Opinion on the communication from the Commission - The way forward for civil aviation in Europe

(95/C 110/08)

On 6 June 1994 the Commission decided to consult the Economic and Social Committee on its communication 'The way forward for civil aviation in Europe'.

The Section for Transport and Communications, which was responsible for drawing up the Committee's work on the subject, adopted its Opinion on 8 February 1995. The Rapporteur was Mr Moreland.

At its 323rd Plenary Session (meeting of 22 February 1995), the Economic and Social Committee adopted the following Opinion by a large majority with seven votes against and nine abstentions.

1. Introduction

The Commission's paper is a response to a report published in January 1994 by a Committee of 'Wise Men' established by Commissioner Matutes to undertake an economic analysis of the airline industry and produce policy proposals.

1.1.

Background

Since 1978, when the Commission produced a Memorandum on the subject, Air Transport Policy in the Union has moved from being essentially bilateral arrangements to Europe-wide decisions. In particular the so-called 'Second Package' agreed in 1990 () and the 'Third Package' of 1992 () removed restrictions on new entrants in the European Market and also removed most price and capacity controls while retaining powers to act against unfair competition.

1.2.

The report by the 'Wise Men': 'Expanding Horizons'

The Wise Men's Committee was set up against the background of recession. Its membership was criticized for being industry rather than consumer/user biased. However, the final report was forthright in its overall message that the airline companies had to respond to the needs of the market, that the 'Third Air Package' agreed in 1992 by the Council was the way forward and that the airlines were too dependent on the State, and called for the 'need to achieve a consumer driven market'. It was critical inter alia of European airlines' productivity, State subsidies, airport charges, special treatment of national carriers, the lack of coordination between military and civil air-space management, the shortage of airport capacity, air transport taxation and the lack of an external policy. It believes national interests are too dominant to the detriment of the public and calls for an ending to 'national carriers' within Europe. In addition, the Wise Men's Committee did not give significant thought to the social repercussions of liberalization.

1.3.

The Commission's response: 'The way forward for civil aviation in Europe'

The Commission, not surprisingly, agrees that there is no turning back on the 'Third Air Package'. It accepts the general line of the Report but is less forthright. It does not answer many of the Committee's points, pursuing a number of consultation papers and proposals rather than immediate action. However the Commission wants improvements in infrastructure, promises full implementation of the Third Package rules, promises the speedy application of block exemptions, may bring forward a new proposal on slots before 1996, claims that most of the recommendations of the 'Wise Men' on State aid are 'very close to the Commission's decisions' and will produce new guidelines, will propose a new mandate on relations with third countries, will work towards a Single Regulatory Authority on Air Safety, wants a single air traffic management system, wants to improve airport capacity, has already proposed the opening up of ground handling, will look at tax and financial instruments, and will continue its work on harmonized working conditions.

2. General comments

2.1. In its report the Commission states that it 'is firmly convinced that the European aviation industry will re-achieve sustainable growth and profitability only if, in addition to the management task of restructuring carriers which need to be supported by enforcing the Third-Package provisions, public authorities work towards a quick solution to the extra burden caused by inadequate diversity of standards allocation of responsibilities and other rigidities' (Paragraph 17).

2.2. The Committee agrees with this view but believes that the Commission's overall response is inadequate to meet the challenge of working in a 'consumer driven market'. It believes that, in particular, the Commission and the Member States must work to ensure existing legislation operates to meet their objectives and that the problems of both inadequate airport capacity and air-traffic management systems are addressed vigorously.

2.3. The Commission's response is long on studies (some of the 8 further studies appear to be behind time) rather than on the 'quick solutions'. Indeed it is difficult to make comments on a number of the steps envisaged until the Commission produces the definitive proposals. However, the Committee believes:

- the Commission must ensure State aid is limited to reconstruction and to where a public service obligation is established, and does not prejudice the workings of the Internal Market (see Section 3.7);

- the Commission must work with the Council on a common external policy on the basis of Article 84 (see Section 3.8). With air transport evolving against a background of worldwide competition, the failure to give priority to the framing of an external EU policy would have a harmful effect not only in terms of obtaining and maintaining routes but also in the context of the social sector (emergence of social dumping);

- more detailed attention needs to be given to the issue of safety (see Section 3.9);

- urgent attention needs to be given to the high charges on airport and en route charges. As the Wise Men's report stated 'the European region suffers from extraordinary high user charges' (see Section 3.10). The charges airports make direct to scheduled European airlines represent 4 to 6 % of the operating costs, compared with less than 2 % in the United States. This relative difference has even more impact on ATC-charges where no en-route charge exists for domestic US traffic;

- the Commission is equivocal on taxation and financing issues. There should be a clear statement that no extra tax burdens on the industry will be proposed (see Section 3.14);

- the recommendations relating to social issues are too vague: detailed proposals are needed on, inter alia, the need to ensure workers can adapt to changing market conditions and also the need to safeguard and harmonize the quality of employment and working conditions in accordance with the principle of social progress enshrined in Treaty Articles 2 and 117. In any event, the issue is treated as almost an afterthought (see Section 3.16). The Economic and Social Committee feels that the liberalization process has been underway long enough to allow a first report to be drawn up on its social impact, particularly as it affects employment and working conditions. This will make it possible to pinpoint any adverse effects and to examine how these can be corrected;

- the Commission should take into account that a 'consumer driven market' is more than one in which fares are related to costs. It must also be one in which customers individually are enabled to make properly informed choices based on information at the point of sale including quality of service and performance statistics.

The Committee elaborates on these points in the specific comments.

3. Specific comments

The Commission's conclusions are placed below followed by the Committee's comments.

3.1. 'The European Commission will

- regard efficiency improvements and cost-saving measures in the civil aviation system in Europe as political priority for the sector during the years to come;

- seek efficiency improvements primarily by eliminating fragmentation of the European civil aviation systems, so as to generate the full economic benefit of a genuine Single Aviation Market;

- assume its responsibilities in this area in close cooperation with Member States, interested parties and specialized international organizations.'

The Committee believes this to be a vague and inadequate statement. It should be made clear that measures taken should not prejudice safety standards, users' interests or employees' rights.

3.2. 'The European Commission will

- attach priority to making the internal market fully effective and to significant improvements in infrastructure as key elements for making Europe's civil aviation industry more competitive, thus enabling it to safeguard existing jobs and to create new employment.'

The Committee believes the importance of this cannot be underestimated, and consequently strongly supports measures which will improve infrastructure, expand capacity and improve utilisation at airports experiencing or threatened with congestion.

3.3. 'The European Commission

- will continue its policy of ensuring fulfilment of Single Market requirements through full implementation of the Third Package rules. Its decisions in relation to the use of safeguard clauses will take into account the economic situation at that point.'

The Committee is pleased that the final Council Decision on the Third Air Package reflected much of its opinion and notes the Commission's statement that 'relatively few implementation problems have occurred' and the Member States have not invoked the safeguard clauses. However it looks forward to receiving an update on the situation and to commenting on the forthcoming report on the implementation of the Third Package.

3.4. 'The European Commission

- intends to use speedy and efficient procedures notably for establishing informal contacts prior to formal notification of cooperation agreements between air carriers while maintaining and fully applying existing block exemptions;

- will examine the possibility of establishing guidelines for the application of Article 85 and 86 of the EEC-Treaty for different types of inter-airline cooperation. Such guidelines would aim for encouraging efficiency increasing forms of cooperation with clear benefits for air transport users;

- will consider reviewing the procedural requirements established by the Council Regulation No 3975/87 with a view to reducing the administrative burden.'

This is too cautious a response to the 'Committee of Wise Men' who asked for clarity on when and how capacity discussions should take place. The Committee believes a more definitive response is necessary. Further (in relation to the final indent of the recommendation) the Commission should state that 'it will review' (i.e. it should be past the stage of 'considering'). The Committee invites the Commission to make proposals for guidelines on the application of Articles 85 and 86.

3.5. 'The European Commission will

- maintain the existing block exemption on tariff consultations and continue to monitor closely the impact of such consultations on the market;

- take into consideration the general economic environment and in particular cost developments when examining price movements in the market.'

The Committee agrees with the Commission's conclusions. It recognizes that the request for 'flexibility' from the Committee of Wise Men is difficult in terms of avoiding a price cartel.

3.6. 'The European Commission will

- closely monitor the effectiveness of Regulation No 95/93 on the allocation of slots and take an initiative even before the latest review date (1 January 1996) if necessitated by developments in the market.'

The Committee agrees with the Committee of Wise Men that there should be a report on the effectiveness of the 1993 Code of Conduct on Slot Allocation. It also agrees with the Commission that the option of the Committee of Wise Men - to increase physical capacity - is not always open (although this should never be an excuse not to take measures to increase physical capacity or improve physical conditions).

3.7. 'The European Commission

- is of the opinion that financial State support for restructuring air carriers can be accepted only if it does not distort or threaten to distort competition. It will decide on updated guidelines for the application of Article 92/93 as soon as consultations with Member States and interested parties have been finished.

Time-table: Consultation paper on new guidelines available to interested parties in June 1994.'

This is probably the most contentious subject, at the present time in the aviation industry and it is a subject on which the Committee of Wise Men gave its most radical proposals. In its draft guidelines (the Consultation Document referred to by the Commission), the Commission appears to reject the idea of a clear 'one time, last time provision' on the grounds of incompatibility with Articles 92-3 (i.e. incompatibility with the Treaty). However, it is clear (as the Committee has stated in other reports on the Internal Market) that the Community must be seen to grasp the problem of State aid. Aid must be limited to reconstruction. It should not support operating losses. It should not be allowed to put off contentious but necessary decisions. It should not be allowed in circumstances which harm another airline.

The Commission has a duty to apply the specific conditions for the approval of State aid. It is important that these conditions are formulated carefully in order to assist the airline concerned to reform itself without further injections of State aid. It is also important that the Commission monitor the application of the conditions throughout the relevant period. Consequently, the Committee welcomes the declared intent of the Commission's approach but is concerned that the decisions be transparent and be seen to be fair and in accord with the Commission's stated objectives. There may be a case for establishing a separate body to review issues of competition.

The Committee recognizes that Community legislation already allows for State subsidies under certain conditions where a public service obligation exists and has been established for example to allow services to islands or peripheral regions.

3.8. 'The Commission will

- take the necessary initiatives to enforce the entitlement of Community air carriers to serve third country destinations from other Member States than the State of registration;

- work towards replacing nationality clauses in bilateral air services agreements concluded by EU Member States by a Community clause and take the necessary action;

- present proposals in respect of aviation relations with other European States in order to bring commitments entered into with the cooperation agreements progressively into practice. Priority will belong to aviation relations with Central European States which have concluded so-called 'Europe-Agreements' with the European Union;

Time-table: Proposal for mandate to be tabled in July 1994.

- continue - in close cooperation with Member States via the Aviation Group - exploratory talks, with the United States in particular with a view to identify areas where common European action could help to improve the competitive position of Europe's economies;

- continue the preparatory work for administrative procedures for use in relation with external aviation policy decisions and attach, in this context, priority to developing criteria for the allocation or traffic rights obtained at Community level.

Time-table: Discussion paper available before the end of 1994.'

The Committee welcomes the recent decision of the European Court of Justice with respect to the GATT negotiations which confirms the Committee's interpretation of the Treaty that Article 84 should be the basis of external aviation relations. Nevertheless, the Committee regrets the lack of progress in this area and believes further discussion papers are no substitute for the Commission working with Council to find a modus vivendi on this subject.

3.9. 'The European Commission will

- work towards a Single Regulatory Authority on Air Safety;

Time-table: Consultation paper available in October 1994.

- conduct a study to analyze the most efficient way to conduct airworthiness certification;

Time-table: Launch of study in June 1994.

- attach a cost-benefit analysis to future proposals for harmonization measures.'

The Committee supports the Commission's objective. It welcomes the work towards a Single Regulatory Authority which should be based on the highest standards in Europe. Consequently it urges Member States to improve existing standards as part of the process. The Committee believes the issues of safety and security need more detailed attention by the Commission.

3.10. 'The European Commission will

- continue and accelerate the work on TEN-programmes for Air Traffic Management to provide a basis for the use of infrastructure funds;

- contribute actively to the preparatory work for the creation of the political and institutional framework required for the implementation of a Single Air Traffic Management System in Europe;

Time-table: Launch of study on the basis of the conclusions of the MATSE4 Ministerial meeting on 10 June 1994 in August 1994.

- make a significant contribution from Community funds for the preparation of a satellite based air navigation system.'

The Committee strongly supports all efforts to tackle the problem of Europe's fragmented air traffic control systems. The Committee is concerned that funding from different budget resources (within the EU budget as well as across Member State, EU and other budgets) should be properly coordinated. Also the Committee reiterates the view that launching yet further studies is no substitute for action. It is not clear how the Commission and the European Civil Aviation Conference (ECAC) will coordinate their efforts.

3.11. 'The European Commission will

- promote the enhancement and development of airport capacity to meet existing and future demand as well as the interconnection of the airport network with other networks;

- work, as an initial step of implementing the Trans-European Airport Network program, towards a European contribution to the development of new airport capacity notably at Milan, Berlin and Athens;

- where asked use regional policy instruments for the improvements of airports located in peripheral regions.'

While agreeing with the Commission's proposals it believes that the work done on trans-European Networks has given inadequate attention to air transport and more emphasis is needed on links to airports, making better use of existing airports and on environmental impact. It is therefore essential to ensure satisfactory facilities at airports, otherwise the entire system will suffer. Regional airports can be important for the economic development of many regions and particular attention should be paid to ensure they are not ignored when allocating the Structural Funds.

3.12. 'The European Commission

- will present a consultation paper on how best to ensure non-discriminatory, transparent and cost effective provision of airport services and adequate user participation in decision-makings.

Time-table: Early 1995.'

The Committee is concerned that a consultation paper should not be an excuse to delay action on tackling the issue of airport charges. As pointed out by the Committee of Wise Men airport charges direct to airlines in Europe are higher than in the USA.

As regards consultation the Commission already has a proposal to Council on which the Committee has commented (). The Commission should make clear its position on the future of that proposal.

3.13. 'The European Commission will

- take an initiative aimed at opening-up ground-handling markets at Community airports.

Time-table: October/November 1994.'

The Committee has already stated its views in its Opinion on the Ground Handling Consultation Document and will be delivering its Opinion separately on the Commission's final proposals on this subject.

3.14. 'The European Commission will

- carefully consider economic implications for the aviation industry when preparing initiatives on taxation;

- undertake an economic study comparing the access of the aviation industry to innovative financial instruments (e.g. tax-lease, accelerated depreciation, securitization) in different parts of the world with a view to proposing new initiatives in case the existence of serious problems in this area for the European aviation industry is confirmed.

Time-table: Economic study to be launched June/July 1994.'

This is an equivocal response to the Committee of Wise Men who called for no extra tax burden on the industry. The Commission must produce a definitive view on this subject particularly as it will be necessary to produce a proposal before the expiry of zero-rating for VAT at the end of 1996.

The Committee strongly opposes extra tax burdens on the industry and supports the Wise Men's view of zero-rating for intra-Community travel.

In any event, the Commission should address the issues raised by the Wise Men on the burden of capital gains tax and on innovative forms of financing investment.

3.15. 'The European Commission will

- further assess initiatives on gaseous and noise emissions in air transport in relation to scope and timing;

- evaluate the practical feasibility of supplementary measures, including noise monitoring at airports, to improve the environmental compatibility of air transport;

- intensify its dialogue with important trading partners and, in particular, other industrialized regions on environmental aspects of civil aviation;

- assess the practical feasibility of a methodology for a cost-benefit analysis of environmental measures;

- work towards a stronger European role on such issues in ICAO.

Time-table: Consultation paper to be issued by mid-1995.'

The Commission appears to cover only part of the recommendations of the Wise Men on the environment. Their points relating to new runways and improved airport site management should not be ignored. The Committee understands the Commission's reservations about fully utilizing international organizations like ICAO but believes as far as practicable agreement on standards should be achieved multilaterally.

3.16. 'The European Commission will

- analyze in close cooperation with Member States policy options as to how to help aviation employees adapt to a new environment;

- look sympathetically at aids intended to serve directly the purpose of assisting airline employees' adaptation;

- carefully monitor the location of aviation activities with a view to identify as early as possible structural changes;

- continue its work on harmonised working conditions with a view to establish European standards for flight crews and maintenance staff oriented towards safety requirements.'

The Committee considers these proposals to be vague and inadequate. They give the impression that the implications for employees are an afterthought. There is a clear need for the Commission to produce concrete proposals and measures to ensure minimum qualifications, training standards and measures to help employees to adapt to and benefit from a more competitive environment. The Commission has to address the issues of flying and rest hours. The Committee regrets the long delay in producing the proposal relating to airline crews and on mutual recognition of cockpit-crew qualifications. The Committee believes that joint consultative mechanisms must be established and questions why the Commission has made no response to the Wise Men's proposal to use Article 123 of the Treaty for purpose of retraining redundant airline and airport staff.

4. Other points in the Wise Men's report not fully covered by the Commission's report

4.1. The Committee agrees with the Wise Men that the issues and costs involved in planning airport construction can act as a severe restraint on the development of a 'truly pan-European air transport system' and should be examined by the Commission with a view to formulating proposals. (This issue could also be considered by the Council's Committee on Spatial Planning).

4.2. Much of the airspace reserved for military use should be removed by the relevant Member States to reduce air space congestion.

4.3. The Member States should review the practice of imposing penalties on airlines that have taken reasonable precautions in relation to travel documents and create a framework of cooperation between immigration authorities and airlines. (However, in no way would the Committee support any reduction in vigilance against illegal immigration).

5. Final comments

While supporting many of the Commission's proposals, the Committee regards their Communication as inadequate in addressing the problems of the airlines facing a competitive market.

All efforts should be made to ensure existing legislation is properly implemented and that air-traffic management and airport-capacity limitations are addressed. Further the Commission's response needs to address more forcefully the issues of external relations, State aid, social change and higher airport charges.

Done at Brussels, 22 February 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 112, 7. 5. 1990, p. 17.

() OJ No C 169, 6. 7. 1992, p. 15.

() OJ No C 31, 6. 2. 1991, p. 11.

APPENDIX to the Opinion of the Economic and Social Committee

The following amendment, which received at least one quarter of the votes cast, was defeated during the discussions:

Amend the end of the second paragraph of point 3.7 as follows:

'It should not be allowed in circumstances which harm another airline out of all proportion to the objectives to be attained.'

Reasons

1. State support is dealt with in a balanced fashion throughout the document, acknowledging that there are cases where, in accordance with the Treaties, this support may be approved by the EC Commission.

2. The present wording of the Opinion could imply that all support is incompatible as, in an open market such as aviation, it can always be argued that any support affects another airline.

3. The proposed wording therefore allows for a balance between the inevitable impact on competition and the strategic importance for a Member State and social objectives of such support.

Result of the vote

For: 40, against: 83, abstentions: 8.