Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session
i601

House Bill No.

Introduced by Honorable Rex Gatchalian

EXPLANATORY NOTE

Over the years, policy shift towards air service liberalization (or open
skies) has replaced the restrictive and arcane features of many air services
agreements (ASA’s) that continue to govern airline links between territories.
Experiences of many countries around the world that adopted an “open
skies” policy have noted enormous economic benefits brought about by
increased tourists traffic and expansion of tourism-related industries. The
tourism-propelled development ushered phenomenal jobs and economic
growth.

‘A case in point is Cambodia, when it unilaterally granted unlimited air
access to foreign airlines in the country in 1999. The open skies policy
allowed regional airlines to fly direct to Siem Reap, home of the famous
Ankor Temples. Liberalization of Cambodia’s air services led to a significant
increase in tourist arrivals in the country from 24,000 in 1999 to 1.5 million
in 2006.

‘The Philippines likewise shared the benefits of a liberalized air
transport sector when it granted unilateral air rights to foreign carriers to
operate in the Diosdado Macapagal International Airport (DMIA) in
Pampanga and the Subic Bay International Airport (SBIA) in Zambales
through Executive Order No. 500. The change in air policies revived the
once dormant and underused international airports, and reinvigorated the
lethargic business activity in Clark and Subic. In Clark alone, economic
benefits include among others a spectacular passenger traffic growth
averaging 331% annually from 7,880 in 2003 to 471,000 in 2006; a six-fold
growth in foreign tourist arrival from 16,164 in 2002 to 106,354 in 2006; a
seven-fold growth in investments from P747.4 million to P5.1 billion; a 39%
annual average growth in exports by air, from $339 million to $1.2 billion;
and 80% direct employment growth from 26,306 employed in 2003 to
47,481 in 2006. Furthermore, the low airfare regime influenced by the
budget airlines operating in Clark has benefited likewise the OFW’s working
in the East Asian region.


This bill aims to institutionalize a pocket open skies policy in the
Philippines by fully opening the country’s secondary gateways (excluding the
NAIA) to foreign airline operations. It seeks to replicate the economic gains
in terms of tourism, exports, investments and jobs growth across the
country. With 98 percent of the country’s visitor arrivals and 70 percent of
the country’s exports are moved by air, a rational air transport liberalization
strategy would support the vision of the government to promote the country
as a tourism, investments and logistics hub.

This proposed legislation underscores the underpinning of the
country’s aviation policies, which is anchored on its impact on national
interest. This is clearly provided in Executive Order 219, Section 1.2, which
states that: “The exchange of traffic rights and routes with other countries
shall be based on (a) National interest, which shall include the value for the
Philippines in terms of promoting international trade, foreign investments and
tourism, among others; and on (b) Reciprocity shall be interpreted to mean
exchange of rights, freedoms, opportunities of equal or equivalent value. The
Civil Aviation Board shall determine “national interest” taking consideration
the larger interest of the country, especially the users of air services.”

Furthermore, other substantial factors that make it imperative for the
Philippines to legislate, at least, a pocket open skies policy in the country’s
secondary gateways include the following:

v The ASEAN Roadmap. ASEAN member countries are now pressured
to adopt the so-called roadmap for the ASEAN’s Competitive Air
Services Policy, an initiative geared toward the vision of Open Skies in
the ASEAN region. It is important for the Philippines to take a head
start and prepare for full liberalization of the ASEAN aviation market
in 2015. In 2008, there will be unlimited 3 and 4t freedom for
passenger traffic for ASEAN capital cities; unlimited 5% freedom traffic
rights for at least two (2) designated points in each country between
the ASEAN sub region; and full liberalization of airfreight services. In
2010, there will be an ASEAN-wide liberalization of scheduled
passengers services; and unlimited 5% freedom for ASEAN capital
cities.

In fact, pursuant to a sub-regional agreement between the countries
of Brunei, Indonesia, Malaysia and the Philippines East Asean Growth
Area (BIMP-EAGA) the Philippines have opened the designated routes
of Palawan, Zamboanga and General Santos for air linkages between
and among these participating countries as of November 26, 2007

Y Economic Renaissance of East Asia. The Philippines should take
advantage of the unfolding economic renaissance of East Asia by
advancing aviation policies that will tap the rich tourism market in the
growth areas. Comprising at least one-fourth of the world economic
output, 50 percent of the intra-regional trade, and more than two


billion potential consumers, East Asia and the Pacific is a prime
market to develop and support a robust growth for Philippine aviation
and tourism industries.

It is important however to provide safety net in this proposed legislation
that will limit foreign airlines only to international operations. Cabotage
rights or the right of an airline to operate flights between points within the
territory of another country should not be allowed in order to protect the
interest of the local aviation industry in the domestic operations.

With the foregoing reasons, the immediate approval of this bill is
earnestly sought.

Ye [ALIAN


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

7 301
House Bill No. 160

Introduced by Honorable Rex Gatchalian

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

AN ACT TO PROMOTE A POCKET OPEN-SKIES POLICY
OF THE PHILIPPINES

Section 1.Title - This Act shall be known as the Pocket Open-Skies
Policy of the Philippines.

Section 2. Declaration of Policies - The development, promotion and
liberalization of the secondary gateways of the Philippines to foreign and
domestic airline operations shall be pursued. The State shall therefore:

a. Develop maximum air access to all secondary gateways, whether
domestic or foreign, provided however that cabotage rights is not
allowed;

b. Ensure that the exchange of traffic rights shall uphold national
interest and promote international trade, foreign investments and
tourism, among others;

c. Encourage entry into the air transportation market of new air
carriers;


d. Develop and maintain a sound regulatory system that is responsive to
the needs of the public, especially the users of air services;

e. Prevent industry concentration on a few market players, excessive
market domination, monopoly powers and other conditions that
would tend to allow any air carrier to unreasonably increase prices,
reduce services or exclude competition in air transportation;

f. Afford the public viable alternatives for adequate, affordable, safe and
efficient air transportation services.

Section 3. Definition of Terms. The following terms shall be
understood in this Act to mean:

a.

b.

moe

Gateway - any point of entry into the Philippines by air
transportation.
Secondary Gateway - any gateway other than the Ninoy Aquino
International Airport.
Air carrier/air services - a person who undertakes, whether
directly or indirectly, or by a lease or any other arrangements,
to engage in air transportation or air commerce.
Cabotage traffic rights - the right of an airline to carry traffic
between two points within the territory of the Philippines on a
route that does not originate, make a stopover or terminate
outside the said territory.
Point - a destination, specified or unspecified on a route.
Designated carrier - one which is authorized to operate air
transport services under the provisions of an Air Services
Agreement or other similar arrangements.
Air Service Agreement (ASA) - governs the civil aviation
relationship between parties, commonly referred to as a
bilateral. Other similar arrangements include but are not
limited to exchange of notes, Exchange of Letters, Agreed
Minutes, Memorandum of Understanding, Memorandum of
Consultations or other documents that govern or relate to any
of, but not limited to, the following:

1. implementation of certain provisions of the bilateral

2. amendment of certain provisions of the bilateral

2


3. elaboration or clarification of certain provisions of the
bilateral

4. establishment and operation of air transportation and
related services pending the conclusion or execution of a
bilateral

5. any matter relating to the civil aviation relationship of two
or more States or their respective authorized agencies.

h. 1t Freedom - the right of an airline of one country to fly over
the territory of another country without landing.

i, 2n¢ Freedom - the right of an airline of one country to land in
another country for purposes of refueling and maintenance
while en route to another country but not to pick up or
disembark traffic (passenger, cargo or mail).

j. 3 Freedom - the right of an airline of one country to carry
traffic from its country to another country.

k. 4th Freedom — the right of an airline of one country to carry
traffic from another country to its own country.

1. 5 Freedom — the right of an airline of one country to carry
traffic between two countries outside of its own country as long
as the flight originates or terminates in its own country.

Section 4. Policy Directions and Guidelines ~ The Civil Aeronautics
Board (CAB) in the exercise of its powers and functions under Republic
Act 776 and other relevant statutes, is hereby directed to process all
applications for air transportation involving any secondary gateway. In the
exercise of its functions, the Board shall likewise consider the following
guidelines, as being in the interest of the public and consistent with public
convenience and necessity:

a. An air transportation system exists primarily for the benefit of its
consumers;

b. The promotion of tourism, trade and investments, jobs growth and the
enhancement of opportunities for the same are the primary economic
advocacy of civil aviation policy in the Philippines;

c. Allair carriers subject to regulation by the Board shall be flexible and
innovative in providing adequate, dependable, efficient, comfortable
and safe transport at prices that correspond to the demands of the
consumers provided such air carriers do not engage in unreasonable
discrimination, unfair or deceptive practices or predatory pricing in
providing such services;


d. The authority to operate air transport services, whether scheduled or
non-scheduled, to or from any secondary gateway shall be granted
unilaterally without restrictions on capacity, frequency, type of
aircraft and non-cabotage traffic rights other than those that may be
required by security and safety considerations, to any applicant with
the financial capacity to operate such services. Any applicant who has
been engaged in air commerce for at least six months prior to the
filing of its application shall be deemed prima facie as financially
capable of operating the services subject of the application. The
applicant need not be designated under any service agreement or
similar arrangement.

‘The period for the grant of authority to operate should be reasonable,
i.e, sufficient time is granted for the applicant to mobilize its
resources and to establish and maintain as a viable operation the
services subject of its application. An authority to operate which
expires in less than cighteen (18) months from the grant is deemed to
be unreasonable.

‘The grant by the Board of the authority to operate shall serve as a
waiver of any restriction on capacity, frequency, type of aircraft or
non-cabotage rights imposed by any Air Service Agreements or other
similar arrangements on the applicant’s right to operate air transport
services to or from any secondary gateway;

e. Operational and marketing restrictions on air transport and related
service shall be eliminated to the greatest extent possible;

f. All air service agreements or similar arrangements granting traffic
rights and routes to which the Philippines is a party should, as far as
practicable, provide for multiple designation of Philippine carriers for
any route which under the terms of the agreement shall be operated
from the Philippines;

g. Any domestic route within the territory of the Philippines may, as far
as practicable, be operated by at least two (2) domestic air carriers
offering scheduled services. The CAB may authorize chartered flights
and non-scheduled services to promote the expansion of domestic air
traffic;

h. All Philippine air carriers designated under an air service agreement
or similar arrangement shall utilize in toto the capacity and/or
frequency entitlements allocated to them within the period prescribed.

4


Should any designated Philippine air carrier fail to utilize its total
entitlements within the said period, it shall forfeit the unutilized
portion and the same shall be allocated to another designated
Philippine air carrier within the period prescribed by the Board.

Under no circumstance shall the Board allow a designated Philippine
air carrier to assign the unutilized portion of its entitlement to any
other carrier for any consideration whatsoever.

In the absence of any designated Philippine air carrier that can utilize
the entitlement or any portion thereof for such air carrier, the Board
may allow a non-Philippine air carrier to utilize such entitlement for a
valuable consideration, provided that such consideration shall inure
to the benefit of the Philippine government;

i, The government shall create an environment conducive to open and
fair market competition among air carriers operating in the
Philippines. Subsidies, VAT exemptions, and other privileges should
equally be granted or availed of by all major players in the industry;

j. Economic gain for the Philippines shall be the principal criterion for
determining whether the exchange of rights, freedoms and
opportunities under an air service agreement or similar arrangement
shall promote the larger interest of the country. The interests of the
various sectors affected by civil aviation including but not limited to
tourism, trade, investments and overseas Filipino workers shall
always be considered in assessing the nature and extent of economic
gain for the Philippines.

Section 5. Implementing Rules and Regulations. - The Civil
Aeronautics Board shall promulgate the Implementing Rules and Regulations
(IRR) of this Act within sixty (60) days from its effectivity. Failure to promulgate
such IRR within the said period shall subject the members of the Board to
administrative sanctions.

Section 6. Supplementary Clause. — In case of insufficiency of a
provision of this Act, the rules and regulations implemented by the CAB, its
resolutions, shall apply in a suppletory manner to the provisions of this Act.

Section 7. Separability Clause. — If for any reason, any section or
provision of this Act shall be held to be unconstitutional or invalid, the other
sections or provisions shall not be affected thereby.


Cc

Section 8. Repealing Clause. - Republic Act No. 776, Presidential
Decree No. 1462, Executive Order No. 219 and other rules and regulations or
parts thereof including any issuances, inconsistent with any provision of this
Act are hereby repealed, amended or modified accordingly.

Section 9. Effectivity. - This Act shall take effect fifteen (15) days
following its publication in two (2) newspapers of general circulation.

Approved,