreementinchldes a dedicated article on'!he social dimension of BU-US aviation relations. Thiswillnot only ensure thatthe existing legal rlgbts ofah:tine employees are preserved, butthatthe .implementation of the agreementoontrlbutes to highlabour standards. The agreementwillmisethe already highlevel ofcooperation on security to better allocatereso'tlreeS at threats to the aviation system by promotingmaximum :mutualreliance on each other's secmitymeasures as well as swiftand coordinated responses to new threats. The agreement Dn:ther extends the role of'!he BU·US Joint Commil:tee, the body "thatmonitorsthe implementation ofthe agreement and coordinates the various work streams ofregulatmy cooperation. The new rules will reduce red 1ape (e.g. bymutual recognition ofeacll 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 willbe :furtheropened with EU carriers gaining further access to US Government-financed traffic ("Fly America"). Subjectto certain changes to the legal fram.ewoxk for noise-based airport restrictions, EU airlines willgain in the future new com.mercial opportunities to flybetween 1he US and non-EU countries. Furthermore, a number ofobstacles to EU and US investments in3rd coontries' airlines willberemoved. the

**gmt~Il(\..breaking** tirst-stage agreementxeached in2007 had established a clear agenda anda t:i:awtable for second-stage negotiations betweentheEuropean Union andthe United S1ates aimed at :tin'ther libe.ralisation and enhaneedregulatozy cooperaiion. Second-stage negotiations were launched inMay2008, followed bysevenrounds of negotiations. At the initiaiive of the Comn:rlssiOD, two labour :Wmms were also convenedto better assess the consequences ofa change ofairline ownership and control mles for airline eroployees. Attheir Summit in November 2009, EUand US leaders hadexpressedtheir aimto reach a second-stage airtransport agreement in 2010. which includes benefits for both sides. The European Union andthe United States' markets are the largest aviation IJlalkets inthe world. Together, they represent approximately 60% ofglobal avia1ion. The economic benefits associatedwiththe implementation ofthis second-stage agreement lmvebeen independently estimatedto be equivalent tothe ttansatlantfc benefits tobe expected from a successful conclusion ofthe Doharound of1Iade liberalisation negotiations. · 'fhe Commissionwill seekthe approval ofthe agreementbythe 27 Transport Ministers andtheEuropean Parliament. Facts and figures

**~** Benefits ofopening up the BU- US aviation Imllket The potentialeconomic benefi:l:s ofremoving thebarriers to theEU-US transatlantic marketare very significant (BoozAllenHamilton. Januazy 2007)
3/26/2010: 

# I • In economic 'l:eJ:ms, itcouldbe worthupto 12billionew:o ineoo:no.mic benefits and upto

**80~** newjobs. • Itwould create the possibility ofan additioDal26 

## nrlmmextrapassengers onttailsatlan.tic fQgbts over a periodof

## s

**yean~** compares with eurrentammaltraffic ofjustw.der50 million (2007). At.the endof '!he fiveyean,1his willmean that the madret'Willbe34% biggerwith the agreement 1hmwitlwntthe

**~** 

### . • By elimmating thebilateral agreements and theirrestrlction.s on tra:ffi.c rights, we

**could~** a reduction inthe costof tickets for companies andprivate cnstomers, with consolidated

### e<:on<im.iebenefits ofbetween 6.4 and 12 billioneuro over a period ofS -years.

• The removal ofbarriers could leadtothe crealion. ofarolm.d 80,000jobs (spread :more or less equally betwetathe US andthe EU).
• The cargo matketwould see growth of between 1 and2 percent.whicllis higbl;ysigniflc;antgiven the 8 oftlwmm:ket globally and'!he size of the Baropean and.Amerlcan

### indnsfiy.
europa.eu 25 March 2010



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