Communication from the Commission to the European Parliament and the Council - The repercussions of the terrorist attacks in the United States on the air transport industry
Date: 2001-10-10
Institutions: European Commission
Subjects: United States, air transport, economic consequence, terrorism

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10.10.2001
COM(2001) 574 final

COMMUNICATION FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

The repercussions of the terrorist attacks in the United States on the air transport
industry

COMMUNICATION FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

The repercussions of the terrorist attacks in the United States on the air transport
industry

1.  INTRODUCTION

1.  The  European  air  transport  industry  has  been  hard  hit  by  the  terrorist  attacks  of
11 September in New York and Washington. The European Union immediately mobilised
to tackle the most pressing problems and also to adapt the rules in force as necessary to
the  new  situation.  Apart  from  the  measures  to  improve  air  transport  security  that  were
discussed by the European Council of 21 September 2001 and by the Council of Transport
Ministers on 14 September 2001, the question arises as to the impact the attacks will have
on an air transport sector already in need of consolidation.

2.  Mrs de Palacio met representatives of the Association of European Airlines (AEA) on 20
September. While accepting that airlines are currently facing an exceptional situation, she
pointed out that the Commission could not accept measures that would create distortions
between countries and between companies, nor could it allow the present situation to be
used  as  a  pretext  for  delaying  essential  restructuring.  On  the  other  hand,  she  confirmed
that certain measures could be taken to deal with this special situation and also accepted
the legitimacy of the reinforcement of certain security measures being borne by the public
authorities.

3.  In  view  of  the  substantial  increase  in  insurance  premiums  to  cover  the  risks  of  acts  of
terrorism  and  war,  some  Member  States  announced,  from  the  end  of  the  week  of
17 September,  their  intention  of  granting  aid  to  their  national  airlines.  The  Commission
immediately  referred  the  matter  to  the  Ministers  of  Finance  at  their  meeting  of
22 September  in  order  to  have  a  coordinated  response.  The  Ministers  considered  that
Member States could exceptionally provide cover for these risks or assume the cost of the
increase in premiums on condition that such aid was strictly regulated and duly notified to
the Commission.

4.  At the same time, the United States government adopted a package of measures to support
its airlines. These measures must be examined to verify whether they could have an effect
on  markets  where  American  and  European  airlines  are  in  intense  competition,  i.e.
primarily the transatlantic routes. This issue is difficult to assess for the time being.

5.  In its analysis of support for the industry, the Community must ensure that any measures
are avoided if they are liable to distort competition, or to hinder or put into question the
essential moves towards consolidation and restructuring in the sector that were already in
progress before the events of 11 September.

2.  PRELIMINARY EVALUATION

6.  The impact of the attacks was severely felt in the United States: the terrorists’ targets were
situated on American territory, the aircraft involved operated on US domestic routes, the

2

American  authorities  closed  their  airspace  for  several  days  and  the  American  public
immediately reacted by cancelling most of their travel  plans. Even  though the European
industry  was  less  directly  affected,  it  was  forced  to  cancel  flights  to  the  United  States
during this period and the psychological effect on the travelling public is also being felt in
Europe.

2.1. 

The situation in Europe

7.  The  European  air  transport  industry  suffers  from  chronic  under-capitalisation  and
excessive fragmentation, it is heavily in debt and has permanent cash-flow problems. The
slowdown  in  economic  growth  that  was  already  apparent  was  already  posing  severe
problems. The crisis is hurting European airlines at a time when they were already feeling
the  effects  of  last  year's  increase  in  the  price  of  aviation  fuel.  Some  had  embarked  on
restructuring  plans,  but  there  is  still  a  long  way  to  go  in  this  area.  The  current  crisis  is
compounding problems that  existed before the attacks, in an industry  which had  already
begun to restructure.

8.  In the days immediately following the events of 11 September, demand plummeted. This
phenomenon was particularly marked in the United States, where demand fell by around
75%, including on the transatlantic routes served by European airlines. In Europe, the fall
in traffic has been much less severe so far, but nevertheless demand is down by 15-30%;
the passenger load factor has declined particularly sharply on secondary routes (by about
20-30%), with consequences for regional airlines in particular.

9.  Forecasts  by  the  AEA  based  on  a  sample  of  13  airlines  indicate  that,  by  the  end  of  the
year,  revenue  losses  will  amount  to  €3.6 billion  as  a  result  of  an  estimated  reduction  in
traffic of 7.7% and a 4.7% reduction in capacity.

10. According to the AEA, the airlines have grounded 108 aircraft or the equivalent of 5.6%
of the fleet,  and the jobs of 17 000 employees (5%) in the  airlines themselves are under
threat. British Airways, for example, has announced it is cutting 5 200 jobs, in addition to
the 1 800 redundancies already scheduled until March 2002. Further job cuts are expected
which could affect a total of 30-40 000 employees.

11. Some, in particular American, airlines are taking this opportunity to dispose of their oldest
aircraft. Many airlines have announced they are suspending all recruitment of staff; some
have  already  gone  ahead  with  major  redundancies.  The  industry  expects  further  layoffs,
which  will  doubtless  be  more  extensive  than  those  envisaged  in  the  event  of  a  cyclical
downturn.

12. There have also been changes to the networks, not only on routes to the United States but
also the Middle East and even in Europe; some destinations, particularly on "thin" routes,
are no longer served. To take  the  example of one airline,  Lufthansa has not only had to
cancel some long-haul services from Frankfurt to Rio de Janeiro  and  Bogota and on the
Berlin-Washington  route,  but  also  to  reduce  the  number  of  services  from  Frankfurt  to
Washington  and  New  York.  Lufthansa  has  also  announced  the  cancellation  of  services
from Frankfurt to Paris Orly  and Valencia  as  well as the  Hamburg-London, Dusseldorf-
Moscow and Dortmund-Copenhagen services.

13. Despite these measures, some costs are showing a sharp increase, making the crisis even
more difficult to manage. The AEA estimates that the additional security measures could

3

cost  as  much  as  €145  million.  The  same  applies  to  insurance  premiums:  all  insurance
costs have practically doubled, resulting in additional costs to the European industry.

14. Finally, the current uncertainty is placing a heavy burden on the industry. In view of the
risk of future attacks, insurers initially announced that they were limiting policy cover to a
level far below the current practice. The value of airline shares on the stock exchange was
halved in two weeks, reflecting investors’ lack of confidence and making it more difficult
to finance the airlines' operations. The Commission is unable at this stage to give a precise
assessment of the magnitude of the crisis and its impact on the European industry. It will
therefore continue to monitor developments in order to be able to react and to coordinate
the  reactions  of  Member  States  over  and  above  the  measures  presented  in  this
Communication.

2.2. 

The situation in the United States

15. In  comparing  the  situation  of  the  American  and  European  airlines,  it  must  be  borne  in
mind that each of the three largest American airlines, as pointed out in the White Paper on
the  common  transport  policy,  carries  an  average  of  90 million  passengers  every  year
compared with between 30 and 40 million for each of the largest European carriers (i.e. a
ratio of 1 to 3).

16. As a result of the terrorist attacks, the American airlines have announced losses of about
$10 billion for 2001. ATA,  the American  Air  Transport  Association,  has  announced  job
cuts  of  the  order  of  100 000  in  the  US  air  transport  industry,  while  the  airlines  expect
losses of $18-33 billion for 2002 linked to the attacks.

17. Congress  adopted  an  emergency  package  of  measures  on  21 September  as  part  of  an

overall programme that may amount to $18 billion, consisting primarily of:

-  direct  and  immediate  aid  of  $5 billion  to  compensate  the  American  airlines  for
direct  losses  resulting  from  the  closure  of  airspace,  and  the  consequences  of  the
attacks  on  air  traffic  for  the  period  11 September  to  31 December 2001.  This  aid  is
likely  to  be  distributed  in  proportion  to  the  capacity  of  each  airline  prior  to
11 September (available seats-miles);

-

- 

the  allocation,  according  to  criteria  fixed  by  the  President,  of  “federal  credit
instruments”  in  the  form  of  subsidised  Treasury  loans  or  loan  guarantees,  worth  a
potential $10 billion;

the creation of an Air Transportation Stabilisation Board to monitor allocation of
the above financial instruments. It is composed of: the Secretary of Transportation
or his Deputy, the Chairman of the Board of Governors of the Federal Reserve, who
chairs the board, the Secretary of the Treasury and the Comptroller General;

-  definition  of  the  compensation  principles:  each  airline  must  produce  proof  of  the
losses  suffered  as  a  result  of  the  terrorist  attacks,  and  in  particular  provide  all  the
economic  and  financial  justification,  under  the  supervision  of  the  Secretary  of
Transportation and the Comptroller General, who may order financial and accounting
audits of the applicants;

-  $3 billion  will  be  allocated  to  the  safety  and  security  of  air  transport  from  the

victims compensation fund totalling 40 billion.

4

18. The  aid  is  subject  to  certain  conditions;  a  freeze  on  salaries  above  a  certain  level  until
11 September 2003 and an obligation on the carriers to maintain essential air services. The
Commission will verify whether the package of measures for American airlines can have
an impact on the markets where these companies are in fierce competition with European
ones, that is, mainly on trans-atlantic routes.

3. 

THE SPECIFIC PROBLEM OF INSURANCE

19. Air  carriers  have  traditionally  been  well  covered  against  the  loss  of  their  aircraft  and
liability  vis-à-vis  passengers  and  third  parties.  The  terrorist  attacks  have  exposed  the
vulnerability  of  the  air transport  sector,  with damage exceeding  all rational estimates. A
few  days  after  the  events,  insurers  announced  the  withdrawal  or  drastic  reduction  in
“liability” cover for war and terrorism risks. This led many Member States to question the
traffic  rights  of  companies  unable  to  show  they  had  adequate  cover.  Insurers  also
announced huge increases in premiums for the cover they continued to provide. They then
proceeded  to  notify  other  undertakings  in  the  sector  that  they  were  withdrawing  or
reducing cover: airports, groundhandling providers, air navigation services, etc.

20. All  Member  States1  introduced  temporary  mechanisms  providing  liability  insurance  for
airlines for a period of 30 days pending the restoration of an acceptable level of cover by
commercial insurers (see in particular point 5.2 below). These measures must of course be
notified  to  the  Commission  for  examination  of  their  compatibility  with  the  Treaty.
Member  States  are  currently  notifying  their  measures,  which  the  Commission  will
examine on the basis of the rules on State aid.

21. The  Commission,  while  recognising  the  considerable  financial  burden  on  insurers,  must
nevertheless examine whether their behaviour is compatible with the competition rules of
the  Treaty.  To  this  end,  it  has  launched  own-initiative  proceedings  to  verify  the
compatibility  with  the  competition  rules  of  the  conditions  under  which  the  increases  in
premiums were decided.

22. The  airlines’  cover  is  being  restored,  although  the  financial  conditions  are  extremely
onerous.  In  practice,  airlines  would  have  to  pay  surcharges  on  their  existing  insurance
premiums corresponding to about $3.10 per passenger without profit. However, the other
operators  are  still  without  cover:  airports,  suppliers  of  groundhandling  services  and
providers  of  air  navigation  services.  This  is  highly  prejudicial  to  the  functioning  of  air
transport and is liable to cause serious economic and social disruption. According to the
information received from insurers and national authorities, cover for other operators will
be  introduced  in  the  very  near  future,  enabling  them  to  respond  better  to  the  current
situation.

23. In view of the uncertainty surrounding the  return to the market at the  end of the 30-day
period, and in order to take account of the measures taken in the United States which are
providing cover for 180 days, it is hard to envisage the removal of the cover guarantees
given by  Governments after the initial 30-day period.  This  crisis  has  shown  that  similar
events  in  future  could  lead  to  renewed  withdrawal  of  cover  from  aviation  industry
operators. The Member States have asked the Commission to draw up guidelines to ensure
an efficient and coherent response in such  cases.  In  addition,  in  order  to  maintain  equal

1 See Annex (1).

5

                                                
conditions of competition with third country airlines and to avoid diverging responses by
Member  States,  the  Commission  considers  that  all  Member  States  must  verify  whether
third country airlines produce proof of minimum risk cover on the basis of the European
Civil  Aviation  Conference  (ECAC)  recommendations.  In  the  absence  of  such  cover,
Member States would be obliged to take appropriate, coordinated action, i.e. to withdraw
traffic  rights  and  prohibit  overflight  in  accordance  with  the  Community's  international
obligations.

4.  SECURITY MEASURES

24. The Extraordinary European Council of 21 September called on the Transport Council to
take  measures  concerning  the  classification  of  weapons,  technical  training  for  crew,
checking and monitoring of hold baggage, protection of cockpit access and quality control
of security measures applied by Member States.

25. The Commission has already sent several proposals to the Council enabling it to introduce

some of these measures:

–  the  amendment  of  the  Regulation  on  the  harmonisation  of  technical  requirements
(JAR-OPS)  and  administrative  procedures  in  the  field  of  civil  aviation2,  which  will
enable the necessary measures to be taken to strengthen cockpit doors;

–  the  proposal  for  a  directive  on  occurrence  reporting  in  civil  aviation3 provides  for

monitoring compliance with security measures;

–  the  Commission  proposal  on  safety  requirements  and  attestation  of  professional
competence for cabin crews in civil aviation4 will harmonise training for this category
of personnel. The Council should be able to adopt a common position on this proposal
on 15 October.

26. The  Commission  is  also  proposing  a  Regulation  establishing  common  rules  for  the
security  of  civil  aviation.  Adoption  of  this  proposal  will  enable  common  rules  to  be
established  on  baggage  inspection  and  passenger  checks  and  to  organise  monitoring  of
compliance  with  the  common  rules.  In  the  interim,  the  Commission  has  proposed  to
Member States that inspections should be organised at airports, reinforcing the measures
initiated by  the  European Civil Aviation Conference  (ECAC) some  months  ago.  The ad
hoc working group set up by the Council will present a preliminary report to the Transport
Council  on  15-16 October,  which  can  serve  as  a  basis  for  strengthening  the  ECAC
recommendations.  There  will  be  parallel  consultation  of  the  relevant  professional
organisations and by the sectoral dialogue committee in civil aviation.

27. The  air  transport  industry  has  itself  traditionally  borne  the  bulk  of  security  costs.  The
reinforcement of certain security measures by the public authorities in the wake of attacks
directed  against  society  as  a  whole  and  not  at  the  industry  players  must,  in  the
Commission's  opinion,  be  borne  by  the  State.  It  goes  without  saying  that,  if  certain
measures  are  imposed  directly  on  airlines  and  other  operators  in  the  sector  such  as
airports, suppliers of groundhandling services and providers of air navigation services, the

2 COM(00) 121 final, 24.03.2000 COD (2000/0069)
3 COM(00) 847 final, 19.12.2000 COD (2000/0343) and amended proposal of 25.09.2001: COM(01) 532
4 COM(97) 382 final, 22.07.1997 and amended proposal of 05.03.1999: COM(99) 68 final.

6

                                                
financing  of  such  measures  by  the  public  authorities  must  not  give  rise  to  operating  aid
incompatible with the Treaty.

5.  APPLICATION OF THE RULES ON STATE AID

28. In  examining  State  aid  measures  compatible  with  the  Treaty,  the  Commission  gives
priority  to  those  least  likely  to  distort  competition  between  Community  airlines,  i.e.
measures applicable to all Community undertakings on a uniform basis. The airlines have
themselves  requested  that  the  support  measures  they  are  seeking  should  not  lead  to
unequal conditions of competition and for that reason they favour measures at Community
level.

29. In  this  regard,  the  Commission  stresses  that  the  events  of  11 September 2001  must  not
undermine the Commission's policy on State aid to restructuring based in particular on the
"one-time,  last-time"  principle.  They  must  not  be  used  as  a  pretext  for  bypassing  the
existing framework for aid to restructuring in order to remedy the serious problems which
for  months  and  sometimes  years  have  dogged  certain  Community  airlines  attempting  to
restructure.

30. The  Commission  would  also  point  out  that  any  State  aid  measure  adopted  by  Member
States  must  be  notified  to  allow  the  Commission  to  examine  its  impact  quickly  and
ascertain  its  compatibility  with  the  Treaty.  The  informal  Ecofin  Council  which  met  in
Liege on 22 September also stressed this obligation.

31. During the Gulf crisis, the Commission took a number of measures for a limited period of
three months to help airlines cope with the short-term problems. In particular, it declared
its  intention  of  examining  favourably  certain  types  of  State  aid  intended  to  offset  the
additional costs of security and insurance and to postpone collection of some of the fees
for air traffic control, as well as to authorise under the competition rules applicable to air
transport certain agreements between airlines on capacity reduction, joint operations and
slot  allocation  at  airports.  The  industry  reacted  well  to  the  situation  and  traffic  resumed
shortly afterwards. Since then, the regulatory framework in the sector has changed: the air
transport  market  is  now  organised  according  to  the  principle  of  free  access,  enabling
carriers to develop their activities in a competitive environment, to adapt their operations,
capacity and schedules more flexibly to demand and to weather crisis situations better.

32. The  ad  hoc  working  group  appointed  by  the  Extraordinary  Transport  Council  of  14
September,  which  met  three  times  on  25  September,  2  and  5  October  respectively,  has
gathered  information  on  the  main  support  measures  designed  to  offset  the  increase  in
insurance costs and the additional costs of tighter security requirements. This also showed
that there is a risk of competition being distorted as a result of the aid granted to American
airlines  to  compensate  for  their  loss  of  revenue  in  the  days  when  all  air  traffic  in  the
United States was grounded.

33. As operating aid is in principle prohibited, the Commission considers that the provisions
of Article 87(2)(b) of the Treaty fit the problems currently facing the airlines. It is of the
opinion  that,  given  their  unforeseeable  nature,  the  number  of  victims  and  the  impact  on
the world economy, the events of 11 September 2001 were exceptional occurrences within
the  meaning  of  Article 87(2)(b).  However,  the  temporary  measures  to  support  airlines
taken by Member States should not result in over-compensation for the damage suffered.

7

34. At this juncture, the Commission considers that the provisions of Article 87(2)(b) of the
Treaty may apply to two types of damage resulting from the events of 11 September 2001.

5.1.  Measures  to  compensate  for  the  costs  to  airlines  of  American  airspace  being

closed for four days

35. The  Commission  considers  that  the  costs  arising  directly  from  the  closure  of  American
airspace  between  11  and  14 September 2001  are  a  direct  consequence  of  the  events  of
11 September.  They  may  therefore  give  rise  to  compensation  by  Member  States  in
accordance with Article 87(2)(b) of the Treaty on the following conditions:

- 

- 

- 

compensation is paid in a non-discriminatory manner to all airlines in a given Member
State;

it concerns only the costs incurred during the days 11 to 14 September 2001 following
the grounding of air traffic decided by the American authorities;

the amount of compensation is calculated accurately and objectively by comparing the
traffic recorded by each airline during the four days in question with that recorded by
the same airline in the preceding week, adjusted to take account of the development in
the  corresponding  period  of  2000.  The  maximum  amount  of  compensation,  which
must take account in particular both of the actual costs incurred and those avoided, is
equal to the loss of revenue duly recorded during these four days. It must of course be
less than four 365th of the airline's turnover.

36. The  possible  distortions  of  competition  caused  by  direct  aid  to  the  American  airlines
cannot be addressed in the absence of a contractual framework for relations between the
Community and the United States. Member States have opted for a framework of bilateral
agreements  which  deprives  them  of  any  capacity  to  react.  In  keeping  with  the  1994
guidelines on State aid to the aviation sector, the Commission considers that, if State aid
provided by  third countries  leads  to  very  low fares, such practices  must  be  examined  in
the  context  of  the  Community's  external  policy.  Should  the  policy  be  found  to  be
predatory,  the  Commission  reserves  the  right  to  make  proposals  to  offset  the  loss  the
Community airlines might suffer as a result. In addition, the Commission will propose a
Code of Conduct in this area to the United States.

5.2. 

Assumption of the extra cost of insurance

37. On 22 September the Ecofin Council discussed emergency measures Member States could
take to help airlines meet the extra costs of insurance in the next few months under certain
conditions. It concluded in particular that:

(cid:1)  support must be limited to addressing a failure in the commercial insurance market in
order to ensure that third party cover for war and terrorism risks remains available;

(cid:1)  governments must charge a reasonable premium which as far as possible reflects the
risks covered by the schemes introduced, although this condition may be waived in the
sort term;

(cid:1) 

the schemes will be introduced for one month while work will continue on finding a
lasting  solution  and  to  encourage  the  industry  to  return  to  the  market  as  soon  as
possible.

8

The  Council  also  drew  attention  to  the  obligation  to  notify  these  measures  to  the
Commission for the purposes of verifying their compatibility with the State aid rules.

38. In taking  the necessary decisions on the measures  notified  to  it  in  the  framework  of  the
State  aid  rules,  the  Commission  will  take  account  of  all  pertinent  circumstances  and  in
particular whether the public intervention concerned:

-

-

-

applies uniformly without restriction to all companies in a given Member State;

is limited to a period of one month;

is exclusively intended to compensate for the extra cost of insurance resulting from the
events of 11 September 2001 and in no way places the  airlines in a more  favourable
situation than that prior to 11 September 2001.

39. Developments  in  the  insurance  market  suggest  it  is  unlikely  that  the  measures  can  be
terminated after one month. However, the Commission considers that there are no grounds
for  insurance  companies  withdrawing  cover  from  other  operators  in  the  air  transport
industry, such as airports, groundhandling providers and air navigation services; the risks
associated  with  these  activities  are  not  of  the  same  nature  as  those  resulting  from  the
suicide attacks of 11 September.

40. If  the  situation  should  continue  beyond  the  initial  30-day  period,  the  Member  State
concerned  may  decide  either  to  continue  providing  a  supplementary  guarantee  to  the
insurance companies, or to underwrite the risk directly itself. At any event, Member States
must follow common guidelines with regard to the following:

- duration;

- level of cover;

- methods of setting premiums;

- players covered ;

- treatment of third countries.

The  Commission  will  examine  any  government  aid  notified  to  it  by  virtue  of  Article
87(2)(b) in line with the above principles. Moreover, the cost of this supplementary cover
must  be  terminated  by  31 December  2001  at  the  latest  and  passed  on  to  the  airlines  in
order to restore equal conditions of competition between Community carriers.

41. This crisis  has  nevertheless  shown  that  similar  events  in  future  could  lead  to  a  renewed
loss of cover for air transport operators. The Member States have asked the Commission
to draw up guidelines to guarantee an effective and coherent response in such cases. Such
possible responses could include the establishment of a "mutual fund" for risks in order to
avoid  the  cost  of  national  measures  in  the  case  of  a  common  challenge.  The  alternative
possibility of the airlines themselves establishing insurance pools specialised in the cover
of risks relating to air transport also merits consideration. A compensation fund might be
another possible option. In addition, the Commission proposes harmonising the amounts
and  conditions  of  insurance  required  for  the  issue  of  operating  licences  (Council
Regulation 2407/92) and will present proposals to this effect.

9

6.  OTHER COMMUNITY MEASURES

42. The Commission has to monitor application of the competition rules and of the rules on
slot allocation at Community airports. The impact of the drop in demand must be assessed
in the light of the application of these rules.

6.1. 

Slots

43. The reference point of the Regulation on slot allocation (Council Regulation 95/93) is the
situation  during  a  coordination  season.  Article  10(3)  of  the  Regulation  provides  that
carriers  are  not  entitled  to  the  same  series  of  slots  for  the  next  equivalent  period  unless
they can demonstrate to the satisfaction of the coordinator that they have used these slots,
as  cleared  by  the  coordinator,  for  at  least  80%  of  the  period  for  which  they  were
attributed.

44. However, 

the  Regulation  also  accepts 

that  exceptional  circumstances,  namely
unforeseeable and irresistible cases outside the air carrier's control, may affect the use of
slots. Article 10(5)(a) and (e) allows carriers to cite circumstances such as the grounding
of aircraft or the closure of an airport or airspace, or the interruption of a series of services
due  to  action  intended  to  affect  these  services  making  it  practically  or  technically
impossible to carry them out, in order to avoid losing their slots with established historical
precedence (grandfather rights) during the season and the next equivalent season.

45. The  Commission  considers  that  the  closure  of  American  airspace  between  11  and
14 September  and  the  subsequent  changes  to  services  (suspension,  reduced  frequencies)
constitute  exceptional  circumstances  that  impact  negatively  both  on  the  transatlantic
network  of  the  airlines  and  on  the  intra-Community  feeder  routes.  It  considers  that
coordinators  should  interpret  the  provisions  of  the  above  Regulation  in  such  a  way  that
airlines do not risk losing their unused slots as a consequence of the terrorist attacks.

Carriers should therefore be able to keep their slots with grandfather status during the next
coordination  season  in  summer  2002.  In  this  way  the  slots  unused  during  the  current
season can  be reallocated  as  "ad  hoc" slots by the  coordinators  for  the  remainder  of  the
season and used by other air carriers without conferring grandfather rights.

46. If the current situation continues and impacts significantly on the 2001/2002 winter season
which  commences  on  26  October,  the  Commission  will  examine  whether  it  should
continue these arrangements in the light of the justification provided by the airlines at that
time.

6.2. 

Coordination of schedules and capacities

47. The sharp fall in demand and the increase in costs resulting from the current crisis might
lead airlines to cut back significantly on capacity, the number of links and frequencies of
certain services. It must therefore be examined whether the current situation could affect
the application of the competition rules to airlines.

48. The Commission stresses that the application of the competition rules enables account to
be taken of changes in the economic situation of the market due to unforeseen events or
the  normal  business  cycle.  Furthermore,  airlines  are  at  all  times  free  to  reduce  their
capacities, adjust their schedules or decide to discontinue certain services. Under  certain
conditions they may also decide to act in concert.

10

49. At the moment, however, it does not appear essential to adopt ad hoc legislative measures
such  as  a  block  exemption.  The  applicable  rules  currently5  permit  certain  types  of
coordination, such as consultations on slots and on passenger tariffs in order to facilitate
"interline"  connections.  Schedule  and  capacity  coordination  already  takes  place  in  the
framework  of  alliances.  In  any  event,  other  more  specific  forms  of  cooperation  may
benefit from an individual exemption under Article 81(3) of the Treaty if their advantages
outweigh  any  restrictive  effects  on  competition.  The  Commission  will  therefore  give
favourable  consideration,  for  example,  to  capacity  coordination  agreements  intended
exclusively to maintain a regular service on "thinner" routes or at off-peak times.

7.  STRENGTHENING THE CAPACITY OF THE INDUSTRY AND OF THE COMMUNITY TO REACT

7.1. 

Consolidation of the air transport industry

50. The  European  aviation  market  remains  fragmented  despite  the  consolidation  efforts  in
progress.  The  results  of  this  fragmentation  of  industry  and  market  are  plain  to  see:  the
European airlines and their customers do not benefit from the full potential of the internal
market.  Many  European  carriers  are  small  compared  to  their  international  competitors.
Some  are  facing  serious  financial  problems  and  can  continue  operations  only  with
partners. The Community has little influence in the absence of a common approach by the
commercial  partners  and  in  international  negotiations.  The  moves  to  restructure  and
consolidate Community airlines must therefore be continued and even speeded up in some
cases. This will require social dialogue to be stepped up.

7.2. 

A coherent policy vis-à-vis third countries

51. The  question  of  ownership  and  control  must  also  be  urgently  addressed:  the  restrictions
imposed  on  airlines  by  the  traditional  ownership  and  control  rules  in  the  bilateral
agreements make mergers and takeovers difficult. In this context, the Commission would
emphasise  the  need  to  establish  a  dynamic,  coherent  policy  in  the  field  of  external
relations as quickly as possible.

52. The current crisis demonstrates the urgent need to take account of developments in North
America,  to  coordinate  actions  with  the  American  authorities  and  to  ensure  equal
conditions of competition on the Atlantic routes. An agreement of this nature would also
have  to  make  provision  for  crisis  mechanisms  and  preclude  unilateral  measures  which
could  unduly  prejudice  the  interests  of  the  other  party.  Subject  to  the  adoption  by  the
Council of negotiating directives, a full EC-USA agreement could be negotiated  at short
notice  to  provide  the  framework  and  the  necessary  structures  ensuring  safe,  reliable
operating conditions in a competitive environment for airlines on both sides.

53. More generally, the role of ICAO must be reinforced in the area of security, as has already
been  done  on  safety,  to  ensure  that  aircraft  flying  into  European  airports  or  transiting
Community airspace  comply  with  certain  minimum  rules.  In  order  to  ward  off  this  new
type  of  attack,  compliance  with  these  rules  must  be  ensured  on  domestic  as  well  as  on
international flights.

5 Commission Regulation (EEC) No 1617/93 of 25 June 1993 on the application of Article 85(3) of the Treaty to
certain  categories  of  agreements  and  concerted  practices  concerning  joint  planning  and  coordination  of
schedules,  joint  operations,  consultations  on  passenger  and  cargo  tariffs  on  scheduled  air  services  and  slot
allocation at airports, as amended by Commission Regulation 1324/2001 of 29 June 2001.

11

                                                
This need for international cooperation also applies to insurance: in the absence of cover
for terrorist risks or war, the Community must act to prohibit access to its airports and its
airspace. As this could have considerable implications above all for developing countries,
the Commission will mobilise the resources allowed under the  agreements concluded by
the Community in order to provide the necessary assistance.

The Commission is particularly favourable towards a better coverage of the air transport
sector by the WTO.

7.3. 

The Single Sky

54. The  airlines  have  emphasised  the  importance  of  speedily  creating  the  Single  European
Sky in order to improve the safety of air transport. The Commission shares this concern,
as it is crucial to the safety and competitiveness of the industry. The proposals are ready.
The Commission has called on the Member States to move this dossier forward and takes
note of the agreement reached on the application of the legislation to Gibraltar airport. In
order  to  get  this  vital  project  off  the  ground  as  of  2004,  the  Commission  will  present  a
major  package  of  legislative  proposals  which  will  help  reduce  the  costs  relating  to  the
organisation of airspace and enhance the efficiency of cooperation to make this space safe.

8.  CONCLUSIONS

55. The Commission therefore considers that  the situation created  by  the  terrorist  attacks  of
11 September  justifies  the  adoption  of  emergency  measures  in  the  framework  of  the
current rules and policies:

–  The  Commission  will  examine  favourably  in  the  framework  of  State  aid  and  in  the
light  of  the  criteria  described,  measures  to  compensate  airlines  for  losses  resulting
directly from the four-day closure of American airspace:

– 

It will examine in the framework of State aid and in the light of the criteria described:

a)

b)

the  assumption of  the  additional costs  of insurance  for  a  maximum  period  of
one month;

the temporary continuation of intervention by Member States until the end of
the  year should the need for cover persist, on condition that it does  not place
the airlines in a more favourable position than that prior to the withdrawal of
their insurance cover.

–  With regard to security,

The  Commission  considers  that  the  reinforcement  of  certain  security  measures  must
be borne by the public authorities.

–  With regard to the competition rules applicable to air transport:

The  Commission  will  examine  on  a  case-by-case  basis  whether  the  conditions  for  an
exemption under Article 81(3) of the Treaty are met. It will give favourable consideration
to  the  capacity  coordination  agreements  designed  to  maintain  a  regular  service  on  less
frequented routes or to coordinate schedules during off-peak periods of the day.

12

–  With regard to slots:

The Commission considers that the airlines may retain their slots with grandfather status
in Community airports during the summer 2002 season. If the current situation continues
into the winter 2001 season, which begins on 26 October, the Commission will examine
whether measures should be introduced for the corresponding 2002/03 season.

–  With regard to relations with third countries:

Should  there  appear to be predatory pricing, the  Commission reserves the right to  make
proposals to offset the loss Community airlines might suffer as a result. The Commission
will  propose  a  code  of  good  conduct  to  the  United  States  authorities  in  order  to  avoid
distortions of competition resulting from the aid received by American airlines.

The  Commission  notes  that  it  has  always  defended  Community  competence  in  the
framework of international negotiations on air transport. As regards transatlantic relations
in particular, the Commission considers that the Council should as soon as possible agree
the  draft  negotiating  mandate  as  a  basis  for  negotiating  an  agreement  with  the  United
States in order to create the necessary framework and structures to ensure safe and reliable
operating conditions in a competitive environment for airlines on both sides. This would
make it possible to adapt the regulatory framework of the undertakings  and in particular
the ownership rules.

In the absence of such an agreement and pending the negotiating mandate, it is up to the
Member States to proceed with a minimum of Community coordination in the framework
of the bilateral agreements.

56. The Commission will also examine:

a)

the possibility of "mutualisation" of insurance risks at European level;

b) the revision of the amounts and conditions of insurance required for the issue of operating

licences (Council Regulation 2407/92) in order to ensure a harmonised approach.

57. The Commission will continue to monitor closely developments in the air transport sector

and to act quickly should the situation deteriorate.

Depending  on  how  the  current  situation  evolves,  the  Commission  reserves  the  right  to
review the measures taken or announced in this Communication.

In addition, the Commission will examine the implications with all the industrial players
and social partners.

58. It  is  up  to  the  Council  and  the  European  Parliament  to  adopt  the  security  measures
required  by  the  present  situation  when  they  consider  the  proposals  pending.  The
Commission  proposes  common  rules  on  aviation  security  which  it  asks  the  two
institutions to examine as a priority.

13

ANNEX

Measures planned or taken by Member States to cover the additional costs of insurance

Member
State

Insurance - own
Airlines

Requirement
- foreign
airlines

Insurance -
service
providers

Duration

Premium

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Up 
level

Up 
level

Up 
level

Up 
level

Up 
level

Up 
level

Up 
level

to 

former

ECAC

to 

former

Set  out  in  air
navigation act

to 

former

Former level

Up 
level

Up 
level

Up 
level

to  former

30 days

Former level plus surcharge

to  former

1 month

$0.25 for

$50-750 m

$0.50 for

$750m - $1bn

to  former

1 month

Not yet decided

to 

former

-

Not yet decided 30 days

Not yet decided

to 

former

Rome Treaty

Air  navigation
act-royal
decree 
37/2001

no.

AENA included
and 
other
services
providers 
yet decided

not

30 days

$0.25 up to $750 m

$0.50 up to $2 bn

to 

former

No change

covered

Not 
by Ireland

Not covered

to 

former

to 

Up 
a
maximum of €2.2
each
for 
bn 
aircraft

Luxembourg Former level - up

to $2 bn

Netherlands Up 
level

to 

former

ECAC

Austria

Up to $700m

-

Portugal

Up 
level

to 

former

Former level

Finland

Up to $1bn

-

to  former

30 days

Not yet decided

to  former

30 days

Not yet decided

Up 
level

Up 
level

Not covered for
the moment

30 days

Free 
required)

(no 

premiums

No  notification
of  cancellation
received

1 month

Waived

to  former

30 days

30 days

Premium  waived  for  first
30 days

Market 
premiums not yet decided

conditions 

-

to  former

1 month

Not yet decided

30
Max 
days,  subject
to
cancellation
at any time

30 days

same 

as
Theoretically 
previous premium - waived
initially for legal reasons

"Premium  reflects  as  far  as
possible the risks associated
with the guarantee"

$0.25  per  passenger  flight
up to $750m.

to 

former

-

Sweden

United
Kingdom

Up 
level

Up 
level

to 

former

Not covered

to  former
for

Up 
level 
providers

30  days  (7
days  notice
of

14

Up 
level

-

Up 
level

-

-

whose 
withdrawn

cover

cancellation)

$0.50  per  passenger  flight
above  $750m  (waived  for
first 30 days)

25% of former premium for
service providers.

15