Proposal for a Council Regulation (EC) amending Regulation (EEC) No 3975/87 laying down the procedure for the application of the rules on competition to undertakings in the air transport sector
Date: 1997-05-16
Institutions: European Commission
Subjects: air transport, application of EU law, competition law, liberalisation of the market, transport company

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  16.05  1997 
COM(97) 218  final 

97/0137 (CNS) 
97/0138  (CNS) 

MEMORANDUM FROM THE COMMISSION 

Application of the competition rules to air transport 

Proposal for a 
COUNCIL  REGULATION  (EC) 
amending Regulation (EEC) No 3975/87  laying down the procedure for the application  of 
the rules on competition to undertakings in the air transport  sector 

Proposal for a 
COUNCIL REGULATION CEO 
on the application of Article 85(3) of the Treaty to certain categories of agreements 
and concerted practices in the sector of air transport between the Community 
and third countries 

(presented by the Commission) 

MEMORANDUM FROM THE COMMISSION 

Application of the competition rules to air transport 

A. 

AMENDMENT  OF  COUNCIL  REGULATION  (EEC)  No 3975/87  LAYING 
DOWN  THE  PROCEDURE  FOR  THE  APPLICATION  OF  THE 
COMPETITION RULES 

Background 

1. 

2. 

3. 

In  1981 the Commission  made a proposal  to  the  Council  for  a Regulation  laying 
down  the  procedure  for  the  application  of the  competition  rules to  air  transport, 
and  included  within  the  scope  of  the  Regulation  international  air  transport  with 
third  countries1.  In the course  of the  discussion  of the  Commission's  proposal  in 
the Council it became clear that,  in order to  reach  agreement  on the proposal,  its 
scope  would  have  to  be  restricted  to  international  air  transport  within  the 
Community, a change which was made at the time of Memorandum No 22 and was 
incorporated  in Article  1(2) of Regulation (EEC) No 3975/873. 

The  Commission's  powers  to  enforce  the  competition  rules  in  the  air  transport 
sector by means of fact-finding,  taking decisions, imposing penalties  and  granting 
individual  exemptions  were  initially  limited  by Regulation (EEC) No  3975/87  to 
international transport between Member States. The Commission's powers did not 
extend either to domestic transport  or to transport  between a Member State and a 
third country. 

In  its judgment  of  11 April  1989 in the Ahmed Saeed  case4  the  Court  of  Justice 
confirmed  its  judgment  in  Nouvelles Frontières5  as  regards  the  application  of 
Article 85  of  the  Treaty  and  ruled  that  Article 86  of  the  Treaty  is  directly 
applicable  by  national  courts,  even  in the  absence  of  an  implementing  regulation 
under Article 87 of the Treaty or of action by a Member State cartel  authority  or 
by the Commission (under Article 88 or Article 89 of the Treaty respectively). The 
Court's  judgment  means  that,  where  a  dominant  airline  succeeds,  other  than  by 
normal competitive means, in eliminating all price competition,  even on a domestic 
or  on  a Community third  country  route, this behayiour is to be deemed  an abuse 
contrary to Article 86. Since there is no block exemption for airlines to discuss, let 
alone  agree,  fares  on  Community  third  country  routes,  such  discussions  or 
agreements  are  prohibited  by  Article 85  and  hence  are  automatically  void  where 
either  the authorities  in the Member State  in which the  head  office  of one of the 
airlines concerned  is situated  or the Commission,  acting under Articles 88 and  89 
respectively, find that they are incompatible with Article 85.  The Court  also ruled 
that a Member State is in breach of its Treaty obligations if it approves fares which 

1  OJ No C 291,  12.11.198) 
2 

COM(84) 72 final or 15 March  1984. 
OJNoL374,  31.12.1987, p. 1. 

3 
4  Case 66/86 11989] ECR 803. 
5 

Joined Cases 209-213/84  11986] ECR 1425. 

infringe  Article 85  or  Article 86.  Such  would  be  the  case,  for  instance,  where  a 
uniform,  agreed  price  structure  has  resulted  from  consultations  which  have  not 
been exempted pursuant to Article 85(3). 

4. 

Since,  in  respect  of  both  domestic  and  EC  third  country  air  transport,  the 
Commission had at that time no power to grant exemptions under Article 85(3) or 
to  use  normal  procedures  to  rule  on  abuses  of  dominant  positions  under 
Article 86,  there  was  and  still  is  a  climate  of  serious  uncertainty  in  which  air 
carriers  cannot  know  what  practices  and  arrangements  they  may  legitimately 
engage in on such routes. If,  even inadvertently,  they act unlawfully,  they run the 
risk of actions in national  courts  leading  to  the  payment  of  damages.  Moreover, 
prior to the third package of measures liberalizing air transport,  which  introduced 
via Regulation (EEC) No 2409/926 the freedom in principle to  set fares  and rates, 
Member States faced  comparable uncertainties  when  approving  the  fares filed by 
carriers  on  such  routes.  In  order  to  establish  a  framework  of  certainty,  the 
Commission  asked  the  Council  to  give  it  the  necessary  powers  to  clarify  how 
Articles 85 and 86 apply to domestic and extra-Community air transport. 

5. 

The  Commission  accordingly  proposed  again  in  19897  that  the  Council  adopt 
regulations extending the scope of its powers to  enforce  the competition  rules so 
as to include domestic and EC third country air transport. 

Air transport within a Member State 

6. 

7. 

The Council having committed itself, within the framework of the third package of 
air  transport  liberalization  measures,  to  lay  down  rules  on  cabotage,  it  was 
necessary to  adopt  at  the  same time measures  enabling the Commission  to  apply 
the competition rules to transport within a Member State. 

This  induced  the  Commission  to  withdraw  its  1989  proposal8  in  so  far  as  it 
concerned domestic transport and to present,  on 25 July  1991, a new proposal  for 
a  Regulation9  whereby  Regulation  (EEC)  No  3975/87  would  also  apply 
henceforth  to  transport  entirely  within  a  Member State.  The  latter  proposal  was 
adopted by the Council on 23 July  1992 as Regulation (EEC) No 2410/9210. 

Air transport on Community third country routes 

8. 

9. 

The Council  has, however,  yet to  act  on the  Commission's  proposals  concerning 
air transport on Community third country routes. 

As regards air transport  on such routes, the Commission  considers that  a number 
of  new  factors  have  arisen  since  its  1989  proposals  were  last  examined  by  the 
Council.  In  its  view,  these  new  factors  make  it  more  necessary  than  ever  to 
endow  the  Commission  as  of  now  with  the  same  powers  of  action  vis-à-vis 
transport  on  such  routes  as  those  which  are  currently  conferred  on  it  by 

6  OJ No L 240, 24.8.1992, p. 15. 
7  COM(89) 417 final of 8 September 1989. 
8  OJ No C 248, 29.9.1989, p. 9. 
9  OJNoC225,  30.8.1991, p. 9. 
10  OJ No L 240, 24.8.1992, p. 18. 

Regulation  (EEC)  No 3975/87  with  a  view  to  ensuring  compliance  with  the 
competition rules in the case of air transport between Community airports. 

10. 

Apart  from  the reasons which  gave rise to  a lack  of legal  certainty  back  in  1989 
and  which  still  apply  today  (see  points  3  and  4  above),  these  new  factors  are 
as follows 

10.1  Liberalization of the internal market 

The  regulatory  context  has  changed  substantially  since  the  introduction  of  the 
liberalization  measures  with  effect  from 
third package  of  air 
1 January  1993,  with  the  resulting  greater  liberalization  of  the  internal  aviation 
market,  which  is to  be  rounded  off  by the  unrestricted  introduction  of  cabotage 
scheduled for April 1997. 

transport 

As one by one the existing regulatory restrictions on the commercial conduct of air 
carriers  are  removed,  competition  issues become  increasingly  pressing.  When  an 
airline  operates  in  a  more  competitive  environment,  experience  gained  by  the 
Commission in other sectors shows the need for more extensive and more  effective 
means of coping  with  this  new  liberalized  regulatory  context  so as to  ensure  fair 
competition between operators and to safeguard  the interests of consumers. 

It  is clear that  for  some major,  mainly non-Community,  air carriers, or for  certain 
alliances,  flights  in  the  Community  market  are  in  some  cases  no  more  than  an 
initial  stage in,  or a prolongation  of,  a flight bound  for  a third  country.  In such a 
case, intra-Community flights may be organized using the practice of code sharing 
with a partner and are viewed as only one stage in the journey. 

Equipping the Commission with  such means of action  is essential if the  beneficial 
effects  of the liberalization  process that  is under way are not to be partially  offset 
by  restrictive  or  abusive  conduct  on  the  part  of  European  or  non-European 
commercial  operators.  It  would  also  make it  possible  to  protect  more  effectively 
and  more  rapidly,  for  example  by  granting  interim  measures,  small  and 
medium-sized  airlines,  which  are  more  often  than  not  Community  in  origin  and 
which might be harmed by such conduct. 

10.2  Weakness of the external aspect 

The liberalization  of the Community  aviation  market,  an objective  decided  on and 
gradually  implemented  by  the  Council  through  the  adoption  of  the  three 
liberalization  packages,  remains fragile, however,  inasmuch  as the  market  is  still 
incomplete  externally.  It  remains  subject 
to  bilateral  agreements  between 
Community Member States and third countries. These agreements do not normally 
include  any  mechanism  providing  for  a  system  of  effective  application  of  the 
Community  competition  rules, whereas  some third  countries  apply their  antitrust 
law  to  routes  between  themselves  and  the  Community.  The  existence  of  these 
agreements  is  partly  responsible  for  the  lack  of  competitive  pressure  on  the 

Community  market,  as  referred  to  in the  Commission  report  of  22 October  1996 
on the impact of the third package of air transport liberalization measures11. 

It  was  to  safeguard  the  internal  aviation  market  and  to  be  able  to  control  the 
impact  bilateral  agreements  might  have  on  the  Community  market  that  the 
Commission proposed  negotiations with the third countries  concerned.  This factor 
was  instrumental  in  inducing  the  Council  to  issue  a brief to  conduct  Community 
negotiations,  first  in  March  1995  with  Switzerland  and  in  June  1996  with  the 
United  States,  and secondly with the associated  countries of central Europe,  in the 
course of which competition issues were also raised. 

What  is  more,  the  Council  has  already  agreed  in  the  past  to  confer  on  the 
Commission  the power to  apply the competition  rules on certain Community third 
country  routes.  The  Agreement  concluded  in  1992  and  amended  in  199312 
between  the  Community  on  the  one  hand  and  Norway  and  Sweden  on  the  other 
included  a 
the 
European Economic  Area,  which  entered  into  force  on  1 January  1994,  replaced 
the above Agreement and likewise includes such a section. 

competition.  The  Agreement 

section  on 

establishing 

10.3  Need  to  create  a  more  structured  legal  framework  in  order  to  make  good  the 

deficiencies  of the present  system 

The recent rapid development  of a new generation of alliances between air carriers 
covering  EC  third  country  (in  particular  EC-USA)  routes  having  a  major  impact 
on competition13,  notably within the Community market,  induced  the  Commission 
in July  1996  to  initiate  the  procedure  provided  for  in  Article 89  of  the  Treaty  in 
respect  of some  of them with  a view  to  carrying out  a thorough  examination  both 
of their compatibility  and of the compatibility  of certain  restrictive practices  which 
they entail with the Community competition rules. 

At  the  same  time  as  the  Commission  was  initiating  the  Article  89  procedure, 
two Member States  considered  it  necessary  also  to  initiate  a  procedure  under 
Article 88  of  the  Treaty  in  order  to  rule  on  the  admissibility  of  two  of  these 
alliances under the same competition rules. 

A  dual  examination  of  one  and  the  same  agreement  by  two  authorities,  that  of a 
Member State  under  Article 88  of  the  Treaty,  and  the  European  Commission 
under Article 89, is not only costly for the airlines party to the agreement  in terms 
of  both  money  and  time,  but  is  also  a  source  of  great  legal  insecurity  for 
those airlines. 

11  COM(96) 514 final of 22 October  1996. 
12  Council  Decision  of  22 June 1992  concerning  the  conclusion  of  an  Agreement  between  the 
European Economic  Community,  the  Kingdom  of  Norway  and  the  Kingdom  of  Sweden  on  civil 
aviation, OJ No L 200,  18.7.1992, and  Council  Decision of 22 July  1993 amending that  Agreement, 
OJNoL212,  23.8.1993, p. 17. 

13  Such alliances are liable, at least where they  involve major  operators  in a  strong market position, to 
make it difficult  for operators who are not able to face up to such a dominant position  to gain access 
to the market. 

5 

The  extension  of  the  scope  of  Regulation  (EEC)  No 3975/87  to  include 
international  air links with third  countries would therefore  afford  airlines the clear 
benefit  of a  single  set  of controls  as  to  the  legality  of their  agreement  under  the 
'  Community competition rules according to a much less ponderous and more direct 
procedure  than  that  of  Article 89  of  the  Treaty,  without  their  being  any risk of 
conflicting decisions. 

Cooperation agreements between European and US airlines are closely scrutinized 
by the US authorities, who apply their antitrust  law to routes between the US and 
the  Community,  imposing  where  appropriate  conditions  on  European  airlines, 
whereas  the  Commission  has  as  yet  no  power  to  impose  any  conditions  on 
US airlines on the strength of Article 85(3) of the Treaty with a view, if necessary, 
to exempting such agreements. 

At the level of the continent of Europe, the same phenomenon of alliances is likely 
to arise as on EC/US routes.  There has also been a sharp increase in the number 
of flights  between  Member States  and  other  third  countries  such  as  Switzerland, 
for  example. Any  cooperation  agreements between  air  carriers  concerning  routes 
between Switzerland  and the Community or some of its Member States are for the 
time  being14  not  amenable  to  Commission  control  under  Regulation (EEC) 
No 3975/87.  The  Commission  can  examine  them  only  under  Article 89  of  the 
Treaty.  On 27 November  1996 it  decided  to  initiate  a procedure  under  the  latter 
provision  in  respect  of  a  cooperation  agreement  concerning  such  routes  with  a 
view to examining its compatibility with the competition rules. 

The  expected  changes  in  the  conditions  under  which  air  transport  operates  in 
eastern Europe following  the political  and  economic transformation  that  is taking 
place  there  will  probably  lead  to  the  conclusion  of  numerous  cooperation 
agreements  with  European  airlines  which  are  liable  to  have  an  impact  in 
the Community. 

11. 

The  Commission  accordingly  proposes  once  more  that  the  Council  adopt 
two Regulations  which  would  enable  the  Commission  to  apply  the  Community 
competition rules to air transport  on Community third country routes.  It presents 
to  that  end  two  new  proposals  which,  as  is  explained  in  point 21  of  this 
memorandum, replace those which it presented in 1989. 

12. 

The first Regulation would modify Regulation (EEC) No 3975/87 in two ways: 

(i)  Deletion  of  Article 1(2),  which  limits  the  scope  to  air  transport  between 

Community airports. 

It  should  be  noted  that  Community  competition  law  would  apply  only  if 
there  is  an  effect  on  trade  between  Member States.  Such  an  effect  would 
have to be determined on a case-by-case basis. 

14  The present  proposals  are without  prejudice  to the  agreement  on  transport,  including  air  transport, 

envisaged between the Community and  Switzerland. 

6 

B 

13. 

14. 

15. 

16. 

17. 

(ii)  Addition  of  an  Article  providing  for  consultations  and,  where  necessary, 
negotiations  under  Council  directives  in  the  event  of  a  conflict  between 
Community  competition  law  and  the  laws,  regulations  or  administrative 
provisions  of  third  countries15  or  the  provisions  of  air  service  agreements 
between Member States and third countries. 

AUTHORIZATION  OF  THE  COMMISSION  WITH  RESPECT  TO  THE 
POWER TO GRANT CERTAIN BLOCK EXEMPTIONS 

In  the  context  of  the  various  sets  of  measures  liberalizing  the  internal  aviation 
market  and  the  concomitant  application  of  the  competition  rules  applicable  to 
airlines, the Council  conferred  at the  same time on the Commission  the power  to 
adopt block exemption regulations so as to enable air carriers to adapt gradually to 
a more competitive environment. 

The  Commission's  general  experience  with  these  block  exemptions  is  that  they 
satisfy  a  genuine  need  for  legal  certainty  on  the  part  of  air  carriers  and  other 
market  operators,  while  providing  an  incentive  to  abandon  previous,  more 
restrictive  agreements.  Such  a  need  also  exists  in  the  case  of  air  transport  on 
Community third country routes. 

On  this  basis,  were  Regulation (EEC)  No  3975/87  also  to  cover  air  transport 
between  the  Community  and  third  countries,  the  Commission  considers  that  it 
should  also have the power to  grant  block  exemptions  for  such links as it may in 
the  case  of  air 
to 
Council  Regulation  (EEC)  No 3976/87,  as  amended  by  Regulation  (EEC) 
No 2411/9216. 

transport  between  Community  airports  pursuant 

The  second  Regulation  that  is  proposed  to  the  Council  would  accordingly 
empower  the  Commission  to  grant  block  exemptions  to  airline  agreements, 
decisions and  concerted  practices in respect  of international air transport  between 
the  Community  and  third  countries  and  concerned  with  joint  planning,  the 
coordination  of  capacity  and  schedules,  revenue  sharing,  the  holding  of 
consultations on tariffs  for  passengers with their  accompanying baggage  in so  far 
as they are essential to interlining, the joint operation of a service on a new or less 
busy route, and slot allocation at airports. 

This  second  Regulation  is  broadly  similar  to  Regulation  (EEC)  No 3976/87,  as 
amended  by Regulation (EEC) No  2411/92.  However,  the  list  of  agreements in 
respect  of which  the  Commission  seeks  authorization  to  grant  block  exemptions 
differs  in that, to take account  of the situation on certain Community third country 
routes,  it  includes  the  sharing  of  revenue  and  the  coordination  of  capacity.  The 
Regulation  also  contains  an  additional  provision  (Article 7(4))  designed  to  deal 
with the  special  situation  where breaches  of  conditions  or  obligations,  or  effects 
incompatible with Article 85(3), are due to the laws, regulations or  administrative 
provisions of  third  countries  or  the  provisions of air  service  agreements  between 

15  There is a provision of this type in Council Regulation (EEC) No 4056/86, which lays down detailed 
rales for the application of Articles 85 and 86 to maritime transport, namely Article 9 on conflicts of 
international law. 

16  OJ No L 374, 31.12.1987, p. 9, and OJ No L 240, 24.8.1992, p. 19. 

7 

18. 

19. 

20. 

C 

21. 

Member States  and  third  countries.  In  the  case  of  extra-Community  routes,  the 
Community is bound to take account  of such conflicts  of rules and of the need to 
pay due regard to Community law when dealing with them. 

The Commission recognizes that restrictions of competition on routes between the 
Community  and third  countries are likely in certain cases to have direct  distortive 
effects  within  the  Community  in  the  same  way  as  restrictions  on  routes  within 
the Community. 

It  therefore  intends  to  adopt,  on  the  basis  of  powers  to  be  granted  to  it  by the 
proposed  Council Regulation,  an  implementing  regulation  granting  a  block 
exemption  subject  to  compliance  with  certain  conditions  and  obligations  while 
taking account of the situation obtaining as regards the block exemptions currently 
applicable in the sector of air transport between Community airports.  Such a block 
exemption  would  in  principle  take  account  of  the  existing  general  regulatory 
framework  applicable to links with third  countries.  The said  exemption  should be 
granted for a limited period and be periodically reviewed as to its scope in view of 
the foreseeable development of a more competitive environment. 

It goes without  saying that  airlines would  still be free to  conclude  other forms  of 
cooperation  agreement  and  to  notify  them  to  the  Commission  with  a  view  to 
obtaining the benefit  of an individual exemption. 

WITHDRAWAL  OF  THE  PREVIOUS  1989  PROPOSALS  AIMED  AT 
APPLYING  THE  COMPETITION  RULES  AND  AT  ENABLING  THE 
COMMISSION  TO  ADOPT  BLOCK  EXEMPTIONS  FOR  AIR  TRANSPORT 
OPERATIONS BETWEEN THE COMMUNITY AND THIRD COUNTRIES 

The  two  proposals  for  Regulations  presented  by  the  Commission  with  this 
memorandum  fall  within a field covered by the European Economic  Area and  are 
accordingly of relevance to it.  They replace those submitted in 1989, as set out in 
document COM(89) 417 final (in Annexes I and III) and presented  to the Council 
on 8 September of that year. 

22. 

The two Commission proposals dating from 198917 are accordingly withdrawn. 

17  OJ No C 248, 29.9.1989. pp. 7 and  10 respectively. 

8 

Proposal for a 
97/0137 (CNS) 
COUNCIL REGULATION (EC) 
amending Regulation (EEC) No 3975/87 laying down the procedure for the application of 
the rules on competition to undertakings in the air transport  sector 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 87 thereof, 

Having regard to the proposal from the Commission18, 

Having regard to the opinion of the European Parliament19, 

Having regard to the opinion of the Economic and Social Committee20, 

Whereas  Regulation  (EEC)  No 3975/8721,  as  last  amended  by  Regulation  (EEC) 
No 2410/9222, formed  part  of a package of interrelated  measures adopted  by the Council 
as a first step towards completing the internal market  in transport; whereas its scope was 
accordingly  limited  initially  to  international  air  transport  between  Community  airports; 
the  Council's  decision  to  regulate  cabotage  as  part  of  the 
whereas,  following 
third package of air transport  liberalization measures and to make air transport  operations 
taking  place  entirely  within  a  Member State  also  subject  to  Community  liberalization 
measures, measures had to be adopted to enable the Commission to apply the competition 
rules to air transport within a Member State; whereas to that end the Council amended the 
scope of Regulation (EEC) No 3975/87 by Regulation  (EEC) No'2410/92 by including in 
it air transport entirely within a Member State; 

Whereas,  therefore,  the  Commission  has  no  means  at  present  of  investigating  directly 
cases  of  suspected  infringement  of  Articles 85  and  86  of  the  Treaty  in  respect  of  air 
transport  between  a Community  airport  and  an  airport  in a third  country  and  lacks such 
powers to  take  decisions  or  impose  penalties  as  are  necessary  for  it  to  bring  to  an  end 
infringements established by it; 

Whereas  practices  which  affect  competition  in  the  area  of  air  transport  between  the 
Community  and  third  countries  may  affect  trade  between  Member States;  whereas  it  is 
therefore  desirable that rules should be laid down under which the Commission, acting in 
close and constant liaison with the competent  authorities of the Member States, may take 
the requisite measures for the application  of Articles 85 and 86 of the Treaty to this area 
of air transport; 

18  OJNoC 
19  OJNoC 
20  OJNoC 
21  OJNoL  374, 31.12.1987, p. 1. 
22  OJ No L 240, 24.8.1992, p. 18. 

Whereas  Regulation  (EEC)  No 3975/87  has  established  a  clear  and  satisfactory  legal 
framework  for  applying  the  competition  rules  to  air  transport  between  Community 
airports; whereas the scope of that Regulation should therefore  be extended to include air 
transport between the Community and third countries; 

Whereas,  in  view  of  the  characteristics  of  international  air  transport  between  the 
Community and third countries, account should be taken of the fact  that the application to 
such  transport  of  the  provisions  of  Regulation  (EEC)  No 3975/87  may  in  some  cases 
result  in  conflicts  with  the  laws  and  rules  of  third  countries  or  with  the  provisions  of 
international  agreements  between  Member States  and  third  countries  applicable  to  air 
services on the route  or routes  concerned; whereas it is necessary  in  such cases to take, 
paying due regard to  Community law,  appropriate  action in accordance with Community 
interests and with Community obligations under international law, 

HAS ADOPTED THIS REGULATION: 

Article 1 

Regulation (EEC) No 3975/87 is hereby amended as follows. 

1. 

2. 

Paragraph 2 of Article  1  shall be deleted. 

The following new Article shall be inserted. 

"Article 18a 

Conflicts of rules 

Where the application  of this Regulation  in a particular  case is liable to  lead to a 
conflict  with provisions laid down by law, regulation  or administrative action of a 
third  country  or  with  the  provisions  of  air  service  agreements  between  a 
Member State  and  a  third  country,  the  Commission  shall,  at  the  earliest 
opportunity,  hold  consultations  with 
the 
country concerned." 

the  competent  authorities  of 

Article 2 

This Regulation  shall  enter  into  force  on the  day  following  that  of  its  publication  in the 
Official Journal of the European C immunities. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  all 
Member States. 

Done at Brussels, 

For the Council 
The President 

10 

Proposal for a 
97/0138 (CNS) 
COUNCIL REGULATION (EC> 
on the application of Article 85(3) of the Treaty to certain categories of agreements 
and concerted practices in the sector of air transport between the Community 
and third countries 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European Community,  and  in  particular 
Article 87 thereof, 

Having regard to the proposal from the Commission23, 

Having regard to the opinion of the European Parliament24, 

Having regard to the opinion of the Economic and Social Committee25, 

Whereas  Council  Regulation  (EEC)  No 3975/87,26  as  last  amended  by Regulation  (EC) 
No 
27,  lays  down  the  procedure  for  the  application  of  the  rules  on  competition  to 
undertakings in the air transport  sector; 

Whereas  international  air  transport  between  the  Community  and  third  countries  is  at 
present  governed  by  a  network  of  international  and  bilateral  agreements  between 
Member States and third countries; whereas many of these agreements encourage or allow 
air carriers to cooperate in matters of commercial importance;  whereas in observing these 
agreements  air  carriers  should  not  infringe  the  Treaty's  competition  rules,  which  apply 
fully  to  all  air  transport  activities  within  the  scope  of  Community  law;  whereas  the 
application  of the competition  rules  must  nevertheless  take  account  of  the  desirability  of 
dealing  with  any  conflicts  of  rules,  paying  due  regard  to  Community  law;  whereas  air 
carriers  should  be  enabled  to  conduct  their  business  within  a  framework  affording  a 
reasonable degree of legal certainty in relation to the competition rules; 

Whereas  the  Commission  should  therefore  be  enabled  to  declare  by  way  of  Regulation 
that  the  provisions  of  Article 85(1)  do  not  apply  to  certain  categories  of  agreements 
between undertakings, decisions by associations of undertakings and concerted practices; 

Whereas  it  is  desirable,  in  particular,  that  block  exemptions  be  granted  for  certain 
categories of agreements,  decisions and  concerted  practices; whereas the Commission, in 
close liaison with the Member States, should be able to define precisely the scope of these 
exemptions and the conditions attached to them; 

23  OJNoC 
24  OJNoC 
25  OJNoC 
26  OJNoL374,  31  12  1987, p. 1. 
27  See page .  of this Official  Journal. 

11 

Whereas  there  can  be  no  exemption  if  the  conditions  set  out  in  Article 85(3)  are  not 
satisfied;  whereas  the  Commission  should  therefore  have  the  power  to  take  the 
appropriate  measures  where  an  agreement  proves  to  have  effects  incompatible  with 
Article 85(3); whereas it should consequently be able first to address recommendations to 
the parties and then to take decisions; 

Whereas this Regulation  is without  prejudice  to  the  application  of Articles 86 and  90 of 
the Treaty, 

HAS ADOPTED THIS REGULATION: 

Article 1 

This  Regulation  shall  apply  to  international  air  transport  between  the  Community  and 
third countries. 

Article 2 

1. 

2. 

Without  prejudice  to  the  application  of  Regulation  (EEC)  No 3975/87  and  in 
accordance with Article 85(3) of the Treaty, the Commission may, by Regulation, 
declare  that  Article 85(1)  shall  not  apply  to  certain  categories  of  agreements 
between  undertakings,  decisions  by  associations  of  undertakings  and  concerted 
practices  on  international  air  routes  between  the  Community  and  one  or  more 
third countries. 

The  Commission  may,  in  particular,  adopt  such  Regulations  in  respect  of 
agreements,  decisions  or  concerted  practices  which  have  as  their  object  any  of 
the following: 

(a) 

joint  planning  of,  and  coordination  of  capacity  and  timetables  on,  a 
scheduled air service; 

(b) 

sharing of revenue from a scheduled air service; 

(c) 

holding of consultations  on tariffs  for  the carriage of passengers with their 
accompanying baggage; 

(d) 

joint operation of a scheduled air service on a new or less busy route; 

(e) 

slot allocation at airports and airport  scheduling; the Commission shall take 
care  to  ensure  the  consistency  of  these  rules  with  the  Code  of  Conduct 
adopted by the Council. 

3. 

Without  prejudice  to  paragraph 2,  such  Commission  Regulations  shall  define  the 
categories of agreements, decisions or concerted practices to which they apply and 
shall specify in particular: 

(a) 

the  restrictions  or  clauses  which  may,  or  may  not,  appear  in  the 
agreements, decisions and concerted practices; 

12 

(b) 

the  clauses  which  must  be  contained  in  the  agreements,  decisions  and 
concerted practices, or any other conditions which must be  satisfied; 

(c) 

the routes to which they apply. 

Article 3 

A Regulation adopted pursuant to Article 2 shall apply for a specified  period. 

It  may  be  repealed  or  amended  where  circumstances  have  changed  with  respect  to  any 
factor  which  was  fundamental  to  its  adoption;  in  such  a  case,  a  period  shall  be  fixed 
for  modification  of  the  agreements  and  concerted  practices  to  which  the  earlier 
Regulation applies. 

Article 4 

Regulations  adopted  pursuant  to  Article 2  may  include  a  provision  that  they  apply  with 
retroactive  effect  to  agreements,  decisions  and  concerted  practices  which  were  in 
existence on the date of the entry into force of such Regulations. 

Article 5 

Before  adopting  a Regulation,  the Commission  shall  publish  a draft  thereof  and  invite all 
persons  and  organizations  concerned  to  submit  their  comments  within  such  reasonable 
time-limit, being not less than one month, as the Commission shall fix. 

Article 6 

The  Commission  shall  consult  the  Advisory Committee  on  Agreements  and  Dominant 
Positions  in  Air  Transport  established  by  Article 8(3)  of  Regulation  (EEC)  No  3975/87 
before publishing any such draft Regulation and before adopting any such Regulation. 

Article 7 

1. 

Subject to paragraph 4, where the natural or legal  persons concerned are in breach 
of  a  condition  or  obligation  which  attaches  to  an  exemption  granted  by  a 
Regulation adopted pursuant to Article 2, the Commission may,  in order to  put an 
end to such a breach. 

(a) 

address recommendations to the persons concerned, and 

(b) 

in the event  of failure  by such persons to  observe  those  recommendations, 
and  depending  on  the  gravity  of  the  breach  concerned,  adopt  a  decision 
that  either prohibits them from carrying  out,  or  requires  them  to  perform, 
specific  acts  or,  while  withdrawing  the  benefit  of  the  block  exemption 
which  they  enjoyed,  grants  them  an  individual  exemption  in  accordance 
with  Article 4(3)  of  Regulation  (EEC)  No  3975/87  or  withdraws  the 
benefit  of the block exemption which they enjoyed. 

2. 

Subject  to  paragraph 4,  where  the  Commission,  either  on  its  own  initiative  or at 
the request  of a Member State or of natural  or legal  persons  claiming  a  legitimate 
interest,  finds  that  in  any  particular  case  an  agreement,  decision  or  concerted 
practice to which a block  exemption granted by a Regulation  adopted  pursuant  to 

13 

Article 2(2)  applies  nevertheless  has  effects  which  are  incompatible  with 
Article 85(3)  or  are  prohibited  by  Article 86,  it  may withdraw  the  benefit  of  the 
block  exemption  from  those  agreements,  decisions  or  concerted  practices  and 
take,  pursuant  to  Article  13  of  Regulation  (EEC)  No 3975/87,  all  appropriate 
measures for the purpose of bringing these infringements  to an end. 

3. 

4. 

Before  taking  a  decision  under  paragraph 2,  the  Commission  may  address 
recommendations for termination of the infringement  to the persons concerned. 

To the extent that the situation referred  to in paragraph  1  or in paragraph 2 results 
from  provisions  laid  down  by  law,  regulation  or  administrative  action  of  a 
third  country  or  from  the  provisions  of  an  air  service  agreement  between  a 
Member State  and  a  third  country,  the  Commission  shall,  before  withdrawing 
the  benefit  of  the  block  exemption,  apply  Article  18a  of  Regulation  (EEC) 
No 3975/87. 

Article8 

This  Regulation  shall  enter  into  force  on the  day following  that  of  its  publication  in the 
Official Journal of the European Communities. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  all 
Member States. 

Done at Brussels, 

For the Council 
The President 

14 

ISSN 0254-1475 

COM(97) 218 final 

DOCUMENTS 

EN 

08  07  11 

Catalogue number  :  CB-CO-97-205-EN-C 

ISBN 92-78-19608-8 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg