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LEADINGWIERNATIONAL AVIATION TOWARDS GLOBALIZATTON: THE NEWRELATIONSHIP AMONG CARRIERALLIANCES, OPEN SKIES
=TLES AND ANTITRUST ][MMUNITY
An.Frédeique Pothier Institute of Air and Space Law McGill University, Montréal March, 1997
A Thesis submitted to the Fadty of Graduate Studies and Research in partial fdfihent of the requirements of the degree of Master of Laws.
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À Dan M. Fiorita. Deregdation, liberalization, cornpetition and giobaiization are concepts that are cIosely Iinked to today's international air transport. With the aim of adaptïng to thiç new cornpetitive enviroment, carriers have in the past years joined forces and developed international carriers affiances.
As a result, antitrust immunïty to carrier alliances was granted by the United States in order for carriers to "merge" th& activities without an actual merger, prohibited under the present regime, or without risking violation of antitrust laws. This thesis wiil discuss the basis of antitrust immunity in the United States, as weil as the different carrier alliances that have received antitrust immunity from the US Department of Transport.
The European Union, and certain national authorities, are presentiy reviewing alliances-involving a European carrier-that received antitrust immunity in the US. The different issues raked by such reviews wiIi be examined in the present thesis.
Carrier diances, antitrust immunity and open skies treaties are all dosely linked. Although having involved, to date, carriers and agencies from two continents, the effects are king felt around the world. This thesis will tcy to describe this new relation, focusing primarily on antitrust immunity. La dérégulation, la Libéralisation, la compétition et la globaiïsation sont des concepts qui sont maintenant liés au harisport aérien international. Les transporteurs aériens se sont adaptês ces demi&= réalités en forgeant et développant de nouvelles ailiances entre transporteurs aériens de différentes natiodtés-
Afin de permettre des alliances plus développées et intégrées, restreintes dans le régime aérien international aduei par des lois sur les fusions et des lois sur la concurrence, les États-unis ont accorde a ces alliances i'immunite de leurs lois sur la concurrence. Cette th- étudiera donc les fondations juridiques permettant cette immunité, de même que les différentes alliances ayant r- i'immunité des lois sur la concurrence américaines.
L'Union européenne, de même que certaines autorités nationales, sont présentement en train de revoir les alliances auxquelles les États-unis ont accordé l'immunité. Les différents aspects soulevés par ces examens seront &tudiesau cours de la présente etude.
La relation entre les diances entre transporteurs, les traités à ciel ouverts et les immunités des lois sur la concurrence est désamais bien établie. Malgré que cette relation soit présente A ce jour sur deux continents, ses effets se font sentir mondialement, Cette thèse abordera donc l'etude de cette nouvelle relation, discutant principalement de l'immunité maintenant conférée aux transporteurs aériens. First, 1 wish to express my gratitude to my supervisor, Professor Richard Janda, for his helpful suggestions, guidance and patience throughout this thesis. My appreciation also goes to Dr. Midiael Milde, Director of the Institute of Air and Space Law, and to the staff of the Institute, for their encouragement and availabiüty.
I wodd Iike to acknowledge the unfailhg support of my parents, of my sister and brother, during all the course of my studies.
Furthemiore, 1 wish to express my sincere appreciation for his collaboration and insights to Dieter Bartkowski, Dixector of Air Transport, Gemiany. 1 wodd ais0 iike to than.Thomas Sdimidt of Harbottle and Lewis, Nicolas Slovoda, Kathy Duggan, and Arlene of the ICA0 Legal Bureau, for their heip in their various capaaties. Moreover, 1 am thanldul to Rainer Becker for his support, understanding and academic stimulation.
Finally, for their constant generosity, collaboration and encouragement, 1 am grateful to Dan Fiorita and Jocelyne Lavoie Fiorita, without whom the completion of this thesis wodd have been a much harde.experience. CHUTER I OPEN SKIES TREATIES ...... 7
1.1. CONSEQUENCESOF THE OPEN SKIES REGiME ...... 7 12 . PROPERN AND OWNERSHIP CUUSES IN THE OPEN SKIES REG ME...... 9
1.4. THE RnnTION BEnlEENIMMLMTY AND OPEN SKIES TREATIES ...... 13 CHAPTER 2 AIRLINES ALLIANCES AND ANTITRUST CMMUNITY IN THE UNITED STATES...... 17
2.1. THE ~momINCHARGE OF AVIATION ANTI~UST...... 18
2.2.1. The Unites States Corde ...... 21 2.2.3. Co& of F&af Regulatio~...... 23 2.2.4. The CIayton Ac! ...... ~...... 26 2.3. ïHE CONSLDERED IN THE GRWTING OF SUCH hMüNlW...... 27
2.3.21. Public IntaeJt -..-...... -...... -. - ...... 31
C'R3 AIRLINES ALLIANCES AND ANTlTRUST ïMlMUWW IN THE EUROPEAN UNION...... 36
3.1. THECOMPETENCE OF THE COMM~SSION...... 38 3.1. I . Ariicies 85, 86, and89 of the EC Treaty...... ,...... ,...... 39
3.1.1.1. Exemptions ...... -...... 40 3.2. THE REVIEW BY THE COMMISSION...... 42 3.2.1. Obstacles for the Commission ...... 44
3.2.2. The Conscqumces of the Rcvicw ...... , ...... 45 3.3. REVIEW BY NAT~ONALALmfOlUTIES ...... 47 C'R4 THE APPLICA'NOF ANTlTRUST lMMUNlTY TO CARRIERS ALLMCES ...... 49
4- 1.1. The KLMf NortbtAlfiolcce ...... -...... 50 4.1.1.1. Limitations to the Immunity ...... -...... 53 4.1.1.2. The Bencfits of the Al[iacc -...... 55 4.1.1.2.1 Obstacles to Ruiewal of the Alliance ...... 56 4- 1.2. rie UnirdL@iuuUu Alliance ...... 59 4.121 . The US DOT Examination of the Alliance ...... 60 4.1.21.1. Limitations to Immunity - -- .....--...... -.. 62 4.12.12. MhctAnaIysis ...... ,...... d-..-...... , ...... 63 4.1.2.2. The Rcview by the Bundakartellamt ....-...... -...... - ....--.. 65 4.1.23. The Bmefits of the tufthansa-United Alliana .S...-...... 67 4.2 OTHERAULANCES GRANTEDANTiïRUST blMJMW ...... -67 42.1. The Delia/[email protected]/SobellLJSwUsaV allicmce ...... 69 4.2.1.1. The Stnrggle Betwecll US DOT and US DOJ...... -...... 69 4.2.2. The Canadiad American Airlines dfiruice...... 72 4.2.2.1. The Phase-in Opai Skies Treaty ...... -...... -...... 73 4.2.22. The Air Canada Antitrust hunity Bid ...... -...... --.-.--. .-. -. ...-...... -...76 4.2.23. The mim by the Canadian Govanm~~~t...... --...... 78 4.2.3. The ScandurrrViari Airlines/Lt@harisa/C/m-redAlli ...... 78 4.2.3.1. The IATA Wtbdrawal Condition .-...... -..-...... -...... I ...... 80 4.2.3 2. The Amcrican Airiines Intervention ...... -.-...... 81 4.3. THE PROeOsEO AUUNCE: BRmSH A.IRWAWAMERICANAiRUNES ...... CANCAN...... -.82 4.3.1. The US-WK Bilafera1...... 82 4.3.2. The United Kingdom Gmernment Reviéw ...... 85 4.3.2. 1 .The Anrlysjs of the Office of Fair Tfadmg ...... 86 4.3.22. Conditions to Exemption ...... 90 4.3.3. The Eauopean Commission Review ...... 92 4.3.3.1. Conflicting dccisions of both authorities ...... 93 4.3.3.2. Conflichg laws ...... 94 4.3.4. The US DOT Antitrust Appiicaîion ...... ~~~~.~~~~~~~~~~~~~~.~~~.~~~~.~...~..~~...~.~.~~..~.~~~~~~~~.~.~~~..~...~~95
CONCLUSION ...... 98 'Weare living through a period in which infrmntional mintim rules must change. PnoatUntion, cornpetition, and globalizatim me tmds fueled by ecomnzic and politicul @-ces that will ultimntely preuail"'
Intemational Aviation is indeed in a period of change and turmoil. The rules that have been governing it for decades have corne under close saxtiny. The aviation world has been dealing with its own regdations and codes, notwithstanding the econornic evolution that was taking place in all other industries. It is now only naturd that it should reevaluate itself.
This process of reevaluation haç already started among States, international organizations and airlines, but has proceeded in different degrees. For some parts of the world, the attitude visd-vis economic reguiation has hged drastically. For 0th- States, however, economic and trade concepts such as privatization, competition and globalization are not even items on their agendas. Therefore, the next few years will be hindamertal to the international aviation industry; they WU reveal how one can overcome the division betweert countries that want to see aviation govemed by modem trade law concepts, and countnes that stdl see aviation primarily as a source of national pride and employment creatien?
Historicaily, international air transport has been closely regdated by governments. A restrictive regdatory framework also governed competition domestic airlines. As a result, pure competition laws and poliaes that existed for
Statement of Wied States International Air Itansportafion Policy, Department of transportation, May 3, 1995,60 FR 2 1841 at 21845. other industries and for general tade were oftai supplanted by aviation 1aws3 The deregulation and liberalization of marketsI however, changed this situation. In 1992, the International Air Transport Association (IATA) identified three key issues with regard to competition poiicies. First of ail, it stated that general competition laws, being used inaeasingly by some govemments to police deregdated/liberalized air transport markets, couid put at risk the traditional forrns of cooperation between airLines. Secondly, it underlined the potential contlict that may arise out of the extra-territorial application of divergent national cornpetition Iaws. FinaIly, it considered that the trend towards cross-border mergers and alliances will sharpen the focus on questions of foreign ownership and control and of applicable competition Law? In the opinion of IATA, as long as air transport continued to be regulated by transport Iaw, there was no reasons to apply national competition law.5 Deregulation and liberalization, however, are now reaüties in many markets. We can no longer assume that aviation laws will be sufficient in open markets. Since the airLines are in a free environment, some kind of legiçtation must regulate their action? For the üme being, competition poiiaes seem to represent the most efficient ex post facto controls, in essence regulating the actions of airlines only once those actions have ken undertaken.
Above and beyond the adjustments inherent to the new realities of deregulated/libera.Lized air transport markets, carriers have to adjust themselves to the actual trend towards a globalized aviation industry. The inaeasing
See A. Vamos-Goldman, The Stagnation of Economic Regdation Under Public International Air Law: Examining its Contribution to the Waeful State of the Airiine Indusw (1996) 23 Transp. L. J. 425. Air Transport in a changUlg world, Facing the Chalfenges of Tomorrow, IATA White Paper, 1992, at 27
G. Williams, The AirLine Industry and the Impact of Deregulation, (Great Britain: Avebury Aviation, 1994) at 124. demand for intemational services is one of the motors behind this globalization Carriers have to adjust themse1ves to this new market realitym7Accordhg to a United States International Policy Statement, to compte effectively, carriers must have unrestricted access to as many passengers and markets as possible; and carriers should be kee to set their own prices8 Obviously, this r4ect.s the policy of the United States. Bearing in mind that the United States alone represents 40 per cent of the world's aviation market, it is no doubt in a position to influence considerably international aviation?
Leading the way with respect to international air transport and carrier access, the policy of the United States govemment was put forward in 1992 in an Order of - the Department of Transport That Order established the "open skies" policy to which the US. wanted the world to adhere.1° Accordingly, the United States has in the recent years sought out countries interested in free trade in the skies. Since Canada and countries within Europe had ahiiberalized their domestic aviation markets, it was only natural that the US. starteci the iiberalization negotiations with them. The first country to respond to this Iikalization call of the US. was a country that had always been favorable to open skies, the Netherlands. Following the signature of the first USmodel "open skies", however, the U.S. was not as successfd as it desired in its quest for giobalization through open skies treaties.
'And the airline industxy itself is going undergoing fundamental structural changes. International airlines are increasingly operating like other corporations with less regulation, gIobalisation, privatisation, computerisation and cross border alliances as the driving economic challenges.* Global Aviation Associates, Free Trade in the Air-Report of the îïtink Tank on MuitikefOl Aviation Liberolisatron, Januasy 1991, Washington D.C., 8. Supra note 1 at 2 148 1. M. Jennulgs, Ilmmune Deficiency Syndrome: Airlinc Alliances" Airline Business, July 1996, at 52. 'O In the Matter of Defining "Open Skies", Oder 92-8-13, August 5, 1992. The opeh skies policy had to become more attractive to lure countries Ïnto free trade in the skies. Carrier alliances were at that time common in the aviation industry, both at the national and international levels. Code-sharulg and different types of cooperation between airlines were an opportunity for airlines to remain cornpetitive, if not simply to stay alive. Airiines, however, were res~ctedin their alliances due to cornpetition/ antitrust Iaws. The United States, in order to bypass these restrictions, granted in 1993 the alliance of KLM and Northwest Airlines immwüty from American antitrust law.
Through antitrust irnrnunity, the United States mon realized it had found a way to revive the aviation negotiating pro ces^.^^ Aithough the granting was never ofiaally prornised as a consequence of an open skies agreement, it became ciear, after the first immunities were granted, that it would henceforth be part of the "open skies bargain."12 Cross-border alliances were shaping international aviation, and antitrust immunity was foreseen as making those alliances even more efficient. l3
Through its own initiative, the United States has single handedy changed the face of international aviation, at least within the transatlantic market, As a direct result of liberal exchange of tralfic rights in the bilaterai context, antitrust immunity has received more than its &are of headIines in the last few years. It has affected the whole intemational aviation industry and has involved the major airiines of the world. Consequently, it could not remain a matter for the United States to control alone. Because the European Union and national authonties
J. Shane, Inte-oml Aviation Negotiations- WhPt Next?, Rcmarks, 52nd Annual Geneva Meeting, IATA, November 5, 1996, at 5. l2 Ibid. l3 Airlines AZIionces Produce Beneftts, but E@ct on Cornpetition in Uhcertain, Report by the US General Accounting Office, April 1995 at 28-29 (hereinafter 'GAO Study"). were also affected by international alfiances, they resolved themseives to examine them.
In short, alliances, antitrust immunity and open skies bilaterai agreements have increasingly become inter-iinl~ed.~~They aU aim at fostering the development of a comrnon and global market for the aviation industry. Although many countries are not in favor of nich a direction for the aviation comrnunity, the ultimate goal is a fiee trade environment for air transportation. The present thesis wili assess the how and when antitrust immunity has been appfied. It will demonstrate that it has had a sigxuficant impact to date on international aviation; and it will review how and why antitrust imrnunity becarne intertwined with open skies treaties.
As previously stated, antitrust immunity granted to cross-border alliances is a United States initiative; Chapter Two of this thesis will review specifically the US. Iegislation that governs it The granting of this exception by the United States also led the European Commission to review intemational alliances. A study of the Iegal texts applying to the exemption from EU cornpetition laws will, therefore, constitute the content of Chapter Three. The cornpetence issue between the European Union and national authonties will also be dixussed in that section. The finai Chapter wiil focus on the carrier alliances that have received or requested the immunity. The different issues raised by those alliances wiII be disnissed, underIying once again the reiationship between antitrust immunity, carriers and alliances.
Global carriers fonned through "imrnunized alliances are foreseen as the vehicle of the future. Although it will demonstrate that open skies treaties and alliances
lJ See 'Antitrust Immunity's RoIe in international Cornpetition Grows*, Aviation Ddy, June 27, 1995, at 505. hthave been ganted immunity have indeed changeci the face of aviation, this shidy wül point out that they have, to date, oniy impücated carriers kom the United States, Europe and Canada. It is not certain whether the rest of the world is ready for this open aviation marketplace. Chapter 1 OPENSKIES TREATIES
Many changes have occurred in the economic environment of aviation The new "economic attitude" of different countries has allowed the United States to transfer its poky of hee competition on an international basis, after discoverhg it dose to 20 years ago in its intemal mark&l6 Since dereguiating its own skies, the United States, proceeded to focus on the exportation of its liberalwtion ide& on an to the international level17. As a result, many open skies treaties were proposed by the United States, and signed to date by several states, induding many European countries and Canada.
1.1. Comequences of the open skies regime
After decades of strict control by govemments, the open skies treaties of the past years have dowed for zones in the sky kee of govemmental regulations. As a resdt of this new policy, competition or antitrust laws remained the only safeguards to keep those "open skiesfffree of anti-cornpetitive behavior. These laws acted as a watchdog over the actions of airlines. Accordingly, clauses referring to competition or antitrust laws were induded in liberal aviation bilateral treaties. AU bilaterals that have taken a liberai approach towards pricing (that have included a dause stating that the carriers are free to set their own
l5 The overaiî political and economic picture of international transport has change radicaiiy. See e-g. H. Wassenberg, "The Future Air of International Air Transportation Law: A Philosophy of Law and the Need for Reform of the Air Economic Regulation of international Air Transport in the 2 1st Centurf (1995) XX Ann. Aïr & Sp. L. 403. l6 Airlint Dereguiation Act, Pub.L- No. 95-504.92 Stat- 1705 (1978). " See D. C. Hedlund, Toward Open Skies: Liberalizhg Tradc in international Airlule Servicesn (1994) 3 Minn. J. Global Tradc 259. prices according to market forces) have also dowed for the intervention of aeronauticd authorities to monitor predatory or monopoly pricing behavior.18 The Air Transport Agreement between the Government of Canada and the Government of the United States has thk type of dause.lg It serves as an exemplar of the damusually founci in the above mentioned liberai treaties:
The parties adcnowledge that market forces SMbe the primary consideration in the estabiishment of prices for air transportation. Intervention by the aerortautical authorities shdbe Limited to: * .. (a) prevention of unreasonabIy drscrrmmatory prices or practices; (b) protection of consumers that are unreasonably high or restrictive because of the abuse of dominant position; (c) protection of airlines from prices to the extent that they are artifiaally low because of direct or indirect govementai subsidy or suppon and (d) protection of airlines lrom pnces that are artifitidy low, where evidence &ts as to an intent of eliminating cornpetiti~n.~~
Although this clause is now included in many aviation bilaterak, no conaete application of it has corne to our attention This may due the fact that countries accepting such clauses have the requisite domestic institutions to MfiU their obligations. It wiii be interesthg to see whether this kind of dause eventually gets involved to challenge domestic application (or non-application) of competition Iaw.
Another clause included in iiberal or open skies bilateal agreements is the Fair Cornpetition Clause." This dause usudy provides that each party should dow
l8 For example, the foilowing treatics have such a clause: the Gcrmany-US Open Skies Treaty (Article 10); the US-Finland Open Skies Treaty (Article 18); the Austria-US Open Skies Treaty (Article 12); and the Luxembourg-US Open Skies Treaty (Article 12.) L9 The Air Transport Agreement betwecn the Government of Canada and the Government of the United States of Amenca, signed on February 24, 1995. 20 Ibià, article 5. 21 Set Article 4(1) of the Canada-US Open Skies Tream. the opportunity for fair and equal competition for the designated airlines of both parties. Although, once again, this dause has yet to be relied upon to resolve a conflict between States, it is possible that the "antitrust immunized envuonment the United States Department of Transport ( US DOT) is presentIy aeating will lead to the application of this dause by a country that has signed an open skies agreement with the U~tedStates. Indeed, if an airhe from a country signatory to an open skies agreement with the United States is refused antitrust immunity by the US DOT, it might be argued that the US Goverrunent has not given this airhe the sarne opportunity to compek as it has to other airiines that have received the immmity. Although the US DOT has not to date refused to grant such immunity, there is a possibility of occurring in the future. The concept of antitrust inununity, and the current statu of carriers that have received such an immunity, will be studied thoroughly in the next chapters.
The aforementioned dauses, however, do not represent the only application of competition laws in the intemational aviation field. Cornpetition law, in generd, is applicable to the daily operations of airiines, just as it is applicable in every industry. This is especidy true in the United States, where antitrust laws are usuaily appiied more aggressively than elsewhere.
1.2. Property and Ownership Clauses in the Open Skies Regirne
Open skies treaties have carried over Lrom more restrictive agreements provisions dealing with the property and ownership requirements. Comequently, open skies treaties stiU contain the type of clause that grants authorization only if substantial ownership and control are vested in the State designating the airline and/or in nationals of that State. Therefore, as with the national laws of aimost every country, the bilateral regirne imposes requirements concerning the substantive ownership and control of air camïers.z2
Aithough bostail biIaterals do indude this traditional dause, it is important to note that thiç requirement is optional. The country agreeing to such a designation deis under no obhgation to refuse designation when substantial ownership and effective control are not vested in the designating State or its citizens. It may, in fact, accept a carrier that does not have the required "nationality". In some circu~~lsfances,a country rnay be better off to accept designation rather than risking possible repercussions kom the designating country, such as the denunciation of the bilaterai. Although denunciation would be an extreme measure, it could nonetheless occur if the parties to the bilaterai were in different economic position - e-g. with the designahg country in a stronger economic position?
The prohibitions imposed by legislation and bilateral dauses on substantial ownership and effective control had a strong restraining effect on the commercial expansion of international aviation?* As a resdt of such laws, airlines of different countries have been prevented from merging. To counter and solve the prohibition on tram-border mergers, air carriers have in the last years implemented a strategy of forging alliances with other carriers. This approach has led to the aeation of a variety of alliances in which two or more commercial unis cooperate "in order to aeate a joint product?
22 With the exception of the EU single market. Sec Vifm note 38. 23 TO OUT knowledge, such a situation has yet to occur. To date, govenvaents have not contested the designation on grounds of insuffiCient ownership and control when carriers of the same region were involved. 24 B. Stockfish, uOpening Closed Skies: The Prospects for Further Liberalization of Trade in International Air Transport Services" (1992) 57 3. Air L. and Corn. 599, at 629-630. 2". 2". Haanappel, aAiriines Challenges: Mcrgers, Take-Ovcrs, Alliances and Franchises" (1995)XX Ann. Air & Sp. L. 180, at 191. Compared to a merger, in which one commercial unit can only be created between two carriers of the çame nationality (in the present regime), airhes alliances have allowed cooperation and integration of airiines of different nationalitie~.~~An alliance, as opposed to a merger, alço irnplies the continuous scnituiy of competition authorities.27 Mergers will only require one approval from those same authorities? Alliances require continuing oversight by competition authorities? which cm, however, be put on hold for a few years when antitrust immunity is granted. Afthough alIiances coming dose to &facto mergers wilI constitute a great part of oustudy, it is important to dari@ that not all informai alliances wiU require antitrust immunity.
1.3. Alliances
In 1990, IATA reported 345 marketing diances that were in existence arnong carriers of the ~orld.~~In 19%, there were 389 alliances, 62 of which featured equity stakes, involving overd171 airlines." Airlines alliances are prominent in international aviation Their =ope ranges from a Generd Mes Agent Agreement to complete inkgration Alliances may lead to: the coordination of fight sdiedules, route networks, and route planning; the establishment of joint marketing, advertising and distribution networks; "CO-branding"and joint product development; code-sharing the harmonization of existing internai information systems-including inventory, yield management, reservations, ticketing accounting, maintenance, hancial reporting, and distribution; revenue
26 ibid at 180.
27 Bid. at 190. 28 ibid 29 See Georges W. James, Chairman, Airiinc Economics Inc., at an iATA High Level Aviation Symposium Hoated by Makv Hungarian Airlines, Budapest, June 6-8, 1991. 30 See 3. Gallacher, =A clearer Direction-Survey of Airline AUiances", Airline Business, June 1996, at 22. poolhg and sharing; the standardization of contracts with suppliers, travei agents, general sales agents, other organizations and individuals; uniform product and service standards; the coordination of cargo prograrns; the coordination of frequent flyer program; and the coordination in pricing and inventory control.
Antitrust or competition laws wiU, of course, apply to any type of alliance. In the United States, however, almost aii code-shares agreements went into effect without any objection from either the Department of Justice ('US D0J") or the Department of Transport ("US DOT"). One Chief of the Antitrust Division of the DOJ explained this situation by stating that most code-sharing agreements had ken, to date, procornpetitive and proconsumer; those agreements Uivolving routes-to-and-from the United States simply did not violate US Antitrust lawsn He continued to explain the reason why no problems occurred with the carriers agreemenk There is general "Mnowledge that we dosely review these intercarrier agreements and will act decisively in the event a code- sharing or other joint-marketing agreement unreasonably restrains aïriine competition."~ He further added: "So far, c-s have demowtrated a high sensitivity to the antitrust laws and have structured their agreements accordingly."" AUiances that did not fdy integrate two or more airlines also did not raise many concems in Europe, as the most common aspects of alliances did not require any approval under European Union ("EU) competition des?
31 R. Fones, 'International Code Sharing: An Antitrust Perspective" (1995) 10 Air 86 Sp. Lawyer 1, at 2. 32 ibid 33 ibià.
34 Ibid 35 For a discussion on alliance in the EU, sec Haannappel, supra, note 25. The joint activities of carriers, as previously described, cmindude competitively sensitive dealings. When the comprehensive integration of the carriers' activïties corresponds to an outright merger, some anti~ompetitiveissues arise. For example, the pooling and sharing of revenues, a possible element of an integrated alliance, wodd in principle violate antitrust Iaws. Such alliances have required the granting of antitrust immunity. For the purpose of the present study, joint ventures referred to as "alliance" or "strategic aiIiance" will designate the comprehensive integration of services of two ces,i.e. the type of agreement that requires antitrust immunity mder US laws, and review by the EW and national authorities.
Furfhermore, it is that type of alliance that is dosely linked to the signing of open skies treaties. Chapter Four of the present paper will demonstrate the means by which strategic alliances, open skies, and antitrust immunity interact The relation between antitrust immunity and open skies bilaterals is, as we wïil see, increasingly significant.
1.4. The Relation between Immunity and Open Skies Treaties
As mentioned previously, antitrust and cornpetition Iaws may prohibit close alliances between airlines. Such tightly-knit alliances or "wodd-be mergers" were, however, the ideal means to avoid strict airline foreign investment p~licies,~regulating, in fact, the aviation industry internationallf7. Under such O
36 See A. Schless, 'Open Skies: Loosening the Protectionist Grip on International Civil Aviation" (1994) 8 Emory intl. L. Rev. 435 at 435: "The world is getting smder. Industries, fi-om finance through to pharmaccuticais, are now dominateci by a handfiil of global corporations doing business across the world with iittle regard to national fiontiers, Yet, ironically, the airiine industqr, which has played such a key part in making the world smalltr, remains one of the last bastions of national ownership." 37 By way of legislation, policy or practice, aii countries have a policy that requims substantive ownership and control. See Report on the GlobalMon of Aviution and investment laws, airlines of different countnes cannot merge and integrate their activities, which is often the ody way to survive in an industry where profits are an oddity. Therefore, the concept of a "global carrier" that many had been seeking in order to recover profitability waç not possibIe.
These prohibitions affected airlines of every country. The United States Department of Transport (US DOT), which saw these restrictions as preventing its own carriers from estabiishing a stronger position in the international market, decided, accordingiy, to bypass such restrictions. The US DOT', however, although willing to accommodate and promote the idea of global markets and carriers, could and can not change those restrictions unilaterally:
Through its recently defined Open Skies initiative, the United States is seekhg to export its deregdation policy to the rest of the world. The Open Skies policy, however, does not indude provisions on liberaiking foreign investment or cabotage restrictions. The United States Department of Transportation (DOT)correctly determined that it did not have authority to amend the foreign ownership and cabotage statutes through its Open Skies.poiicy and that only Congress has the power to legislate on these issued9
the Existing Domestic and Intemutional Framework, prepared by Dan M- Fionta for the National Transportation Act Review Commission, July 31, 1992, at 58. As a result of such foreign investments iaws, almost aU biiaterals contain the traditionai clause to the effect that the designation/operating authority may be refused/ withdrawn if substantial ownership and effective control are not vested in the designating State or the citizcns thereof. There is, however, exceptions: the Third Libetalization Package has aiiowed the establishment of a &ers in any EU States if it is majority owned and effectively controUed by any member States and/or nationals of any meniber States. EU, Council Regdations 2407/92. 2408/92 and 2409/92 of 24 August, OJ Legislation (1992) No.L240. Everi though, European airlines have ben in position to benefit from such regdation (Janumy 1, 19931, no major rcstructuring have occurred between EU airlines. The problem is that non-EU States are under no obligation to accept a EU airline that would be designateci under a bilaterai trcaty containhg a clause requinng ownership and control by local nationals. Sec J- Balfour, 'Some tessons kom the European Experiencew(1995) XX Ann. Air & Sp. L. 497, at 499. S. M. Warner, 'Comment:: Liüeralize Open Skies: Foreign Investmcnt and Cabotage Restrictions Keep Noncitizens in Second Class" (1993) 43 Am. U.L. Rev. 277 at 280. As cited above, the United States was trying to export its concept of open skies. ALthough they had signed an open skies treaty with the NetherIands in 1992, other Countries were slow to follow. To motivate countries to sign open skies agreements with the United States, some other solutions had to be found. The US DOT, accordingly, granted antitrust immunity to KLM, the Dutch carrier in its diance with Northwest This sent "a clear signai to European governments that the cooperation demonstrated by the United States with a foreign carrier was the direct rdtof the "open skies" agreement between the United States and the Netherlands".m By grantirtg this immunity, the US DOT had found a means to satisfy the carriers' need to maintain do& international associations with 0th- carriers. With the advantage of large carriers becoming more and more evident, new forms of alliances had to be devdoped in order to obtain some of the marketing advantages of bigger carriers "without the ultimate step of merging", a step that rexnains out of reach 41 The United States seized the opportunity and linked the granthg of antitrust immunity to the open skies process, dowing it , in him, to follow its goal of aeaüng freer trade in aviation senrices whde stül being regulated by foreign investrnent limitations. Alliances immunized from antitrust laws were now seen by countries negotiating with the United States as the only way to rnaximize the positive effects of an open skies treatyQ
Accordingly, antitrust immunity can be described as an Arnerican initiative aimed at attracting countries into signing open skies treaties with the United
See Supra note 17 at 272. 41 See S. Al-Ghamdi, Towards Globalization in the 2 1s Century: Trend Anaiysis for Civil Aviationn, (1994) Ann. Air & Sp. L., Monograph Series No. 1, at 57. 42 "US officiais have sulce 1992, proffered the notion that foreign trading partners who establish open skies with the US would be rewarded with immunity. The US has negotiated with 11 European countries in the past five years, and 10 of them have signed open skies accord in the past 18 months. AU have forthrightly stated that States? One author even referred to antitrust immunity as a giftz "US hansportation officiais have been long quietly offering antitrust immunity as a gift for opening up international markets to the airline~."~Although intended as an exemption-foilowingthe iiberalization of an aviation market with the United States-antittust immunity has now become an important bargaining tool.
In order to understand antitrust Ilnniunity better, the pertinent legislative provisiow of US law will be studied. We will also examine various aiiiances that have received antitnist immunity in order to scplain what motivates the United States goverrunent in granting such exemptions. In this next section, we wili Merattempt to provide a better understanding of the concept of antitrust immunity, as this concept wiil probably constitute a major element of air law of the 19Ws. Indeed, it has changed the face of aviation by ailowing for the formation of new alliances, ttiereby bypassing the restrictions irnposed by national law regardhg substantive ownership and control. Antitrust immunity thus has provided the legai twls for airiines to act as a single entity.
they expected the bestowal of antitrust irnmunity on the alliances that their airlines have with US carriers." Supra JennUlgs, note 9 at 53. 43 While the antitrust immunie will be studicd in this section hm an American perspective, it is important to note that some other countries are now starting to Iook into the anti-competitivc effect of airlines alliances. What makcs the United States antitrust immunie more intcresting is now its close link with the signing of open skies. Futhermorc, the harsh antitrust ïaws of the United States also requirc a more pressing need for some kind of immunity. One antitrust attorney explains: "foreign camers not used to living in this treble-damage environment like the idea of immunity". An automatic trebling of damages is the possible sanction of any *action to antitrust laws in the United States- See supm note 9 at 52. ibid Chapter 2
&RUNES ALWCES AND ANTITRUST hMUNTR IN THE UNITEDSTATES
An immunity is a "privilege granted to an individual or a corporation conferring exemption from certain (...) burdens and duties."* Antitrust immuxûty, accordingïy, can be defined as bringing an agreement or conduct "beyond the reach of antitrust Iaws".* While we do not study antitrust legislation thoroughly, it is worth mentionhg that antitrust laws have ben a part of the United States legislation since 1890, when the American Congress approved the Sherman Antitrust Act." Although subsequent am, such as the Clayton A& broadened the appiication of antitrust laws, the effeckof both the Sherman and the Qayton Act were prevented, in some cases by both antitrust legislation and case laws which provided exemption to the application of antitrust Iaws? The whole process of antitrust imrnunity, therefore, is not new. Even in the field of aviation law of 1955, the dehinct Civil Aeronautics Board (CAB) granted immunity to the international Ai.Transport Association (IATA).jo Contrary to the sections the Sherman / Clayton Act that prohibit price fixing the United
îïte Compact Edition of the Oxford English Dictionnanj, vol. 1 (New York: Oxford University Press, 197 1) at 139 1. Patricia Barlow, Auiation Antitrust : The Extratertitorial Application of the United States Antitrust Laws and Internationul Air Itansportation, (The Netherlands: Kluwer Law and Taxation, 1988) at 14. Shennan act, 15 U.S.C.S. 1, et seq. Set aiso: P.S. Dempsey and R. Hardaway, "Airlines, Airports and Antitrust: A Roposeâ Strategy for Enhanced Cornpetition" (1992) 58 J, Air L. and Corn. 455 at 486. Clayton Act, 15 U.S.C.S. 12, et seq. See Dempsey P.S. and R. Hardaway, supra note 47 at 487. Antitrust irnmunities were granted to such entities as sport leagues and labor unions. Civil Aeronautics Board Order E-9305 of June 15, 1955. States nonetheless had agreed that IATA could have prhnary respomibility f~r establishing fares on international r0utes.5~
Before looking at the different tex& governing the core of antitrust immunity, we must first clanfy whïch entities of the American govemment deal with aviation antitrust, in order to determine which entify will apply to the said provisions. The United States, as mentioned previously, initiated the concept of antitrust immunity for strategic alliances of the 1Ws. Although exemptions from cornpetition law are also in effect m Europe, both by the Union and national authonties, it is the United States that first used antitrust immunity to Lure countries into signing open skies.
2.1. The authority in Charge of Aviation Antitrust
Untii 1985, the CAB was the authority in charge of dI antitrust rnattexs. Following the Sunset Act, the CAB was dissolved on January 1, 1985 Ad replaced by the Office on Policy and International Affairs of the Department of Tran~portation.~The hansfer to the US DOT was not made without debate, as the antitrust immunity authority had first been hansferred to the Department of Justice under the Dereguiation Act? During the hearingp which lead to the Sunset Act, it was decided, however, that the US DOT was the executive agency that was the most suited to have jurisdiction over antitrust matters.j5 It was even mentioned during the hearings preceding the Sunset Act that the Department of Justice was not qualifieci enough for the specific field of transportation:
52 Civil Aeronautics BOOrd Sunset Act of I984,49 U.S.C.S. app. s 1553 (1988). 53 Barlow, supm note 46 at 34. 54 Hearings Before the Subcommittee on Aviation of the Cornmittee on Rtblic Works and Transportation, KR,98h Congress, 2d. Sess, March 13.14 (1984). 55 Barlow, supm note 46 at 34-36. It was feit that although the DOJ was equipped to detennine antitrust issues, the statutory criteria for approval and antitrust immunity of intercarrier agreements were not based on antitrust consideratiom. Instead, the key issues involved in making these decisions were the transportation benefits to the public, the reasonableness of any transportation alternatives, and in the case of international air transportati~rt~foreign poiicy and comity consideratiom. (...) As far as international agreements were concemed, it was argued that the DOT wouid not overlook the complexities of the international system, induding the structural aspects of the bilaterd system of air transport agreements6
At that time, the US DOT was awarded the antitrust authority over the US DOJ. This situation, however, changeci in 1988? The antitrust division of the US DOJ obtained cornpetence over antitrust issues, including authority over airhe mergers." The approval and granting of antitrust imrnunity of intercarrier agreements remained, however, with the US DOT. Although the US DOT has to consult US DOJ on antitrust issues affecting an immunity, it is dear that they have the ultimate word with regard to the granting of immunity.59 The US DOJ only has the authority to screen antitrust requests in order to evaluate theix influence on c~rnpetition~~Even if the US DOJ does not have the right of
Ibid at 35. See Laurence E-Gesell and Martin t. Farris, 'Antitmst Melevance in Air Transportation and the Redefinuig of Rice Discrimination" (1991) 57 J. Air L. and Corn. 173 at 194. The authority over antitrust was transferrcd by the Hart-Scott-Rodino Act, 15 U.S.C.S. 13 11 (1988). See the Joint Application for approval of and Antitrust Immunity and Alliance Expansion Agreement by UNITED AIR LïNJ3S INC. and DEUTSCHE LUFTKANSA, Order to Show Cause, Order 96-5-12, at 47: =As noted above, the application by United and Lufthansa for antitrust immunity necessanly requires us to examine the alliance's potential impact on cornpetition in a.ü relevant markets. On such antitrust issues, we initially confer with the Department of Justice, given its experïence in the edorcement of the antitrust laws. Howevcr, we have the ultimate authority to determine whether the application meets the statutory prerequisites for the grant of antitrust immuniw. Supra note 9 at 52. approval in the irnmunity process, we wili show that it cm stiu, nonetheless, have some influence over the treatment of antitnist immunity applicationdl
The role of the US DOJ will become more predominant whenmergers are aduaiiy allowed between carriers of different counhies. As mentioned, authority to review airline mergers is vested in the US DOJ. AIthough such mergers are presently unfeasible, the liberalization of markets may, in fact, lead in the future to the abolition of requirements on substantive ownership and control. As we will show in subsequent chapters, the US DOT and US DOJ are presently not in total agreement with respect to the application of antitrust immunity. Nor, we suspect would they probably share the same point of view on the antitrust review of a merger either.62
With antitrust immunity behg the only option currently available for carriers, we wiU focus on the different legislative texts of the United States relating to antitrust immunity.
6L When we study difierent joint applications for antitrust immurUty, we will see how the DOJ leaves it marks on the process (in Chaptcr Four). 62 While the DOT had cornpetence over mergers, it approved al1 26 mergers that were requesting authority to merge. The DOT favored the functionalist approach, focussing on level of concentration, barriers to entry and availability of potential entrants. The DWprcfers market share anaiysis, using the HM index of market shares. For more on the subject set Jonathan Bruneau, 'Antitrust Law Enforcement Within the US Airhe Industry: Fact or Fiction", McGïii University, Montreal, L.L.M. Thesis, 1992, at 32-53. 2.2 Legislation Governing Antitrust Immunity in the United States
221. The Unites States Code
Titte 49 (Transportation), Subpart II (Economic Regdation), Chapter 413 (Foreign Air Transportation) of the United States Code contains two important sections with respect to antitrust immunity. Those two sections are the bask on which airiines can file their application for antitrust immunity. Firstly, section 41308 is the provision granting the DOT the power to exempt a transaction from antitrust law~:~ Section 41308. Exemption from the Antitrust Laws.
(a)Definition. In this section, "antitrust laws" has the same meanuig given that term in the first section of the Qayton Act (15 U.S.C. 12).
(b)Exemption authorized. When the Secretary of Transportation decides it is required by the public interest, the Secretary, as part of an order under section 41309 or 42111 of this title, may exempt a person affected by the order £rom the antitrust laws to the extent necessary to allow the person to proceed with the transaction specificaily approved by the order and with any transaction necessarily contemplated by the order. [mphasis added]
(c) Exemption required. in an order under section 41309 of this titie approving an agreement, request, modification, or canceIIation, the Secretary, on the basis of the findings required under section 41309@)(1), shall exempt a person affected by the order £rom the antitrust laws to the extent necessary to dow the person to proceed with the transaction specificaiiy approved by the order and with any transaction necessarily contemplated by the order. Subsections (a) and @) of section 41- establish some criteria for the approvai or dWpproval of the Unmunity. They aiso stipulate that the antitrust immunity must not to be contrary to the public interest. These subsections also contemplate the possibility of an alternative arrangement that would affect less competition.
Section 41309 Cooperative Agreements and Requests
(a) Filins An air carrier or foreign air carrier may Hewith Secretary of Transportation a true copy of or, of oral, a true and complete memorandurn of, an agreement (except an agreement related to interstate air transportation), or a request for authority to discuss cooperative arrangements (except arrangements related to interstate aK transportation), and any modification or cancellation of an agreement, between the air carrier or foreign air carrier and another air carrier, a foreign carrier, or another carrier.
@) Approvai. The Secretary of Transportation shaU approve an agreement, request, modification, or cancellation referred to in subsection (a) of this section when the Secretary £in& it not adverse to the public interest and is not in violation of this part [49 UÇCS S6.4û101 et seq.]. However, the Secretary shddissaprove-
(1)or, after periodic review, end approvai of, an agreement, request, modification, or cancellation, that substantiaiiy reduces or elirninates competition unies the Secretary fin& that -
(A) the agreement, request, modification, or cancellation is necessary to meet a serious transportation need or to adiieve important public benefits (includinp: international comitv and foreipn volicv consideration); and [emphusis aàùèd] (B) the transportation need cannot be met or those bene- cannot be achieved by reasonably available alternatives that are materïdy less anticompetitive; or
64 49 USCS 41309- Section 41309 dso contains subsection (c) which refers to the notice that must be given by the Secrcta.qr of transportation when an application is filed. Subject to the initiative of the Secretary of Transportation or on request of the Secretaxy of State or of the Attorney Gcneral, hearings can be held. Also, section (c) establishes who is charged with the burden of proof: The Party defending the agreement, request, modification, or cancellation has the burden of proving the transportation nced or pubiic benefits." (2) an agreement that -
(A) is between an air carrier not cfirectiy operating aircraft in foreign air transportation and a carrier subject to subtitie IV of this Title [49USCS S.lO1M et seq.]; and (8) governs the compensation the common carrier may receive for the transportation.
In subsection (b), t.Iast disposition refers to section 49 UÇCÇ 40101 et seq. Section 40101, entitled "Poiicy" is also an important disposition in the antitrust immunity process, as it enmerates the matter that the Secretary of Transportation shd consider "among others, as king in the public interest and consistent with public convenience and ne~essity."~~This section wiil, therefore, help define the terms "public interest" used in the above mentioned dispositions. This provision, dong with section 41309, wilI be studied in the foilowing section of the present study in which we discuss more thoroughly the criteria considered in the granting of immunity. Before we attempt to identify those essential criteria, however, we will hst consider some 0th- legislation, narnely the procedural regdations established in Title 14 of the Code of Federal Regulations.
223. Code of Federal Regulraons
Subchapter B - Procedural Regulations, Chapter II (Office of the Secretary, DOT) of Title 14, entitled Aeronautics and Space, contains relevant dispositions applicable to antitrust immunity. The first of those provisions reads as follows: 303.05 Applications requesting antitrust ïmmunity.
(a) Each application must state expliutty whether or not the appiicant seeks antitrust immunity under the provisions of section 414 of the Act. If antitrust immunity is requested, the application should spedy whether the applicant seeks full immunity or immunity only from the provisions of sections 4, 4a and 4c of the Clayton Act, 15 U.S.C. 15,15a, 1%. Each application seeking antitrust immunity shall
65 Section 49 USCS 40 10 1. contain a statement explainhg why the applicant believes imrnunity is in the public interest and necessary in order for the transaction to proceed.
(c) Any material misrepresentation of fact in such an application SMbe grounds for rescision nunc pro tunc of any antitrust immunity granted as a result of the misrepresentation
(d) A request for renewal of any immunity granted does not operate under seaion 558 of Administrative Procedure Act, 5 U.S.C. 558(c), to extend the pexiod of immunity confmed.
Article 303.05 (a) provides more details to potential appiicants of antitrust immunity. It should be noted, however, that section 414 of the Act (Federd Aviation Act) is no longer the relevant article with regard to antitrust immunity for air carriers. me enactment of the Federal Aviation Act of 1958 has been repealed and its provisions, as previously mentioned, are now in 49 USC Section 40 101 et seq. This diange in dispositions, however, does not affect the application of Article 303.05; it is only the applicants that will have to rnake th& request under the relevant Articles which are now found in Title 49 of the United States Code. Another aspect of Article 303.05 that must be underlined is the insistence once again on the criterion of "public interest." The applicants will have to justify that any immunity is in the public interest and also that such an Unmunity is needed in or* for the transaction (alliance) to proceed.
Articles 303.06 and 303.07 of the Federal Regdations Code attend to specific aspects of the process of antitrust immunify. Artide 303.0666concems itself with
66 Article 303.06, Review of antitrust immunity: "The Assistant Secrctary may initiate a proceeding to revkw any antitrust immunîty previously confemd by the Civil Aeronautics Board or the Department in any section 412 transaction. The Assistant Secntaq may terminate or modify such immunity if the Assistant Secretary finds after notice and hearing that the previously conferred imrnunity is not consistent Mth the provisions of section 414. in any proceeding to review such immunity, the the review of antitrust irnmunity granted by the CAB (when it was in existence) or by the DOT. Section 3û3.076' offers a transitional dewhich has yet to be amended to correspond to the new sections of Title 49 of the United States Code.
The Iast section of the Federd Regdation that effects antitrust immunity is found in Part 385, entitied "Staff Assignments and Review of Action Under Assignments" of Titie 14. More precisely and relevant to this discussion is disposition (a) (2) of Article 385.13, as this disposition estabiishes the Authority of the Director, Office of International Aviatiox The Director, Office of International Aviation, has authority to:
(a) Approve or deny applications for exemptions, where the course of action is dear under curent policy or precedent:
(2) For foreign air carriers, £rom section 41301 and from pennits and related orders issued under chapter 413;
It is interesting to note that Part 385, as opposed to part 303 (previously dealt with) was amended in May 19% in order to take into consideration the new codification of the United States Code? Therdore, when referring to orders issued under chapter 413, orders granting antitrust imrnunity to an alliance under Articles 41308 and 41309 are to be inciuded.
In the first Artide under the Federal Regdations Code, and under Article 41308 of the USC, some references are made to the Ciayton Act." As discuçsed
proponents of the immunity WU have the burden of justifving the continuation of previously conferred immunity under the provisions of section 414." 67 Article 303.07, Transitional nile: If a don412 application or a request for antitrust imrnunity undcr section 414 is pending on the date this part is amended, such application or rcquest shaU bt deemed made pursuant to the provisions of this part, as amended." 68 DOC.NO. OST-96-1268,61 FR 19166, 19169, May 1, 1996. previously, the Clayton Act and the Sherman Act are the Amerïcan legisiative texts whidi deal with antitnist/competition mattea. Therefore, we will engage in a short review of what is meant by the "Uayton Act" to conchde our anaiysis of the relevant instruments that have an effect on the process of antitrust immunity in the United States.
Artide 41308 of the USC cldy states that when this section refets tu "antialist laws" it must be given the same meanhg as under the Clayton Act. Section 12 entitled " Definitionsr' provides the following meaning to the expression "antitrust laws":
'Antitrust laws', as used herein, includes the Act entitied 'An Act to protect trade and commerce agaiwt unlawfd restraints and rnonop~lies,'~~approved July second, eighteen hundred and ninety; sections seventy-three to seventy-seven, inclusive, of an Act entitled 'An Act to reduce taxation, to provide revenue for the Government, and for other purposes,' of August twenty- seventh,
eighteen hundred and ninety-four; an Act entitled " 'An Act to amend sections seventy-three and seventy-six of the Act of August twenty-seventh, eighteen hundred and ninety-four, entitled 'An Act to reduce taxation to provide
revenue for the Government. and for 0th- purposes,' " approved February twelfth, nineteen hundred and thirteen; and also this Act Section (b) of the same Artide then states
that " This Act may be cited as the 'Qayton Act'.7L
This definition, therefore. incorporates many acts, including the ShemAct, into one, now referred to as the Clayton Act. As a result, when antitrust
The Act entitled "An Act to protect trade and commerce against unlawful restrahts and monopolies,"approved July second, eighteen hundred and ninety, referred to in subsec. (a); is known as the Shemun Ac?, supra note 47. '' Clayton Act, 15 U.S.C.S. 12- immunity is granted to carriers, none of these acts would be applicable to the carriers "immunized."
The main dispositions of the Shemian Act estabkh the basic antitrust prohibition against contracts, combinations, and conspiracies in restraint of trade or commerce among the several states or with foreign nations? They &O prohibit mono polization, attempts to monopolize or conspiraaes to rnonopoli~e.~3The Ciayton Act expands these general dispositions and addresses anticompetitive problemç at th& initiai stage."
This concludes our review of the different American legislative tex ts that operate or have an inûuence on the proceedings regarding antitrust immmity. As noted, sorne of these dispositions dearly referred to criteria that corne into play when considering the granting of immunity. The next section will analyze what generdy directs and conditions the DOT into giving antitrust immunity.
2.3. The Criteria Considered in the Granting of Such
As mentioned previously, one of the key Articles that establishes the general criteria that the DOT shouid consider in its decisions regarding econornic regdations is Article 4M01 of Title 49 of the USC. Aside from public interest, Listed below are -me of the criteria enumerated in section (a) of Article 40101:
72 Shennan Ad, 15 US-CS. 1. SN Joint FTC/DQilIntemational Antitrist Guidelines, United States Department of Justice and Federal Trade Commission, April 1995, at 2. 73 ShemAct, 15 U.S.C.S. 2. 74 Joint ~~~/~ar~ntemationaL~ntitrustGuidelines, supm note 72 at 2. The availabiüty of a variety of adequate, economic, efficient, and Iow-priced . -* senrices without unreasonable dscmnmation or u&ir or deceptive practices.
PIacing maxiniun reliance on competitive market forces and on actual and potential competition- to provide the needed air transportation system; and to encourage efficient and wd-managed air carriers to eam adequate profits and attract capital, considering any material ciifferences between interstate air trançportation and foreign air transportation;
Preventing unfair, deceptive, predatory, or anticompetitive practices in air transportation;
Avoiding unreasonable industry concentration, excessive market domination, monopoly powers, and other conditions that would tend to ailow at least one air carrier or foreign air carrier unreasonably to increase prices, reduce services, or exdude competition in air transportation;
Encouraging, developing, and maintauurig an air transportation systern relying on actual and potentiai competition-to provide eff iaency, innovation, and low prices; and to decide on the variety and quality of, and determine prices for, air transportation services;
Encouraging entry into air transportation markets by new and sùsting air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive aVline industry; and
Strengthening the competitive position of air carriers to at least ensure equality with foreign air carriers, inciuding the attainment of the opportunity for air carriers to maintain and inaease their profitabiIity in foreign air transportation
Many of the above criteria are mere applications of competition Law principles. The US DOT, however, will focus its analysis on the effect of the alliance on intemational aviation and on public interest. Previous decisiow of the US DOT in the field of antitrust immunity demonstrate that the US DOT'S interest are more political and commeraal. They regard the libera.lization of air services fostered by open aviation agreement as such a positive step that they tend to
75 These immunities aiready granted wiiL be discussed in Chapter Four. concentrate more on the potentid benefits of an open skies agreement than on the actual loss of competition aeated by the alliance of two corn petit or^.'^ Potential benefit is actudy not a bad criterion if public benefits are taken into account (and not only benefits for the airlines). The main focuç in theV decision to gant immunity can be inferred from the foilowing paragraph, an excerpt from the Final Order granting Northwest and KLM their antitrust immunity:
The gant of antitrust immunity dldernowtrate that we wiU honor the spirit of an agreement in exchange for a liberal aviation arrangement rather than uisisting on a narrow reading of the iiteral tenns of the United States obligations under the agreement- We anticipate that our positive attitude and partnership in the Open Skies Accord with the Netherlands will be recognized as a strong demonstration of our cornmitment to open skies and wiil lead to other liberal agreements with the EC.
In this case, the public interest requires antitrust immunity for foreign policy reasom, parüdady our bilateral relationship with the NetherIands. Given the United States Open Skies Accord with the Netherlands, a denial of antitrust immunity would contravene the spirit of the Accord and be counterproductive to the United States' relations with the Netherlands. We recognize that the Accord by its terms does not mandate a gant of antitrust immunity in this case?
The foiiowing comments were made about the proposeci British Airways/American Airiines alliance: The DOT rnay also impose other conditions, and is Wly to be encouraged to do so by the Department of Justice (which is concerned with anti- trust issues rather than rnattcrs of international aviation). Howcver, recent with th uaib3d/Iutarsar9a ad Dclta/Swissait/Sabena/Austrian nllisnccs suggests that aviation policy considerations may predominate." Sec 'Alliances- BA/AA and Cornpetition Laws", Frere Cholmeley Bischoff Aviation Review, Summer 1996, Issue Il Joint Application of NOR- AIRLINES, iNC and KLM ROYAL DUTCH AIRLINES for Approval and Antitrust Immunity of an Agreement Pursuant to Sections 412 and 414 of the Federal Aviation Act, as amendeci; in the matter of THE ACQUISITION OF NORTHWESC AIRLINES BY WINGS HOLDINGS, m., Order 93-1-11, Docket 48342, Docket 46371, Department of Transportation, Policy and International Affairs, January 11, 2993. (hereinafter Order 93- 1- 11). This poiicy of the DOT, however, has not gone unchaiIenged. In a statement to the Senate Commerce, Science and Transportation ColTunittee, the Director of the Transportation and Telecommunications Issues, Resources, Communi~,and Economic Deveiopment Division, undedineci the fact that antitrust immunity did not only produce benefits? He stated that the immunity granted to airlines alliances could lead to higher prices through reduction of competition. 19 He conduded with the following: "This potential impact would have to be weighted against whether inaeased competition would result hom the eiimination of bilaterd restrictions. Given these potentid downsides, we recommended that DOT more fully examine these issues, anaiyze the value of antitrust immunity as a tool in its effort to deregdate the transattantic market." This statement, made in March 19%, does not seem to have affecteci the poücies of the DOT with regards to liberahzation and its immediate links to antitrust immunities.
23.2. Conditions
In spite of the fact that antitrust immunity is apparently seen as a foilow up to an open skies agreement, the original general understanding of antitrust immunity was that it would be granted on exceptional occasions, in which certain conditions wodd be fuifilled, and ody when there were no alternatives. An agreement that dws not reduce or elhinate competition substantiaily would not
78 Intemtioml Aviationr DOT'S Eflorts 20 Increase US Airiines Access to International Markets, Prepared Statement of John H. Anderson, Director of the Transportation and Telecommunications Issues, Resources, Co~nmunity, and Economic Development Division, befort the Senate Commerce, Science and Transportation Cornmittee - Subcommiittee on Aviation, Federal News Service, March 14, 1996. 79 An alliance which gants immunity to two carriers who aheady compete on the same route wiü obviously reduce cornpetition, as those carriers will no Ionger be competing once the immunity is granted, having joincd their resources and mg prices. On a route wherc there are alrcady oniy a fcw competitors, the loss of one more could indeed impact prices, possibly creating a situation of oligopoly or monopoly, and thercfore Ieading to possible highet pnces. See contra for a statement to the contrary, but for a specified market, by WU Ris, American's VP government Affairs, in aAnierican-BA, Behind Schedule, Waits for Govemment to Move" Aviation Daiiy, October 2 1, 1996, at 13, necessarily be granted the immunity. Two more factors shouid be noted. Fust, as previoudy shown, there must be a strong indication that the imrnUNty is required by the public interest Secondly, that the parties involved wiIi not proceed with their alliances dess they are held immune £rom antitrust laws wiU be serÏously con~idered.~If an alliance substantidy reduces or eIiminates competition it will generally not be approved and granted immdty. Once again, however, other factors might aeate an exception to this mie; the DOT wiU gant the immunity-even if competition is reduced-if the alliance is viewed as essential to meet a "serious transportaüon need or to achieve important pubiic benefits" that cannot be met by any other means that would be less anti- cornpetitive."
2.3.2.1. Public Interest
It is important to underline the recuxrence of the terms "public interest" and "public benefits" in the different legislative tex& that derto antitrust immunïty. The oniy attempt at defining the terms "public interest" is in section 41309 title 49 of the U.S.C. This section reveals that the public benefit indudes international comity and foreign policy considerations. These temis can ber in our opinion, used in many different ways by the US DOT. There are, of course, the guidelines previously enumerated in section 40101 and the above mentioned attempt of the definition "public interest" "Public interest'' in and-of-itself, however, is only what a government considers it to be in relation to its economical and political objectives and policies. Nonetheless, in the actual context of international aviation, and considering the various staternents, actions and poücies of the DOT
80 Joint Application of UNITED AIR LINES, WC. and DEUTSCHE LUFTHANSA, A.G. d/b/a LUFTHANSA GERMAN AIRLJNES for approval of and Antitrust fmmunity for an Alliance Expansion Agreement pursuant to 49 US.C, @NB 41308 and 41309, Order 96-5-12; Docket OST-96-1116,Department of Transportation, Aviation and International Affairs, May 9,19%, at 37. (hereinafter Order 96-5- 12). Order 96-5-12,at 38. and of its secretary Frederico Pena, it is probably safe to assume that for the United States, "public interest'' wilI be better served in a fuliy fiberalized and globaüzed market.
In the first order granting antitrust immunity, the question of "public interest" was raised by one of the airlines opposed to the gr& of immUNtys2 Delta Airlines contended that the decision to tentatively approve immunity in the Show Cause Order relating to the Northwest and KLM appLication was not consistent with either the Act, or with the DOT'S strict standard for such action- Delta claimed that the DOT did not make the distinction between the public interest requirement established in both Sections 412 and 414 of the then Federai Aviation Act, stating that the rquirement of Section 414 was more stringent. The DOT recognized the difference between both Sections, even agreeîng that the public interest standard in the later Section was more stringent than in the former. Section 412 was, with respect to every agreement, not necessarily for those requesting antitrust immunity. Won 414 dealt specifically with the exemption from antitrust Iaws. Therefore, it was natural that Section 414 required a simiiar but more rigorous examination by the DOT. Sections 412 and 414 are notably similar to their contemporaneous Sections 41309 and 41308. Thus a distinction üke the one drawn previously would probably stand today. But realistically, these types of distinctions neither affect the conceding of immunity nor help define, in dearer temu, "public interest," as the DOT WU always put forward what they consider to be the most vigorous examination of public interest, including the study of this standard at different degrees. 2.3.2.2. Market power
There is, rnoreover, in the principles that have to be considered in the granting of antitrust immunity, the issue of the effect of the alliance on actual competition, that is, on different markets or routes. How wilI a certain market react to the disappearance of one competitor as a rdtof an immunïty granted to applicant airlines that serve this same market? Since the commercial and business effectsof an alliance can be similar to those of a merger, the DOTS3 wodd have to determine if the said alliance will violate antitrust laws. In the case of a merger and, therefore, in the case of any alIiances seeking antitrust imrnunity, the Clayton Act would have to be appiied. The DOT, through the appiication of the Clayton Act test, would have to examine whether the proposed alliance by the applicants would substantidy reduce competition- To do such an assessment, the DOT would consuit the DOJ and the Federal Trade Commission merger guidelinesa6 Following those guidelines, the US DOT assumed the following approach with regard to transaction or alliances:
Transactions should be blocked Ïf they are iikely to create or enhance market power, market power king defined as the ability profi tably to maintain prices above competitive Levels for a significant period of time (...). To determine whether a proposed merger is kely to increase or enhance market power, the Department of Justice and the FTC primariiy consider whether the merger wodd significantly
Aithough we previously stated that the DOT was more concerned with its policies than an actual review of antitrust effects of the alliance, it still bas to evaluate the anti-cornpetitive effets of an alliance. However, the DOT will either be more lenient in its evaluation of such effects or will consider that such effects are justified under public interests. Order 96-5-12 at 39-40. Clayton Act, section 7: '( ...) prohibits any merger or acquisition of stock or assets where in any Line of commerce or in any activity affecting commerce in any section of this country, the effet of such acquisition may be to substantially to lessen competition, or to tend to create a rnonopoly." See "Joint FTC/DOJ International Antitrust Guideluies," supra, note 72. 57 Fed. Reg. 41552 (September 10, 1992). increase concentration in the relevant markets, whether the merger raises concem about potentiai cornpetitive effects in üght of concentration in the market and other factors, and whether entry into he market would be timely, likely, and suffiaent either to deter or to counteract a proposed merger's potential for harm*
On antitrust issues discussed above, the DOT, as mentioned previously, confers with the DOJ. FoIlowing the analysis of the DOJ, the DOT wiii decide independently if the statutory requirements have been met by the applicants.
This concludes our review of the various standards applicable to applicants of antitrust imniunity in the United States. This overview, like the overview of relevant legislative texts, was only with respect to American law. However, we must not assume that alliances pursued by international carriers WU not undergo the scrutiny of other agenaes. " In June 1996, the European Community transport commissioner, Neil Kinnock, and the cornpetition commissioner, Karel Van Miert, announced they would investigate the existing international (transatlantic) alliancesg0, namely Lufthansa-United Airlines/SAS/United Airlinesgl, Swiss Air/Sabena/Aushian Airhes/Delta9*, KLM/Northwest, British
Order 96-5-12 at 41. Se also aJoint FTC/DOJ international Antitrust GuideLines," supra, note 72. On the analysis of the DOJ, set Robert D. Willig, 'Antitrust Lessons from the AuLine Industry: the DOJ Experience" 60 Antitrust L. J. 695, article based on a speech given at the American Bar Association Antitrust Section in August 199 1. Here, we are not concerneci with the aiiisnces or mergers of air carriers of two or more country within the EU. in such cases, EU compctition legislation and decisions will apply, and indeed have been applied on many occasions. For a review of individuai exemptions in the EU, sec J. Balfour, 'Cornpetition Rules-A Scven Year Assessment", The Avmark Aviation Economist, DeCernber 1994,at 8. See 'Antitrust is Key in Open Skies Taiks", AirLine Business, August 1996, at 18- See the Notice of the E.C. Commission, (19961 O.J. C289/8 (2 October 1996) pursuant to Article 5(2) of Regulation 3975/87. See the Notice of the E.C. Commission, [1996] O.J. C289/6 (2 October 1996) pursuant to Article 5(2)of Regulation 3975/87. Airways/USAIR93 and British Airways/American Airlines? In the next Chapter, we will discw the different tmls the European Union (EU)has to deal with alliances. We will also examine the cornpetence of the EU member states with respect to these alIiances.
g3 British Airways and US Air signed a code-share agreement; it is not the fully integrated aiiïance like the others aiiiances that am the purpose of this study. q4 See the Notice of the E.C. Commission, tL996I O.J. C289/4 (2 October 1996) pursuant to Article 5(2) of Regulation 3975/87. Chapter 3
AIRLINES ALLIANCESAND ANTITRUST ~~MUN~TY IN THE EUROPEAN UNION
The signing of open skies agreements by European states (induding EU member states) with the United States has been of concern for the last years for the EU CoII1IT1iSSion95 The Commission tried to obtain exclusive competence with respect to the negotiation of aviation treaties with third c~untries.~~In an opinion rendered by the European Court of Justice of 199497,it was found that the EU could indeed acquire exclusive competence for extemal relations "in so far as common deswhich had ken adopted for the internai market would be affected by obligations entered into by member states towards third co~ntries".~~The Commission took the view that this was, in fact, the case in the aviation field and that, therefore, the open skies accord signed by member states was not legaLgg Evidently, member states did not share this opinion The matter was, nonetheless, resolved through an agreement between the Commission and the Council (that is made up of representatives of member states). Both entities of the EU agreed on a mandate for the Commission with regard to negotiations
Austria, Belgium, Denmark, Finland, Luxembourg, Netherlands, Germany and Sweden are the EU member states that have signed an open skies treaty with the United States, Iceland, Norway and Switzerland are the other European States. The Cornrnunity argued Article 113 of the EC Treaty (Treaty of Rome) in order to obtain such exclusive cornpetence. This decision found that the Community's competence was based on ArticIe 84(2) of îhe EC Treaty and not Article 113. Opinion 1/94: Re Uruguay Round Tkeaties (19951 1 CMLR 205. Shawcross and Beaumont, Au Lato, 4th ed., vol- 1 (London: Butterworths, 1996) at IX (141). See Matthew Drkn 'Liberaiization and Privatization in European Cornmunity Air Transport Law", (1994) 6 SPG Intl. Legal Persp. 97. with the United States. This mandate does not cover access and haaic rightslw, but satisfied the Communify SUfficiently for it to agree to recognize the legitimacy of the accords aiready signed by the member states.lOL For the Commission, this is a necessary ârst step in order to obtain an external negotiating mandate for büaterd air service agreements.lo2
With the open skies bringing the concept and reality of antitrust immunity and strategic alliance, new concerns have arisen for the Commission. The Commission expressed its worrïes about the new wave of alliances, more precisely with the "cumulative effects of these alliances on the European market-"1mThe EU is presently investigating these alliances. By way of notice, it advised that it would investigate transatlantic alliances; accordingly, it launched the foLlowing proceedings: On 3 July 19%, the Commission has decided to open a procedure in accordance with the provisions of Article 89 E.C. as far as the services between Europe and the USA are concerned.
On 12 July 1996, the Commission has decided on its own initiative to initiate a procedure with the legal consequences provided for in Article 7(2) of Corncil Regulation 3975/87, as far as the services between E.C. airports are concerned.
On 31 July 1996, the Commission has decided on its own initiative to open a procedure with the legal consequences provided for in Article 9(3) of Councii regulation 17, as far as the services which do
'00 It only includes soft nghts, and not the hard rights. Soft nghts inchdes regulatory issues such as cornpetition des and ownership. Sec 'Antitrust is Key in Open Skies Talks", supra, note 90, at 19- 'O' Shawcross and Beaumont, supm, note 98, at IX (144). 'O2 The absence of a common extemal regime was describeci as a serious lacuna with regard to the genuuie comptetion of the internai market in Europe. See Piet Eeckhout, The Eumpean Intemai Mcvket and Intemational k&:A Legal Analysis (Oxford:Clarendon Press, 1994) at 118. 'O3 Suprcz, note 90, at 18 not directly relate to the provision of transport air services are concerned.
In the same notice, the Commission further added that it had, not at that stage, taken a position on the appiicabiiity of Article 85 of the Treaty esfablishing the European Comrnunity ("EC Treaty").lo5 This Artide, and the cornpetence of the Commission, will be dkussed in the next section-
3.1. The Cornpetence of the Commission
Although the Commission strongiy asserts its cornpetence for the review of transatlantic alliances, as stated in the aforementioned notice, there is some disagreement within the Member States (mostly hom the United Kingdom) conceming this competence. As a resdt, the tripartite division of the cornpetence of the Commission is heaviiy discusseddLo6Currently, the N and its competition authority faces the problem of a lack of uncontested competence, for alliances involving a partner hom a non-EU country, to exercise control through competition legislation, regdations and decisions. Their competence not king dearly stated anywhere, it was simply inferred hom the exiçting Articles of the EC Treatylo7and from Council RegulationsLOBBefore exploring the present issue
Supra, note 9 1. Treaty Establishing the European Economic CornmURity, March 25, 1957, 298 U. N.T.S. 3 (hercinaftcr the EC Treaty or Treaty of Rome). E-mail interview of Decembcr 2, 1996 with Dieter Bartkowski, Director, Air Transport, Fedcral Ministry of Transport, Germany. On file with the author. The author wishes to underline that the statcments of Mr- Bartkowski were made in iate 1996, and thercfore reflect the situation in Europe ai that time. The only reference to aviation/& transport in the EC Treaty is in Article 84. That Article stated that unanimity was nctded in the Counciï of Ministers of the Community ( now Union) in order to establish common transport policies. The famous NouveUes hntieres case rendercd by the European Court of Justice held Articles 85 and 86 applicable to air transport. In fact, that decision held that the general provisions of the Treaty of Rome were applicable to air transport. See Ministére Public v. Asjes (NouveUesFrontières) 1986 E.C.R. 1425 The most important Regulations being Regulation 17 and Regdation 3975/ 87. of the Commission's competence, Articles 85,86 and 89 of the EC Treav must be examined.
331. Artides 85,86, and 89 of the EC Treaty
Artide 85 and 86 are the piIiars of EU Cornpetition legi~lation.~wArticle 85 prohibits the existence of agreements which prevent, restrict or distort cornpetition by rendering such agreements autornatically void when, and only when, they may affect trade between EU Member States. It enmerates a few of those agreements, induding those that engage in the followuig: a) fix purdiases or selling prices; b) limit or control production, market, technicd development or investment; c) share markets or sources of supply; d) apply dissimilar conditions to equivalent transactions (cornpetitive disadvantage); and e) make the condusion of contracts subject to acceptance by the 0th parties of supplementary obligations which have no connection with the subject of such.con tract^."^
The second relevant Article, Article 86, can be summarized as prohibiting any abuse of a dominant position by one or more undertakings if such abuse may affect trade between EU Member States. The abuse referred to may take the form of agreement. enumerated above in (a), @), (d) and (e). In addition, Article 89 imposes on the Commission the duty to ensure the application of the principles stated in Articles 85 and 86. It gives the Commission the competence to investigate cases of suspected infringement; furthermore, when an infringement is found, it grants the Commission the power to propose appropriate measures to bring these infractions to an end. The investigation mentioned in Article 89 can be initiated either by the Commission, on its own log IVO Van Bael et J.F. Bellis, Droit de la Concurrence de la Communauté lkonomique Européenne (Bruxeiles: Bruyant, 199 1) at 35. "O ECTreaty, article 85. initiative, or foilowing an application by a member state. The member states are legdy bound to cooperate and provide their assistance in any investigation. Article 89, as wiU be dis 3.1.1.1. Exemptions The previous section enumerated, among 0th- things, the agreements that feil within the xope of prohibitions of Artide 85 of the EC Treaty. Evemptions to this prohibition, however, do exist, and are dowed through Artide 85(3): 3. The provisions of paragaph 1 may, however, be declared inapplicable in the case of: -any agreement or category of agreements between undertakings; -any decision or category of deckions by associations of undertakings; - any concerted practice or category of concerted practices; which contributes to improving the production or distribution of goods or to promote technicai or economical progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concemed restrictions which are not indispensab1e to the attainment of these objectives; @) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. This possibility of exemption provision is a similar concept to the one of antitrust irnmuniq in US law; exemptions, however, are only for member statedl* This provision dows the inapplicability of competition niles for agreements meeting "' Ministère Atblic v. Lucas (Asjes), supra, note 107. H2 As we wiU see Article 85 does not apply to exted relations; even the Commission does not rely on Article 85 for its review of the alliances involving transatiantic carriers. Sec the Introduction to Chapter Three. certain standards, induding those whidi necessitate a fair share of the resdting benefit for the consumer. This last standard is comparable to the US requirement of public interest Under Artide 85, blodc exemptions and individual exemption are dowed. Blodc exemptions, a concept not found in Amencan antitrust laws, were installed through regdations of the Commission.L13Such block exemptions were related to agreements on joint planning and coordination of capaatyr sharing of revenue and consultations on tarilfs, cornputer reservation senrices and ground handling services.L14A blodc exemption is advantageous because agreements are automaticalIy exempted under the exemption and, therefore, notification of the agreement to the Commission is not required (as would have been the case under nomial pro~edures).~~ The individual exemptions dowed under Article 85 have not been numerous in the last years, since block exemptions covered rnany types of agreementsH6 In the field of airline alliances (stricdy between carriers of the Community), the latest individual exemption granted was to Lufthansa Airiines and Çcandinavian Airlines System (SAS). These carriers later formed an alliance with the American carrier United, which itself was immunized from the United States antitnist laws. Currently, the tripartite alliance is under review by the Commission. The US exemption will be discuss in greater detail in Chapter Four of this thesis. In order for the Commission to grant any kind of exemption, there must be an implementïng regulation of the Cound. In the absence of such reguIationr the transitional dispositions of the EC Treaty with respect to Articles 85 and 86, Articles 88 and 89, do not confer on the Commission the means to grant an Il3 For more on block exemptions, see Shawcross and Beaumont, supra note 98, at IX (60). Ibid See supm, note 38. l6 Balfour, supm note 89 at 9. exemption.ln Implementing regulations reiating to air transport wül be dixwed in the following section. 3.2. The Review by The Commission In a 1987 decision, in the Nouvelles Frontières (Asjes) case, it was cIearly estabiished that competition niles of the EC Treaty, including Articles 85 and 86, dso appIied to the air hansport sector.l18 Artide 87 of the EC Treaty, however, states that in order to implement Artides 85 and 86, some regulations need to be adopted by the Community Coud. Unüi such regdations are drafted and approved under Article 87, Articles 88 and 89 serve to estabüsh the respective powers of both the Commission and the member states with respect to the application of Artides 85 and 86? Artide 89 was reviewed in Çection 3.1.1. Article 88 reads as follows: Until the entry into force of the provision adopted in pursuance of Article 87, the authorities in member States shall nile on the admissibüity of agreements, decisions and concerted practices and on abuse of dominant position in the cornmon market in accordance with the Iaw of their country and with provisions of Article 85, in partidar paragraph 3, and of Artide 86. Hence, under Article 88 and 89, pardel cornpetence of national authorities and the Commission are to be assumed in areas where no secondary Community competition desand regulations exist. lZ0 Regulation 17 of 1%2 hplemented Artides 85 and 86; this Regulation, however, did not apply to the air transport sector. Once this became clear, following the "' Ministère Atblic v- Lucas (Asjes), supra note 107. 'l8 ibid '19 See Bael et Bellis, supra note 109 at 36. 120 Supra note 106. Nouvelles Frontières case, the Councii adopted Regulation 3976/87 that rendered applicable to air transport the prïncipIes set out in 85 and 86.L2LArtide 1, paragraph 2 of the Regulation 3976/87, as amended, states, however, that the Reguiation only applies to air transport between Community airports. ln As a result of Regulation 3976/87, the Commission has the power to review alliances. The question arises whether the Commission can review an alliance involving parties on both side of the Atlantic. There is a binding decision of the European Court of Justice, the Ahrned Saeed case, which states that the application of Artides 85 and 86 by the Commission is not lirnited to transportation in the EU? In order to apply artide 85 and 86 to such a situation, however, a regulation granting the Commission the powers to conduct some kind of investigations is required (once again under Article 87).lZ4 Such a regulation has yet to be drafted and put into force by the EU Cound." As a result, for EU-third countnes services, Artides 88 and 89 wiIl apply. Council Reguiation (EEC) No 3875/87 of Deccmber 1987 LayÙig Down the Procedure for the Application of the Rules on Competition to Undertakings in the Air Transport Sector. In the prearnble of this Regulation, it was stated: '( ...) whereas consequentiy the Commission has no means at present of investigating directiy cases of suspected uifnngement of Articles 85 and 86 of the Treaty in air transport; whereas morcover the Cornmission lacks such powers of its own to take decisions or impose penalties as are necessary for it to bring to an end infringements established by it," Regulation 3976/87 was amended in 1992 and the word 'international" was deleted from Article 1. Ahmed Saeed case, 66/86 (1989) 2 CED 654 ff.; See L- Weber, 'Modern Trends in the Antitrust/Cornpetition Law Governing the Aviation Industry" (1995) XX Air & Sp. L. 101. See also =A Comment on the Ahmed Saeed Judgemenr in P-D. Gagtoglou, ed-, Air Transport and the European Union (Greece: Sakicoulas, 1994) at 103. See Weber, supm note 123 at 108; See also Frere CholmeLey Bischoff, supm note 76- Without such legislation, the powers of the Commissions are relatively weak. See BaUour, supra, note 89 at 10. ConsequentIy the Commission oniy has the power to review an alliance on two bases: "by examùiing its effecton intraCommunity routesmu6and by "using such residual powers as it has in the absence of an implementing regdation, under Article 89, to 'investigate' and 'propose appropriate measures' to bring any inuuigement to an end.'r1z The Commission based ib cornpetence on this last option in order to review alliances involving a European and an American carrier. 128 3.2.1. Obstaclesfor the CommisJion It is hard to predict the outcome of the current investigations of the Commission. It seems that the Commission will face a few hurdles in its examination of alliances, even though it claims full jurisdiction to sauanize those alliances.129 The powers conferred by Article 89 to the Commission are, hence, limiteci. One European lawyer emphasized the foilowing problem with respect to Article 89: "As Article 89 was seen as a transitional arrangement, the essential implementing des that would dow the Commission to impose fines and gant exemptions have never been put in place."1M The Commission has no direct means to inte~ene.~~~Another problem that he underlined concerned the cooperation requirement of the relevant Member States when the Commission initiates an investigation under Article 8g132: "The member states are legay bound to 12' Frere Choirneley Bischoff, supra note 76. 127 fiid See EU Commission notice, supra note 91. 12' 12' Van Miert Stakcs Out EC Authority Over Amcrican-BA Alliancew Aviation Daily, January 2 1, 1997, at 1 11- ''O Supra note 90 at 18- 131 Supra note 106. 13* The Commission, as a result of Articles 88 and 89, will have to rely on the assistance of national authorities. Following the notice that they would inquire those alliances, the Commission sent a request for information to the carriers involved. See Supra note 106. cooperate with the Commission, but in practice their cooperation rnay not be f~rthcoming."~At the present tirne, the United Kingdom is making matters diffidt for the Commission-'34 Furthermore, since the members states, pressured by their carriers, probably do not welcome this intrusion of the Commission in alliances that have been constniaed foiIowing the signing of a open skies treaty, it is entirely feasible that one country may actuaily challenge the cornpetence of the Commission under Article 89.'" If such a Menge occurs, the case would then be referred to the European Court of Justice, and a long process wodd then begin. An exarnination of the mandate of the Commission would be required in order to determine whether it did in fact exceed its mandate through the launchhg of its investigation into transatlantic carriers alliances. This would, in tum, postpone any kind of action by the Commission and "delay the Commission's attempt to arm itself with an extemal antitrust weapon and would leave a question mark hanging over the future security of the alliances."136 If the matter is taken to the European Court of Justice, a binding decision could settle the issue. 3.2.2. nie Consequmces of the Reoiew The Commission, notwithstanding the aforementioned hurdles, started to exercise its share of control over the diances that are now becoming the new trend Ui aviation relation~.l3~It is understandable that the Commission wants to 133 Supra note 90. L34 Although Germany is cooperating My,the Netherlands seem reluctant to do so and insist on their own sole cornpetence under Article 88 of the EC Treaty. Supra note 106. 135 Such a challenge has yet to occur. The United Kingdom would probably be the member state that would bring the Commission to court on that question. The relation betwetn the United Kingdom and the Commission will be discussed in further details in the last section of Chapter Four. 136 Supra note 90 at 18. Supranote 91. have its word in this process and not let the United States alone govern transatlantic alliances. If the Commission achieves its goals and is legally capable of reviewing those alliances, the possible opposition to alliances or imposition of conditions for their application, may give international carriers yet another impediment to overcome. Since the antitrust/ competition rules are sometimes distinct on both sides of the ocean, and considering that intdaviation policies will be aimed at the protecting the "pubüc interest'" of their own public, the scrutiny of the two authorïties with regard to one alliance may well result in different findings. One aiIïance couid pIausibIy be granted exemptions from competition laws in the EU and not receive the antitrust immunity in the US. The conhary could also occur. Some international convergence, however, does exkt with respect to the application of competition laws between the United States and the EU. In 1991, both countries signed the Agreetnetlt behueen the Gozwrnment of the United States of Amenèa and the Commission of the European Cornmunifies Regarding the Application of their Cornpetition ~UWS.~~~The pupose of this agreement, as defined in its Article 1.1, is to promote cooperation and coordination, and Lessen the possibility or impact of differences between the United States and the EU in the application of their competition laws. L39 Despite the different Iegal problems that other findings could bring, one could argue that this is a totally normal consequence, considering the principle of State sovereignty. A solution could reside in the creation of an international entity that would control intemational competition issues, including the review of alliances that require antitrust immunity. This solution, however, has yet to be reached, Sept. 23, 1991, US-E.C., 30 I.L.M. 1491 (1991). Sec also 'Conferees Address Harmonization of US, EC Competition Regimes", BNA Antitrust & Trade Regulation Daiiy, October 2 1, 1993. 139 &id, See also G. Horlick and M. Meyer, ' The international Convergence of Competition Policy" (1995) 29 The Intl. ïawyer 68. This article discusses and recommends collaboration rathcr ' than one that ignores the potential and is not foreseeable in the near future. Indeed, the review of the same alliance by the US DOT and the Commission of the EU couid calm the recent enthusiasm that carriers have demonstrateci for alliances, especïally if the review of the Commission is a long and burdensome one, or if it is legally challenged. The "e7ément déclenchewf' of the intervention by the Commission is the proposed British Airways and American Airiines alliance. More talles of this alliance occurred, the Commission had not interfered or investigated all previous carrier alliances that had been granted antitrust inununity in the United States. This mega-alliance, as weil as the bilaterd aviation relation between the United States and United Kingdom, wiii be dixussed in Chapter Four. This chapter will also review the UK authority of the alliance. The investigation of Britaïn's national authorities added another level of review within the EU, that could lead possibly to even more dismption with each reviewing entity aining for the protection of its relevant market and of its own interest. 3.3. Review by National Authorities National authorities also became involved in the process of immunity £rom antitrust/competition laws by reviewing or investigating alliances involving their national cher(as had been done and currently is king done by both the United States and the EU). In Europe, both Gemiany and the United Kingdom started their own inquiries. The Canadian Govemment, without any public investigation of the matter, expresseci its thoughts on the immunity granted and sought by its national carriers. These reviews by national entities will be discussed, when applicable, as we study the different antitrust immunities granted so far by the United States to consequences of connicting decisions on the same mergep. No doubt, the same can be said about the review of antitrust immunity. international carrier alliances. The application of antitrust immunity to carrier alliances will constitute -ter Four of this thesis. In the past years, the US DOT has approved and granted antitrust immunities to carrier alliances, exempting them from the American antitrust laws. Carriers have been looking for partners, or have strengthened their actual agreements with their partners, in order to get involved in international alliances and, consequently, to apply for immunity, thereby joining the new wave of mega or global carriers.la Seeing how the immunity is king requested, it is safe to assume that this antitrust immunity must have some benefits for the applying carriers.141 The next section wiII try to assess where these benefits Lie, as well as study the grouncis on which antitrust immunity is granted. To start, we will examine the KLM/Northwest alliance, the first alliance of its kind.lU '40 See A. Turpin, 'Airlines Seek Strength in Partnership", The Scotsman, February 4, 1997, at 22. 141 We will assess the benefits of the irnmunity fiom the carriers' point of view; The benefits of antitrust immunity for the consumers wiii not bc addressed precisely with empirical studies. Rather, in a latcr section, we WUunderiine a few different opinions on the whole process of antitrust immuniw, iacluding our own. L42 Order 93-1-1 1. A tentative decision of the US DOT was first rendered in Order 92- 1 1-27: Joint Application of NORTHWEST AIRLINES, INC. and KLM ROYAL DUTCH AIRLINES for Approval and Antitrust immunity of an Agreement Pursuant to Sections 412 and 414 of the Fcderaî Aviation Act, as amended; In the matter of THE ACQUISITION OF NORTHWEST AlRLINES BY WINGS HOLDINGS, WC., Order 92- 11-27, Docket 48342, Docket 46371, Department of Transportation, Poiicy and In ternational Affairs, November 16, 1992. (hereinafter Ordcr 92- 1 1-27). 4.1 The First Two Immunities Granted At the present tirne, the US DOT has granted antitrust immunity to airlines on five occasions. Each alliance that received antitrust immunity involved a carrier hom the United States and one bom either a European country or Canada. Two other applications are pendin& one involving Air Canada and Continental Airlines, and there is a recently filed application by British Airways and Amencan Airhes. The airlines were probably prompted to apply in the past years after they saw the resuit of the KLM/Northwest Airiines alliance. The favorable policies of the US DOT with respect to carriers of the States that have signed or will sign an open skies heaty with the US were noted by rnany carriers. The two first agreements approved and immunized (the KLM/Northwest and the Lufthansa/United alliances agreements) set the table for future applications by carriers, and in tum, for the subsequent decisions of the US DOT in the antitrust immUNty matter. 41.1. The KLM/ Northwest AUiance Regarding strategic ailiames, the first antitrust immunity granted by the US DOT was for the alliance accord between Northwest and KLM. This immunity was granted following the signature of the first open skies signed by the US with a European country, the Netherlandd4 The immunized and approved alliance 14' 14' Joint Application of UNITED AIR LINEÇ, MC. and DEUTSCHE LWTHANSA, A.G. d/b/a LUI;THANSA GERMAN AIRLINES for approval of and Antitrust fmmunity for an Alliance Expansion Agreement pursuant to 49 US-C @@ 41308 and 41309, Order 96-5-27; Dodret OST-96-1116,Department of Transportation, Aviation and international Affairs, May 20, 19% (hercinafter Order 96-5-27). A tentative decision of the US DOT was £kst rendered in Order 96-5-12 In summary, these are the gains obtaincd by KLM by signing an open skies with the US: "Meanwhile, the 1992 open skies agreement elirninated regulatory bamers that had restricted KLM fiam gaining air traffic rights to major Northwest markets. As a result of the agreement, KLM has gaincd: open entry and unrestricted ffcquency on all routes, including right to operate semices between any point in country; Flexible fare setting arrangements; Open code sharing and acccss to reservation systems; agreement aeated a "quasi-merger" between the two carriers. In what foiiows, we will analyze the content of the order which granted the immunity and fry to assess how successful this alliance (that is due for review in the next year) has been. The antitrust immunity granted to KLM and Northwest is unique, as it was granted to attract other countries into signing open skies with the United State~.~"Through antitrust immunity, the United States sent a message to aii European cmrks; they made it dear that they would ease up on foreign carriers in exchange for the opening of new markets.'46 The following citation clearly revealed the policy of the United States in the matter: We have rarely been willing to gant antitrust immunity to carrier agreements because immunity is usudy inconsistent with airIine deregdation and the promotion of airiine competition. In this case, however, the gant of immunity should promote competition by furthering our efforts b obtain les restrictive aviation agreements with other European countries. As we explaineci in the Show Cause Order, the United States exchangeci diplomatic notes on the Open %es Accord with the Netherlands not only to liberalize aviation services with the Netherlands, but dso to encourage other EC members to enter into an open skies regime with the United States. The gant of antitrust immunity will demonstrate that we will honor the spirit of an agreement in exchange for a liberal aviation arrangement rather than insisting on a narrow reading of the literal ternis of the United States' obligations under the agreement. We anticipate that our positive attitude and partnership in the Right of any carrier to run ita own handiing CO-operations at overseas airports; Access to aggregated customer base; Fr- conversion and remittance of foreign currencies; and fmmuniw firom antitrust reguiattions." 'W.S., Dutch Agreement Said to Put Pressure on EC to End Protectionismn, BNA Antitrust & Trade Regdation Daily, Aprii5, 1995- The succcss of the Northwest/KLM immunizcd aüiance was sten as a 'carrer to obtain open skies with other countrits. Sec GAO Study, supra note 13 at 53. Supra note 17 at 272-273. Open Skies Accordwith the Netheriands will be recognized as a strong demonstration of our cornmitment to open skies and will lead to other Iiberal agreements with the EC.147 Such flexibility and openness from the DOT was certaidy not because Arnerican carriers were desperately seeking access to the Dutch domestic market. Rather, it was due to their pursuit of the long term objective of convincing other EU countries to open up their skies. And the strategy worked, as many open skies bilaterals with small countries were si@, followed by the USGermany bilateral.1" The alliance between Northwest and KLM was, thus, not onIy profitable for those two carriers (as wiiI be discussed Iater) but also helped the United States Govemment, more specificdy the US DOT, to achieve its goals of liberalized international aviation. 149 The immunity dowed KLM and Northwest basicdy to become one carrier.'50 Having received Ml antitrust immunity in 1993, they have been able to coordinate various facets of their operations induding the foilowing: a) code- sharing and comprehensive marketing agreement on the North Atlantic, in the domestic US and in Europe; b) joint Dights and FFP (frequent flyers point); c) cooperation on ground handling sales, catering, information services and maintenance; and d) joint purchashg and pnce fixing. ln in reviewing this list, it is reasonable to condude that from the operational side, a merger WUprobably 14' 14' Order 93-1-11 at 23-24. See supra note 95. 149 See 'Antitrust Immuniw: Will the Dominoes Keep Fallingî", Aviation Advisor, Zuckert, Scoutt & Rasenberger, vol. 7, issue 1, 1996. See Also M. Jennings, 'US Launches the Anti-Trust Debate", Airline Business, March 1995. lS0 In the Final Order, the alliance of the two carriers is referred to as an agreement whereby ULM and Northwest wouid integrate th& seNices and operate as if they were a single carrier. 15' UAClearer Direction - Suwey, Airiines Alliancesn AirMe Business, June 1996, at 40. not have entangied the operations of both carriers to a pater extent?* A merger, however, wodd not have lead to the upcoming review (of the initial decision granting the immunity) by the US DOf, and the present investigation of the EU Commission'* As mentioned in Chapter One, a merger is not possible in the current intemational regime; however, once approved and authorized, it does not lead to any other review or to constant surveillance from antitnist/competition authoritie~.~~~An immunized alliance does, nonetheles, have to undergo the sautiny of competition authorities on a periodic basis, since the exemptions are oniy granted for a Mted period of the. Furthemore, if conditions linked to the immunized alliance are not respecteci, the immunity can be revoked at any tirne by antitrust/competition entities. 4.1.1.1. Limitations to the lmmunity One of the unique aspects of the KLM and Northwest alliance is that it received an immunity with very favorable conditions attached. In the final order granting the irnmunity to the Cooperation and Integration Agreement between the two carriers, the only conditions which referred to the alliance itself consisted of the necessity to obtain prior approvai from the DOT if the carriers chose to operate under a common name or to use "common brands." There was no extended immunity granted to the activities of Northwest and KLM as owners of the Worldspan and Covia cornputer reservations system b~sïnesses.~~There were also no carved-out markets, although relevant markets were of some concem with respect to los of competition. Finally, there was no reference to IATA tariff ''' It is important to note that KLM owns stakes in Northwest. Their equity share is at 19.9 per cent. Thrte positions on Northwest board of directors (14 members) arc held by KLM. Set 'Share and Share Aiike-Alliancesw, Airihe Business, July 1996, at 62. lS3 One of the condition attached by the US DOT to the immunity is that it is limited to a period of five years. Order 93-1-1 1 at 45. Is4 See supm note 25. coordination a~tivities.~~~As we dlshow in other US DOT orders that were granted foIlowing the KLM-Northwest order, sunilar conditions were imposed. AIthough, as mentioned above, the andysis of the effect of the alliance did expose concems regarding the loss of competition in some marketsF7 these concems were, nonetheless, considered to be less important than the potential benefits of the afiance. The DOT considered that the Agreement could reduce competition between Amsterdam, on one hand, and Detroit and MinneapoLis-St. Paul, on the 0th. It concluded, however, that the possible loss of competition in the two city-pair markets wouId be outweighed by the Agreement's competitive benefits. The DOT stated that the alliance agreement would, after all, enable the applicants to offer better service and to operate more efficiently.'js Finally, the DOT dso noted that the coordination and integration of the services of the two carriers were not inherently anti-competitive, in Iight of the fact that antitrust laws "allow cornpetitors to iorm joint ventures as long as the venture promotes coxnpetition and economic efficiency and does not ~~1ecessariLyrestrict competition by the venture's parhier~".'~~It will be interesting to see whether the US DOT will draw these same conclusions when the immunity is up for review next year (as the initial exemption was granted for a period of 5 years). As will be discussed below, both KLM and Northwest are opposed to any change of conditions, or any added conditions, regarding the renewal of their antitrust ùnmunity. lS5 See Order 93- 1-1 1 at 45. lS6 Thk other immunities, reviewed in the foUowing sections, will discuss those conditions in greater detail- 15' 15' The US DOT found that the relevant markets for the purpose of analyzing the anti- competitive effects of this nliiarice were the US.-Europe, the US-Nethcrlands, and the Detroit/Minneapoiis-St. Paul-Amsterdam. The DOT concluded that the Agreements implementation would not rcduce competition in the US-Europe and U.S.-Netherlands markets. See Order 93- 1- 1 1 at 18. Order93-1-11 at21. lS9 rbid. 4.1.1.2. The Bm@s of the Alliance With the desVe of many carriers for a partner in the airiine business, one couid conclude that the existing alliances, such as the Northwest-KLM alliance, have been comrnerciaily advantageous for its participants. Judging the potential of immunity is, however, a perplacing task: Though the Northwest-KLM immunity is generaily considered to be a highly sipificant component of the alliance, its effect on the bottom line remain uncertain Northwest claims the alliance aeates an extra $ 50 million in annual revenue for itself, an amount carrier officialsi suggest wodd be considerably les without immunity. In the first three years after immunity was put into place, the partnership grew from seven weekly codesharing Bights between Detroit and Amsterdam to 35 from Detroit, Minneapolis and Memphis. But it is almost impossible to pinpoint how much is redy due to the immunity and what cmbe credited to a strong codesharing alliance.'60 Notwithstanding the fact that it would be a diffidt task to assess the exact benefits carriers can extract from antitrust immunity, it remains dear that both Northwest and KLM would like to pursue the present alliance with its antitrust Unniunity. This strategy is even more noteworthy in light of the crisis that has shaken the relationship between the two The carriers wiU have to resolve their internal disagreements and struggles More they can seriously consider seeking the renewal of their antitrust immuniv from the US DOTP2 Supra note 9 at 55. In 1996, KLM sucd the two chairmans of Northwest, Alficd Checchi and Gaxy Wilson. The preliminary hearings were heard in October 1996. KLM claimed that Northwest did not respect previous agreements rcgarding issues of share of voting rights. Northwest claims KLM is seeking controI of Northwest- L62 KLM president, Pieter Bouw, is very confident that the issue betwcen KLM and Northwest wiil be resolved. KLM, however, wili probably have to drop its lawsuits 4.1.1.2.1 Obstacles to Reneroal of the Alliance When the immunity is up for renewal, things might become more compkated than the fist time around for KLM and Northwest Fust, preceding the Northwest/KLM immunity, more immunities have been granted to alliances and more are forthcoming. A brief look at the Lufthansa-United immunity reveals that conditions and Wts were imposed on the immunityf as opposed to Northwest and KLM which were granted immunity with few conditions. The US DOT will possibly not be able to renew the KLM/Northwest Unmunity without imposing similar conditions to those it imposed on subsequent alliances. It might be hard to jus* not imposing similar conditions considering that ail these other alliances are, for the time being at least, in the same markets (Le., the US and Europe transatlantic routes). Hence, the anticompetitive effects of such alliances are probably similar in scope. One wonders if the alliance would subsist if conditions were imposed. The vice-president of govenunent affairs at Northwest Airlines, Eliiott Seiden, was most categoncal on the "potentid watering do~n'"~ of the antitrust immunity held by the two carriers: "Nuh-uh. It ain't going to happen We won? do it Not acceptable. Period."la Needless to Say, this type of answer emphasizes the importance given to the antitrust immunity. The second hurdle that Northwest and KLM may encounter is the simple fact that the US DOT does not need the two carriers for "baiting purposes" as much against Northwest in order to solve the matter and keep aiive that has been cded the "world's most profitable airline alliaiice*. Sec œAsKLM, Northwest Work to Settie Differences, Bouw Says New Accords are Ne&, Aviation Dai&, July 2, 1996, at 1 1. Supr~note 9 at 52- 164 fiid as it did when the immunity was first granteci in 1992.165As previously stated. the antitrust imrnunity then was clearly a way to attract other foIiowers to the US vision of open skies. But the open skies has worked since 1992 and even though we are not flying in internationally £ree skies, the United States, has been able to sign many open skies deals, thus slowly imposing its will on many regions of the world. Of course, the US DOT will have to be careful, as any sort of mistreatment, either by imposing strict conditions or by forcefuiiy causing the carriers to give up the alliance altogethe, might send an undesireci message to other countries and carriers either on the verge of adhering to an open skies regime with the United States or seeking antitrust immunity as a result of this open skies. If these countries or carriers interpret the immunity as a one shot deal in order to get them to sign with the United States, the strategy might baddire on the United States. Nonetheles, with the American market king such of importance, the United States wodd probably SUbe able to push forward open skies without any immunity. If the US DOT and US DOJ decide to impose conditions akeady imposed to others and if those conditions are justified under antitrust Iaws and competitive policies, the US DOT would only be playing fair. It will then be interesthg to see the reaction of Northwest and KLM; namely, if they keep their association, despite conditions and restrictions. or if they would put an end to an alliance that does not dow the two carriers to seam into one on every possible route. It is probable that the weU-being of the relationship between Northwest and KLM will play a role in determining the outcome of their alliance. For now, the DOT GAO Study, supra note 13. still publidy values the aiiiance between Northwest and KLM. It represents the success that immunity can help achieve. The Assistant secretary for aviation and international affairs of the US DOT praised the alliance and the underlying the success of the US with their open skies policy: The code-sharing relationship between Northwest and KLM, the flag carrier of our fVst open-skies partner - the Netherlands - has demonstrated the potential of airlines alliances. That reiationship is continuhg to develop, bringing important strategic and economic benefits to both alliance partners and to the market as a whole. Amsterdam has surpassed Paris's Charles de Gaulle Airport as the fourth largest European gateway-airport. Despite the presence of the alliance, cornpetition between the United States and Amsterdam has not diminîshed, and the traffic of US. carriers competing with the alliance has increase significantly. Building on the success of last year's open- skies initiative, we have continued our liberalization efforts in Europe. The United States has reached agreement on an open-skies aviation relationship with Gemmny, our second largest European aviation market with close to six milIion passengers. When the German agreement cornes into force, nearly 40 percent of the passenger traffic between the United States and Europe will be traveiing under open- skies agreement.le This statement leads us into the study of another alliance which already has had an impact on the world of alliances and antitrust immunities: the United/ Luftbnsa alliance- Like the Northwest/ KLM alliance, much has been said and written about the United/Lufthawa alliance- Both aeated precedents, in their own rights, in the negotiating of the open skies in the United States, and '66 Reparcd statement by Charles A. Hunnicutt, Assistant Secretaxy for Aviation and International Af'fairs, Department of Transportation, Before the House Transportation and Infrastructure Cornmittee Aviation Subcommittee, April 30, 1996, Federal News Service. both may in fact demonstrate the opposite spectnun of negotiating powers of the US DOT. A closes analysis of the immunity granted to the aiiiance between United Airiines and Lufthansa will, kt, demonstrate how the immunity concept has evolved since the granting of the same privilege to Northwest and KLM. We wïIi review the conditions under whïch this immunity was vted and also examine the antitrust issues raised by the said alliance. This alliance has, in fact, changed the way the immunity is granted; antitrust immunity has become dosely Iinked to the negotiating process and, aaiiaily, can be considered to be an eiement of importance at the biugairüng table. Indeed, the United States could not, in this case, gant the immunity as a reward for signing an open skies treaty; rather, it had to agree to it bdore securing the final signature of the 19% bilateral by German a~thorities.1~~As a result, the joint application by United Airlines and Lufthansa that was füed to the US DOT on Febmary 29,19% was granted by way of a Finai Order on May 20,19%." The Open skies was then signed on May 23, 1996. We will now examine the different eiements cowtituting this alliance and underline how its effect on cornpetition was assessed by the US DOT. A latter part of this section will discuss how the German antitrust authority has aiso undertaken a review of the possible consequences of this alliance with respect to German and European cornpetition Iaws. A Ietter by the chairinan of the German Delegation to the chairman of the US. Delegation stated the foiiowing: "The Gerrnan side also informeci the US. side that Germany is prepared to negotiate and initial the tcxt of a comprchensive, market- oriented open skies agreement with the United States but will agree to the entry into effect of that agreement only upon the grant by the comptent U.S. authority of antitrust llnmunity on terms that are acceptable to Germany." D. Bartkowski and J. Byerly, 'Forty years of U. S.-German Aviation Relationw,46 ZLW (1997)3 at 23- Order 96-5-27, servcd on May 2 1, 1996. 4.1.2.1. The US DOT Examination of the Alliance The Final Order was issued, as stated previously, on May 20,19%, biiowing the Order to show cause of May 9,19%. This later Order had tentatively approved the alliance which endosed numerous cooperative activities. This alliance in fact enabled Lufthawa and United Airiines to act and operate "over theV respective route networks as if there had been an operational merger between the two airline~".~Hence, just as KLM and Northwest, Lufthansa and United were also seeking seadess air services. In fact, a rderence to the KLM/Northwest alIiance was made in the United/Lufthansa Order to Show Cause- The US DOT emphasized the benefits of antitrust immunity for the Northwest and KLM alliance, and relied on this previous success to partially jus* the granting of immunity to United and Lufthansa alliance: The alliance between Northwest and KLM has abled the two airiines to operate more effiaently, and to provide integrated service in many more markets than either partner could serve individually. We expect that the alliance between United and Lufthansa wiU provide comparable benefits to consumers. Our assessrnent of the competitive and public interest factors for the United- Lufthansa alliance is similar to our judgment on these issues for the Northwest-KLM alliance.* In this case, however, cettain limitations on immunity that were not induded in the Final Order of KLM and Northwest were induded for the United and Lufthansa alliance. The first of these limitations is with respect to the two markets where both airlines cornpete against each 0th- and operate their respective fiights: Chicago-Frankfurt and Washington-Frankfivt- In these specified markets, the foiiowing will not be covered by the antitrust immunity: lfi9 Order 96-5-27 at 12. Order 94-5-27 at 3. 17' Order 96-5-27 at 4. pricing, inventory or yield management coordination, pooiing of revenues, or the supplying by one pwto the other of information concerning current or prospective fares or seat availability that is not accessible to other airIines or travel agents." The US DOT.did not actudy have to discuss this issue in great detail since the application was presented to them by Lufthansa and United with these markets aiready cameci out from the xope of their application for antitrust immunity. The appkants decided to dude the Chicago-Frankhut and the Washington, D.C.-Frankhirt markets from their antitrust immunity application because of the concerns expressed by the US DOJ about the los of competition in these markets. The US DOT accepted the proposed self-imPsed restriction by the applicants, but clearly underlined that the conditions and various aspects of this Iimitation on immunity were not necessarily determinative in the US DOT decision of granting or not granting the immunity.* This comment of the US DOT is, in our opinion, another means for the US DOT to remthat they alone make the decisions with respect to antitrust immunity (and not the US DOJ). However, dthough the immunity was granted for a period of 5 years, the limitation with respect to the Chicago-FranWurt and the Washington, D.C.- Fra- markets will be reviewed both by the US WT,in collaboration with the US DOJ in 18 months, or earlier at the request of one of the applicants. The L72 This limitation is with respect to local US-point of sale passmgers flying nonstop between Chicago-Frankfurt and Washington-FranMurt- However, the imrnunity wiii be extendeci in the case of the joint development, promotion or sales of speciûc discounted fare products in the above mentioned markets, but under some conditions. Set Order 96-5-12 at 35 and Appendix A, 173 Ordcr 96-5-12 at 35-36- L74 Within eightetn months from the date that this Order becomes W. or at any time upon application of the parties, the department d review the iimitations on antitrust immunity set forth above to determine whether they should be discontinued or rncdified in light of: current cornpetitive conditions in the Chicago / Frankfurt and Washington/ Frankfurt city pairs; the efficiencies to be achieved by the partics from further integration that would be made possible by discontinuation of the limitations on irnmunity, when balanced against any potential for harm to competition fiom such a discontinuation; regulatory conditions applicable to competing ailinnces; or otier factors that the Department may deem appropriate" Order 96-5-27 at 43. 18 month review wiii coincide with the end of the five year period of antitrust immunity granted to the KLM/Northwest alliance. This wiii aliow the DOT to reassess what kind of immunity it wants to give, without having to woqabout the precedent of carve-out markets, since it will be able to discontinue the United/Lufthansa carve-out markets before the KLM/Northwest cooperative agreement cornes up for review, or modify or keep these carve-out in order to impose them on the KLM/Northwest renewd of immunify. 4.1 2.1.1. Limitations tu Imnity The other condition attached to the granting of antitrust immunity concemed the withdrawal for both United and Luft. kom some of IATA ta& coordination activities. Those acüvities indudeci IATA aaivities "affecting through prices between the US and Germany, and between the US and any other country that has designated a carrier whose alliance with a US carrier has been or is subsequently given immunity by us."" The US DOT felt that the IATA mechanism of price fixing would be unnecessary since the carriers in the alliance are allowed to fix their prices. Furthermore, the DOT considered that the price coordination within the ahcewould lead to economic efficiencies that could be passed on to the consumer, aiiowing them, in tum, to travel for les. Consequently, the DOT found that such cornpetition procured or resulting from the imrnunity to the alliance would be undermineci if those carriers had to continue tariff coordination with IATA.176 Evidently, IATA dwgreed with those conclusions, but to no avail, The finai conditions and limitations that the US DOT iinked to the immunity from antitrust laws of the United States inciude some that were also imposed on Order 95-5-12 at 65. '76 Order 95-5-12 at 67. the KLM and Northwest First, there is the requirement of obtaining the US DOT approval before operating under a common name or using "common brands". Second, the immunity was not granted in the area of their respective computer reservation ~ysterns.~=These conditions or limitations have not cause many cornplaints from the carriers and have, in fact, been imposed on every carrier applying for antitrust immunity in the US. 4.1.2.1.2. Market Analysis Regarding the antitrust implication of the alliance, it was mentioned previously that the US DOT applies the sarne test as it would for a merger. Such a test was appiied for the KLM/Northwest application, and was also appiied by the US DOT for the Lufthansa/United applicatiofi. Consequently, the US DOT euamined if and how the competition would be reduced following the alliance in the USEurope market, the US-Ge~nanymarket, the various city pair-markets, and the "behind-and beyond- gateway" marketdm The US DOT came to the conclusion that in the USEurope market, the alliance would inaease competition. The only analysis found in the US DOT Order to Show Cause with respect to this market is a cornparison of the combined market shares of different With a combined market share of 13.8 % of the USEurope rnarketpla~e,'~'the alliance between United and Luftliansa constitutes a larger Also imposed on the carriers are some obligations with respect to the nling of certain documents: '( ...) file aii subsidiaxy and or subsequent agretment(s)with the Department for prior approval; and (4) resubmit for renewal theu various styled and or subsequent agreement(s) with the Department for prior approval; and (4) resubmit for renewai their various stykd alliance agrecment(s) in five years. We also tentatively find it in the public interest to direct Lufthansa to report full-itinerary Origin-Destination Survey of Airline Passenger Traffic (O&D Survey) data for aii passengers to and from the United States." Order 95-5-12 at 2. The ApoUo/Galil«) and Amadeus/START computer resexvation systems. See Order 96-52 at 36. Order 96-5-27 at 15 et seq. United had 8% and Lufthansa had 5.8%. Order 96-5-12 at 50. share than the Northwest/ KLM alliance, but a lower share than the Deita, Austrian, Sabena and Swissair code-share allian~e.~Accordhg to the DOT, the USEurope market place is highly competitive. Unfortunatdy, the DOT does not disclose a significant arnount of its analysis on this subject- The second market studied by the US DOT is the USGermany market. The US DOT underiined that that the alliance would give United and Lufthansa the largest share of the USGermany market.'8 Despite this condusion, the US DOT dso deterrnined that the integration of United and Lufhnsa wouid not dow the carriers to "charge supraiompetitive prices or to reduce se~cebeiow cornpetition level~."~~The US DOT added that due to the open skies between US and Germany, all carriers will have free and open access to the USGermany market, with no siwcantbarriers to entry into that market. Simila.condusions were drawn by the US DOT with respect to aty pair-markets. As previously mentioned, the two aty-pair markets that wouid have given the US DOT more diffidty were voluntarily withdrawn by the carriers (as a result of the expressed worries of the US DOJ) from the appli~ation.~~On the remaining city-pair In 1995, the Delta/Austrian/Sabena/Swissairalliance had a 15.6 % market share of the US-Europe market, while the KLM-Northwest alliance constituted 8.8% of the same market. Those numbers represent, however, the market shares of the airluies for the cdendar year 1995, before the Delta/Austrian/ Sabena/ Swissair alliance was given antitrust immunity and b«=ame more a strategic alliance involving more than code-sharing. Set Order 96-5-12 at 50. The United and Lufthansa alliance had a 42% market share of the US-Germany market in 1995. Set Order 96-5- 12 at 52. Order 96-5- 12 at 53. The two markets are the Washington-Frankfurt and the Chicago-Fraddurt markets. The DOJ was concerned about the effects the alliRnce could have on those markets: 'in hding that certain aspects of the Chicago-Fmnkhrt and Washington, D.C.- Fr- nonstop markets should be excludeci hm the grant of antitrust irnmunity, the Justice Department appears to have a general concern that other airlines may bc relatively unlikely to provide nonstop service on these routes, since the applicants have the competitive advantage of hubs at both ends of each route. The Justice Department appears to reason that, for certain especidy time-sensitive business travelers, comecting semices do not adequately discipline the fans and se~ceoffered by nonstop carriers. (...) the number of nonstop cornpetitors would, at least in the short term, necessarily decline from thrcc to two carriers. Without markets, the US DOT did not find any barriers to en- or any antixompetitive effect as a result of the alliance, The last markets reviewed by the US DOT are the "behind and beyond-gateway" markets, which did not represent any serious concem. The US ûOT estimated that the alliance wouid remit in improved on-line comecting opporhuiities to at least 205 cities to Europe and beyond.' For the US DOT, these markets do not comtitute any threat to competition, as many alternatives are available for travelers in those devant markets. Overd, the US DOTS analysis of aU the above mentioned markets has, in our opinion, oniy brieay reviewed the possible implications of the effect of the alliance on competition. In applying the merger test of the Clayton Act, the US DOT is not king very demanding; when this test is applied to mergers, it should impose a tougher analysis than the one attained by the US DOT. Perhaps the US DOT has adopted a softer approach due to the temporary nature of the antitrust immunity granted. If the only safeguards to abuse of competition in new open skies markets are antitrust laws, the imrnunity that prohibits the application of those same laws should not be granted without a thorough study. 4.1.2.2. The Revïew by the Bundeskartellarnt Although the US DOT seemed to be the only concern for carriers who wanted to merge their services without an actual merger, the recent decision of the European Commission to review transatlantic alliances has caught the attention of authorities of countries of which carriers have been granted antitrust addressing here the DM-views, we note simply that the appücants' agreement with the Justice Departrnent elhinates this issue regarding competition in the nonstop markets." Order 96-5-12 at 56-57. lB6 Order 96-5-12 at 59. immunity.lm The Gemran antitrust authoritpthe Bundeskartdamt-started its examination of the competition impiications of the Lufthansa and United alliance in Jdy of 19%? The inquiry by the Bundeskartejlarnt wiU be based on EU law rather than on German national law.lm The competence of the German competition authority to engage in such an inquiry is deriveil fiom Article 88 of the EC Treaty.la The Bundeskarteiiamt made the point that it was acting in accordance with Article 88 and 85 of the Treaty of Rome, in conjunction with section 47 of German Antitrust Law.'" The Bundeskartellamt questioned the exdusive competence of the European Commission found in Regdation No. 3975/8Fa and Regulation No.17LB. After raising these issues, it is now fully cooperating with the Commission and their investigation.1g4 There is no given date for the condusion of this probe by the German competition authority. The fïnd findings will be of great interest, especidy as the European Commission is tackling the same issues. There is no indication as to which entity will render its report fust, but since the authorities are coliaborating, it is not unreasonable to assume that their reports will probably reach the same condusion --- Foliowing the July 3, 1996 decision of the Commission to rcview six different cooperation agreements, the Gennan national authority dso decided to inquire the aiiiance involving Lufthansa- See 'German Cornpetition Watchdog Pro0bes UAL/Lufthansan, The Reuter European corn muni^ Report, August 12, 1996. See also 'Antitrust is key in open skies talksn supm note 90. 'German Cornpetition Watchdog Robes UAL/Lufthansa", &id ibid See supra Section 3.2. Supra note 106. More precisely, set Article 7, paragraph 2 of the Directive- Set Section 3.1 that discusses those issues in greater details. More prccisely, sec Articie 9, paragraph 3 of Regulation No. 17. See supra note 129- Sualso supro note 106. 4.1.2.3. The Benefits of the Lufthansa-United Alliance With the United and Ldthimsa immunized alliance stiIl young, it is more difficult to assess the benefib that the immunity has brought to date. Clearly, however, there is great hope from the carriers with respect to the bertefis that the alIiance has the potentiai to bring. Such expectations cm actually be derived £rom the negotiating process that Ied to the open skies between the US and Gemiany; as mentioned previously, the immunity was an important factor in the condusion of the agreement.lgs 4.2 Other Alliances Granted Antitrust Immunity The KLM-Northwest and United-Lufthansa alliances paved the way for other chersregarding the requesting and granting of antitrust imrnunity. Carriers of countries that had signed or that were in the process of signing open skies treaties requested the immunity hom the US DOT.'% Swissair, Sabena, Austrian Airlines, SAS, British Airways, Delta, American Airlines, United Airlines, Air Canada and Canadian Airlines are aU carriers that are or have been involved with the US DOT with respect to antitrust immunity." In addition to the above mentioned alliances between KLM/ Northwest and United/ Lufthansa, the diances between Delta/ Aushian Airlines/Sabena/SwissairL98, between See D. Bartkowski, supra note 167. Set also M. Jennhgs, 'Germans Hold Key to Antitrust Issue", Airline Business, March 1996, at 74. Here, we are discussing the immunity for Rlliances that aiiows carriers to operate as if a mergcr had occmed bctwttn the camers. irnmunity was granted to carriers of countries without an open skies in force with the US, but this immunity was only for block-space arrangements or code-sharing. An exampic of this is the BA-US Air code share alliance that received the immunity for their code-sharing arrangements. As of January l*, 1997. Joint Application of DELTA AIR LINES, RVC. SWISSAIR, SWISS AIR TRANSPORT COMPANY, LTD. SABENA S.A., SABENA BELGïAN WORLD AiRLINES, and AUSTRVW AiRLiNES, OSTERREICHISCHE LUFTVERKEHRS AG for approval of and Antitrust lmmuniw for Alliance Agreements pursuant to 49 U.S.C. @ 41308 and 4 1309, Order 96-6-33; Docket OST-95-6 18, Department of Transportation, Aviation and International Affairs, June 14, 1996. (hcreinafter Order 96-6-33). SAS/United/Lufthansa, and between Canadian/AmericanlWwere each granted antitrust immunity. Other bids for antitrust imunity are stiü pending. And the next months and years will probably bring new applicants as many airlines are attempting to jump on the bandwagon of antitrust immunity and join the so- caiIed "third wave of strategic aidine allian~e."~For now, we will study in greater detaüs the last three alliances that were granted antitrust immunity by the US DOT. The conditions attached to those alliances are similar to the limitations imposed on the United/Lufthansa alliance (no common me;IATA withdra~aI;~2and fifIing requirements). Furthermore, those ailÏances have established the international pIicies of the US DOT. Joint Application of AMENCAN AIR-, INC and EXECUTIVE AIRLINES, INC, FLAGSHIP AIRWNES, INC., SIMMONS AIRLINEÇ, INC., and WLNGS WESï AIRLINES, INC, (d/b/a AMERICAN EAGLE) and CANADIAN AIRUNES INTERNATIONAL LTD., and ONTARIO DCPRESS LTD. and TIME AIR INC. (d/b/a CANADIAN REGIONAL) and INTER-CANADiAN (lm)LNC. for approval of and antitrust immunity for a commercial alliance agreement under 49 USC@@ 4130% and 41309, Order %-7-21; Dodcet OST-95-792, Department of Transportation, Aviation and International Affairs, Jdy 15,1996- fiereinafter Order 96-7-2 1). The Air Canada/United Airlines application for antitrust immunity is still pending . The last order in this case was datcd July 12, 1996 and it was an Order estabiishing Roccdural Schedule. Order 96-7-16, British Airways and American Airlines also ûkd their application January 10, 1997. See J.A. Donoghue, The third wave of strategic airline ailiftnces", Air Transport World, July 1996 at 7. The Canadian/American antitrust immunity did not rtquire the withdrawal from the IATA tariff coordination activities for two reasons: First, 'Che US-Canada markets had never been part of those activities; secondly, Arnerican withdrew in 1994 from the MApassenger tariff coordination. Since the atlisncc covered the trans-border market only, the DOT found that its actions would have no impact on IATA activities. Set Jomt Application of AMERICAN AIRLiNES, W. and EXECUTNE AIRLINES, INC, FLAGÇHIP AiRLINEÇ, INC., SIMMONS AIRLINES, INC., and WLNGS WEST AIRLINES, INC. (d/b/a AMERICAN EAGLE) and CANADIAN AIRLINES INTERNATIONAL LTD., and ONTARIO EXPRESS LTD, and TIME AIR INC. (d/b/a CANADIAN REGIONAL) and INTERCANADIAN (1991) iNC. under 49 USC 41308 and 41309 for approval of and antitrust ùnmunity for commercial alliance agreement, Order 96-5-38; Docket OSï-95-792, Department of Transportation, Aviation and Intemationai Affairs, May 28,19%, at 25. (hereinafk Order 96-5-38). The third alliance that received antitrust irnrnwiity is the cooperative agreement between the American carrier DeIta and the carriers of three European countries (each having signed an open skies with the United States) i-e. Austrïan Airlines, Sabena and Swissair. This aiiiance is significant as it demonstrates the decisional power of the US DOT over the recommendation power of the DOJ. It also reconfinnç that the US DOT'S main interest Is globaIization- 4.2.1.1. The Struggle Between US DOT and US DOJ It took some thefor the US DOT to Mygant the requested immunity to the four applicants. The appiication, filed on September 8, 1995, received its Final Order on June 14,19%." The delay was due mainly to the concerns of the US DOJ with respect to the lessening of competition that these alliances couid bring on some routes? The US DOJ's main concem was regarding the between- gateway c~rn~etition.~Those concerns, however, were partidy rejected by the US DOT in the Order to Show Cause, where the US DOT only iimïted the immunity to the markets that the carriers and the US DOJ had agreed upon, and did not consider the 0th- markets about whïch the US DOJ had expressed concernm The markets that the carriers and the US DOJ had deterrnined should be carved-out from the immunity were the Atlanta-Zurich, Atlanta-BrusseIs and Cincinnati-Zurich markets; the four other markets, representing four New-York 'O3 See Order 96-6-33. The treatment of the Lufthansa-United request for immunity took approximately 3 months. 'O4 Apparently, the US DOT was waiting for the DOJ to be completely satisfied with its competition analysis. Set 'For Immunity, Rcad Disunity", Airline Business, April 1996 at 74. 'O5 The foUowing city-pairs raiseci concerns with the US DOJ: Atlanta-Zurich, Atianta- Brusscls, Cincinnati-Zurich, New York-Zurich, New York-Geneva, New-York- Brussels and New York-Viema- Sec Order 96-6-33 at 10. 206 Order 96-6-33 at 1 1. city-pairs, were not carved out, either voluntarify by the appiicants or by the US DOT in its Order to Show Cause. And despite further argumentation by the US DOJ, the US DOT stU rejected the Iimitations on immuflity whidi the US DOJ was seeking with respect to the four New-York aty-pairs. The US DOT ciid, however, acknowledge the position of the US DOJ in the Final Order that granted the immunity to the four carriers: The DOJ Mysupports our tentative decisions (1) to condition and limit our gant of antitrust immunity in the Atlanta-Bnissels/Zurid\, and Cincinnati-Zurich markets; (2) to impose certain limitations on IATA tariff coordination activities; and (3) to require Austrian, Sabena, and Swissair to report full-itinerary O&D Survey data. The DOJ does have certain concerm as to our tentative grant of "fuil" antitrust immunity for the four New York markets and suggests that we reconsider our determinations regarding these markets in certain respects. DOTS cornpetitive concerns, as to these markets, are (1) "tirne-sensitive travelers do not have good substitutes for nonstop scheduled airline service"; and (2) "the prospects for entry by additional airhes into the New York markets that is sufficient and timely enough to deter or counteract the potential anticompetitive effectsof the AUiance Agreements in these markets are remote." DOJ's analysis iç that the alliance will reduce nonstop competition in the New York marketplace. DOJ further suggests that for the the- sensitive (largely business) passenger one-stop service is not a reasonable substitute for nonstop service, and that the Ioss of competition in the New York market(s) potentiaiiy threatens the tirne-sensitive business passenger with the possibility of anticompetitive price inaeases. Moreover, the DOJ questions our tentative judgment that existing competition and the prospects for new entry in the New York marketplace, a prospect that DOJ states could mitigate its concerns about lost competition in these four markets, will be of a timdy and suffiaent charactes to deter or prevent any anticompetitive effects of the Aliiance Agreements. Finally, while the DOJ states that it My intends to work with the Department in monitoring the affected markets, the DOJ suggests that we reconsider our determination granting hill immunity for the four New York markets m7 The US DOT did not seem to be concerned with the New York markets, although the DOJ analysis did rake some issues about cornpetition on these routes. In our opinion, the concerns of the DOJ are realistic. The alliance will leave only one competitor offering the non-stop services on the New York- Brussels and New York- Zurich routes. On the New York-Geneva and New York- Vienna markets, Delta will be in a monopolistic position on non stop services? Aithough not di passagers will be affected by this anti-competitive situation, time-sensitive passengers wiU be affected. Furthermore, the US ûOT rejected recommendations of another department of the US Governrnent and, instead, granted an airline the immunity they wanted, Myaware of its anti-competitive effect? By agreeing to this oiigopolistic or monopoiistic situation, the US DOT is £irmly stating that its main purpose is to stay in line with the 1995 Poiicy Statement of the US DOT and of transportation secretary Frederico Penazm The Delta alliance, the third one that gained irnmunity from the US DOT, thus demonstrates how the granting of antitrust immUNty is reviewed by the DOT in a manner that, at thes, discards competition/antitnist considerations1 to favor the department poli~ies.~~~The alliances partners seeking immunity have on Order 96-6-33 at 10-11. Set also: mismissing DOJ Concerns, DOT Approves Antitrust Immunity for Delta Alliancen, Aviation Daily, June 18, 1996, at 459. See the Order 96-6-33; Sce also Jennings, Mead 'AUianccs Still not Immune from Risk", Airline Business, Juiy 1996. 'Delta's opposition to a carve-out on New York was well known, and, under the circumstances, not unrcasonable- More surprising was that the DOT broke from the DOJ's recommendation and sided with Delta. DOT maintains that because open skies betwecn the US and Switzcrland, Austria and Belgium was a prerequisite for the approval of antitrust immunity, any airline is fret to enter these markets and compete." Jennings, Zbih International Statement, suptcl note 1. As mentioned beforc, open skies and general globalization of the international aviation market. Ibid their side a favorable presumption that their alliances are proiompetitive and pro-consumerf at least from the US DOT'S point of view. It seems that the US DOJ's antitrust review, which couid ensure a proper antitrust review, is being dixarded by the US DOT when the US DOJ's opinions are not shared by the appiicants.a2 It is probable that the situation wiii not improve as the US DOJ and the US DOT do no share the same opinion on the raison dfêfre of antitrust immunity. The Assistant Attorney General of the US DOJ dearly stated the view of the DOJ on the subject of antitrust immunity: " Our view is simply stated. It is not necessary for code-sharing partners to receive immunity for any agreement that would not violate the antitrust Iaws. And conduct that wouid violate the antitrust Iaws shouid not be permitted, much Iess imrnunized."lu The next immunity granted. however, did not involve or lead to official disagreements between the US DOT and DOJ. It is the Canadian Airlines/American Airlines carriers alliance. 4.22 The Canadiiui/ American Airlines alliance ALready, in 1992, the two carriers were part of an alliance (code sharing) and, as many other carriersf were preparing for the "inaeasingly global nature of aviation cornpetition." a4 The next logicd step for carriers wanting to integrate their operations as much as possible, in Lght of the signing of an open skies The DOJ's recommendation in the United-Lufthansa application were followed since the appficants thernsclves submittcd their application to the DOT with the DOJ's recommendcd came-outs. The same phenornena occurred in the Delta application. Speech of Assistant Attorney Gencrai Anne Bingaman at an Amcrican Bar Association Meeting. Sec J. Feldman, 'Some Cd it Oligopoly; Regulators are Asking Questions About Code-Sharing Alliances and th& Effect on Cornpetition, EspeciaUy on the North Atlantic." Air Transport World, May 1996, at 45. Scotia McLcod's Sixth Annual Canadian AkW and Aerospacc Investment Conference - Toronto - June 3, 1992. Remarks by Donald J. Carty, Executive Vice- Resident of Amencan Airlines Inc. W. Carty had also underlincd the fact that American, through its proposed arrangement with Canadian, was not trying to "exercise control over a very capable and very cornpetitive Canadian corporationw. between the respective country of each carrier, would be a request for antitrust imrnunity. This request was made by Canadian and American Airiines. 4.2.2.1. The Phase-in Open Skies ï'reaty The situation, however, was different in this case, given that the Canada and United States open skies treaty, signed in 1995, would ody completely take effect on February 24,1998. Und then, American carriers do not have unlimited access to the three largest Canadian aties: Montreal, Vancouver and Toronto. The restrictions will be phased in within two years of the signing for the Vancouver and Montreal markets, and within three years for Toronto. Consequently, at the time of the Final order grantirtg antitrust immUNty to both carriers, on July 15, 1996, the aviation relations between Canada and the US were not regulated by a tnie applicable open skies treaty.21s Naturdy, this situation raked many concems arnong other airline~.~~~They questioned this decision of the DOT since, in their opinion, the DOT had made the signing of an open skies treaty a condition for antitrust immunity.m The Final Order was serveci on July 16, 1996. Joint Application of AMERICAN AIRLJNES, NC.and EXECUTIVE AIRLINES, INC,, FLAGÇHiP AïRLNES, KySIMMONS AIRLINES, INC-,and WINGS WESï AiRLïNES INC (d/b/a AMERICAN EAGLE) and CANADIAN AIRLINES INTERNATIONAL LTD., and ONTARIO EXPRESS LTD. and TIME AIR INC- (d/b/a CANADIAN REGïONAL) and INTER-CANADIAN (1991) INC. for approval of and antitrust immunity for a commerciaï alliance agreement under 49 US.C. 41308 and 41309, Order 96-7-21; Docket OSï-95-792, Department of Transportation, Aviation and international Affairs, July 15,1996. (hereinaftcr Order 96-7-2 1). See the Anstuer of Northwest Airiines, Inc., Docket OST-95-792 at 3, where there is a chart's cornparison of the open slcies elements of the US-Canada and US- Netherlands bilaterals- See also Anmer of Aù Caruzdo, Docket OST-95-792 at 4. Delta and United asked the DOT not to consider the application of Amcrican and Canadian untii dl the phase-in restrictions were eiiminated- Before the ha1 order was issued by the US DOT, Delta referred to a decision granting the immunity without a treaty permitting US carriers de fado and de jure open access, as a senous policy cmr. 'Delta Joins United Seeking Amencan-CA1 Reconsideration." Aviation Da*, August 19, 1996, at 281. See also Orâer 96-7-21 where Air Canada, Continental, Delta, TWA and United all filed rcsponse to the tentative granting of antitrust immunity by the US DOT. The Order to Show Cause had ben issue on May 28, 1996. Order 96-5-38, Docket OST 95-792, Served May 29, 1996. (hereinafter Ordcr 96-5-38). The US DOT, however, did include restrictions that refiected the current state of the bilateral agreement in force. Limitations attached to granting of immunity corresponds to some of the limitations irnposed by the treaty. In addition to the usud conditions irnposed on the previously studied immunity, the following ones were also attached to the Canadian-American situation: (i) the approvai and immwüty shail granted in this proceeding shd not apply to operations involving d-cargo services or to operations involving services to or from third counhies; (ii) the approval and imrnunity granted in this proceeding shall not extend to the foilowing activities shd not extend to the followùig activities by the parties: pricing, inventory or yield management coordination, or poohg of revenues, with respect to local U.S. po"t-of-sale passengers flyixtg nonstop between New York and Toronto or provision by one party to the other of more information conceming current or prospective fares or seat availability for such passengers than it makes available to airlines and travel agents generall~.~I8 The exception of paragraph (i) is entirely consistent with the USCanada open skies agreement entry by airlirtes is still subject to limitations. Paragraph (ii), however, only refers to the Toronto-New York route. No reference is made to any USMontreal or USVancouver routes, to any route other than the Toronto- New York markets. The US DOT found that no other restrictions were necessary with respect to Montxeal, Vancouver and Toronto routes (beside the Toronto-NY market). The analysis of the US DOT indicated that no significant reduction in cornpetition would occur in the relevant markets21gcovered by the immunity, 218 Order 96-7-21 at 72-73. There is the limitation of (ii) exceptions with respect to discounted fare products; in some specified cases, the imrnunity wiiï cover activities of the carriers on the New York Toronto route. Set Order 96-7-2 1 at 72 to 74. 219 The relevant markets arc the US-Canada market, the various city-pair markets, the overalt US-Montrcal/Toronto/Vancouver markets, and the trans-border behind- and-beyond gateway markets. See Order 96-7-21 at 65. following the implementation of the alliance.M Although cornpetition might not be reduced on these routes, some of the routes that were immunized are not, at least for now, as freely accessible as they should (or will) be under the open skies treaty. The US DOT justified its decision by explaining that the restrictions in the treaty for Vancouver and Montreal would end in a relatively short time. It aiso explained that only entry to Toronto would be more significantly iïmited, and that this restriction wodd not occur indefinitely. On those basis, the US DOT effectively rejected the arguments of rnany car&rs:~1 Thus, the airlines opposing the gant of antitrust imrnunity are essentialy daiming that giving American and CA1 immunity is unwise because US entry at two Canadian points wül be restriaed for an additional seven months and a third point will be restricted for nineteen months. We find these arguments unpersuasive. As a practicai matter, even if the United States were to negotiate with the Canadian government for an immediate uplifting of ali entry en frequency limitations at Montreal and Vancouver, at this point it is udikely htany US Carriers codd undertake major expansions of service to these dies More automn (or even early winter). Except for winter leisure markets such as Florida and Hawaii, therefore, the best tirne this year to begin new or expanded USCanada semice has aIready passed; we believe that the cornpetitive need for sigmficant merUScarrier expansion at Montreal and Vancouver is sdMore the Spring 1997, after all restrictions on transborder services to these two cities e~prire.~~* The US DOT rejected the argument and criticism of carriers concemuig the granting of immunity before the complete application of the open skies treaty2* Order 96-7-2 1 at 65. Order 96-7-21 at 62. Order 96-7-2 1 at 58. One airline stattd, in its responsive pleadings the by granting the imrnunity, the US DOT would be ?urning its international aviation policy on its head and sending foreign governments preciscly the wrong message." AIthough it stated that it has not breached its international policies by doing so, it added, that this situation was a unique one. uinsting on the fact that no other market resembled the USCanada market, the US DOT furtIier emphasized that it wodd continue Vtsisting on the aistence of full open-skies agreements as a requirement to its consideration of application for antitrust imm~nity.*~ 4.2.2.2. The Air Canada Antitrust Immunity Bid The antitrust immunity granted to Amencan and Canadian radmore debates when an application for antitrust immunity was filed by United and Air Canada on June 4, 1996. At that point, the Final Order for the American/Canadian request had yet to be issued. Some carriers asked the US DOT to consider those applications sim~ltaneously.~This resdted in a response of outrage kom American and Canadian Airlines who had filed application for immunity on November 3,1995? The US DOT did not accept the arguments of the carriers, and went ahead with the Canadian and Arnerican application. Meanwhile, the United and Air Canada bid is still pending. The same arguments that were brought up against the American-Canadian alliance are already king used against the second alliance involving a Canadian carrier. American carriers are now fighting against this alliance more strongly as Air Canada is a much bigger operator on USCanada routes? As the absence of an open skies treaty did not preempt the US DOT hom granting the immunity the first time around, it will be interesting to see how the US DOT wïli handle the United and Air Canada application. 224 See Order 96-7-21 at 5 1- 225 See 'United Bid to Block American-CA1 Antitrust Immunity Draws FUe," Aviation Daily, August 8, 1996 at 220. See also 'Delta Join United Seeking American-CA1 Reconsideration", supra note 2 17. 226 rt)s 227 "United/Air Canada Antitrust Bid Spurs Industry Opposition" Aviation Ddy, August 6, 1996 at 206- The American/Canadian immunizeci alliance demonstrates, once again, how far the US DOT is willing to go to reach an open and kee international market. The US DOT has Ied the aviation industry and governments to believe that it wodd not grant antitrust ïmmunity unles an open skies treaty would be My applicable. The antitrust immunity was the reward for the signing of an open skies agreement? Referring to the definition of open skies, set in a US DOT Order of 1992, it cannot be conduded that the present treaty between the United States and Canada, in effectat the fime of the Final order between Arnerican and Canadian, fits the US DOT'S interpretation of open skies. Consequently, to be hue to its poliaes, the US DOT, in our opinion, shouid have waited until Febrilary 1998 to gant the antitrust immunity to Canadian and Arnerican. Without a doubt, the same comments apply to the pending Air Canada-United bid for immunity. It cmbe argued that the grantuig of immunity in this case would fit the "reward rationale" of the US DOT since Canada did sign an open skies with the United States. The granting of antitrust immunity, which gives a competitive edge to two carriers, however, must not be done in a market where there stiIl exist barriers to entry. Free cornpetition in a market must prevail More cornpetitors car, benefit £rom a competitive advantage granted by the govemment. 228 "DOT also implied a favorable treatment of future applications by other US and foreign airiines in exchange for liberal aviation accords", GAO Study at 52. 229 "Open-Skies agreements with foreign countries give any authorized carrier from either country the ability to sene anv route between the two countries (and open intermediate and beyond rights) if it so wishes. These agreements place no limits on the number of fiights that can be operateci, and carriers can charge any fare unless it is disapprovcd by both countries." Order 92-8-13, August 5, 1992. [emphasis added]. 4.2.2-3. The miew by the Canadian Govemment The Canadian government did not formally intervene in the pmceedings of the US DOT with respect to the application of Canadian carriers for antitrust immunity. At the end of March 19%, however, the Canadian Govemment sent a Diplornatic note to the US Government stating their opinion on the concept of antitrust immunity. In that note, the Canadian Govenunent stated that it believed that the current agreement between both countries aeated an appropriate context for the favorable consideration of applications for antitrust immunity in the Canada-US market? The Bureau of Competition Policy-the Canadian entity that has the powea to review strategic ailiance~onductedits own inquiry on the afian~e.23~Their investigation remained confidentiaI.232 Since, however, the Bureau did not make presentation during the US DOT proceedings, it is probably deto conclude that the results of their inquiry did not foresee any violation of the Competition Act sternrning £rom the diance between Canadian and American 4.23. The Scandinavian Airline@dbans@Nted AUirnce The Open Skies treaty between the governments of the United States and Denmark, Norway and Sweden was signed on June 16,1995. Approximately a year Iater and foUowing the forging of this new aviation relatiowhip, an application was filed by the Scandinavian carrier and two other carriers already 230 Joint Application of UNiTED AIR LINES, INC. and AIR CANADA for approval of and antitrust immunity for an Alliance Expansion Agreement under 49 US.C. @@ 41308 and 41309, Docket OST-96-1434, Department of Transporfation, Aviation and International Affairs, June14,19%, at 8. 231 The Bureau does review strategic nllianccs under the Canadian Competition Ac?, R.S.C. 1985, c. 34. Sec 'Strategic Alliances Under the Cornpetition Act", Director of Investigation and research, industq Canada, 1995. 232 Conîlrmed through a telephone conversation with the Bureau of Competition policy. covered by the immunity, Lufthansa and United. P3 The Çcandinavian Aulines (SAS)/Lurthança/United alliance4 is the last immurüty granted by the US DOT? This immunïty did not evoke controversy, as the Lufthansa and United alliance had already been given immunity from antitrust Ia~s.~"It also did not raise a host of controversies since SAS is not a major carrier and does not hold an important share of the Amencan market? It is important to note, however, that this alliance is also king reviewed by the EU Commi~sion.~The European carriers of the alliance, Lufthansa and SAS, already received exemption from EU cornpetition law~.~~ The alliance did raise two issues: the IATA withdrawal condition and the Arnerican Airiines intervention. These wiii be dkussed next. The application by United and SAS was Ued on May 28, 1996, Docket OST-96- 1411. United, SAS, and Lufthansa hled, on August 14, 1996, Docket OST-96-1646, an application for approval and antitrust inimunity for a "Coordination Agreement" involving the three camers. On that same date, the three carriers Ned a motion to consoiidate for decision the applications of May 28, 1996 and of August 14, 1996. See Order 96- 1 1-1 at 18. Joint Application of UN- AIR UNES, NC.and SCANDINAVIAN AIRLINES SYSïEM for approval of and antitrust immunity for an Expandeci Alliance Agreement under 49 U.S.C. 41308 and 41309, Docket OST-96-1411, Depariment of Transportation, Aviation and International Affairs, June 7,1996; and Joint Application of UMTED AIR LJNES, K. and ÇCANDINAVIAN AIRLNES SY5EM for approvai of and Antitrust Immunity for an AUwce Expansion Agreement under 49 US.C @@ 41308 and 41309 Joht Application of UNïTED AIR LINEÇ, INC. DEUTSCHE L-SA, AG. and SCANDINAW AIRLINEÇ SYSIEM for approval of and Antitrust Immunity for a Coordination Agreement under 49 U.S.C @@ 41308 and 41309, Order %-11-1; Dodcet OST-96-1411, Docket OST-96- 1646, Department of Ttansportation, Aviation and International Affairs, November 1. (hereinafter Order 96- 11 - 1). As of Januq 1, 1997. Order 96-5-27. The US-Europe non stop market shart of SAS is 1.7%. The tripartite alliance combined share is at 15.5%. Ordcr 96-1 1-1 at 15. See supra note 91. See supra Section 3.1.1.1. 4.2.3.1. The LATA Withdrawal Condition The conditions that were attached to the Lufthansa-United immunity were camed over to this tripartite alliance.240 Once again, the carriers had to (and agreed to) withdraw from the IATA tarilf coordination, despite another attempt by IATA to convince the US DOT not to impose such a condition on the The US DOT underlined that this condition was Iimited to prices between the United States and countnes that have recognized "the concept of cornpetitive pricïng and for whom the gant of hceimmUNty is a reasonable substitute for IATA tariff conference If the US DOT imposes the IATA 'By this Order, we grant approvai of and antitrust immunity for (1) an Alliance Expansion Agreement, betwetn United Air Lines, tnc. ("United"),and Scandinavian Airlines System ("SAS), and their respective subsidiaries; and (2) a Coordination Agreement among United, SAS, and Deutsche LuIIhansa, A. G. (" Lufthansa"), coilectively referred to herein as the "Alliance Agreements," (. ..). Our action here is subject to the various terms, conditions, provisions and limitations imposcd by the Department of Transportation ("the Department") in Order 96-5-27, dated May 20, 1996." Order 96-11-1 at 1. Apart from the Northwest/KLM and the Canadian/American alliances, others alliances that received immunity had to withdraw from MTA tariff coordination. The latest carriers requesting antitrust immunity from the US DOT will most certainiy have to withdraw as a condition to their immunity. This condition will also affect the Northwest/KLM immunity when it returns back to the US DOT for renewal of its antitrust immunity. The withdrawal condition is evidentiy a threat to iATA tariff coordination: =An MAofficial avers: This is the most serious threat to IATA's rate making machinery' ", whcn the now-defu.net US Civil Aeronautics Board threatened to withdraw immunity from IATA North Atlantic tariff coordination- Diplornatic pressure at the time forced the DOT which took over CAB'S duties, to retreat. Now, DOJ and DOT think withdrawai by individuai carriers would cause less of a stuik than the government's taking more direct action against IATA". See J. Feldam, supra note 213. It is important to underlined that on this issue, both US DOT and DOJ are in agreement- Set dso Order 96-11-1 at 18-19. Order 96-11-1 at 47. in this same ordcr, the DOT meraàded that this IATA withdrawal condition was imposeci in order to meet public interest needs and explained why: The immunity requested in this proceeding includes broad coverage of price coordination activities bctween the applicants. With respect to intemal AUiance nceds, tarifi coordination through the IATA conference mechanism is dupiicative and unnecessaxy. At the same time, one of the reasons that we fïnd supports immurùty for the proposed Alliance activities is the potential for increased pnce competition between the Alliance carriers and other carriers, particularly other intemational alliances. We believe that such potentiai competition will, on balance, outweigh any potential anti-cornpetitive effects of pricc coordination within the Alliance itscff and encourage the passing on of economic efficiencies realized by the Alliance to consumers in the fonn of lower priccs. Permitting the aiiiancc carriers to condition on future immUNties, it could seriously jeopardue iATA's tariff coordination, 4.2.3.2. The American Airlines Intewen tion The other issue rising fiom this present imrnunity situation involved the intervention by American AirIines. First, American established it was not opposed to the application by the three carriers. Rather, the comments of Amencan highlighted the double standard that they argued United maintains towards other requesb for immunities. American contended that United is trying to convince the US DOT to apply two sets of deswith respect to antitrust immunity: one for its own request, and another one for its rivais2- The US DOT did not reply to those comments raised by American. Through this intewention, and by not contesting the request for immunity of the joint's appiicants, Amencan, it seems, was paving the way for the upcoming review of the British Airways/ American application for immunity. Even though British Airways and Arnerican Airlines have only recently forrnally appiied for antitrust immwüty hmUnited States laws, already the idea of a "virtud alliance" between these two powerful carriers is causing a stir in the aviation industry, as weil as awakening the vigilance of antitrust authorities. This upcoming alliance already underwent the xnitiny of the United Kingdom Office of Fair Trading. And more reviews are coming. The following section will discuss the significant issues engendered by the union of these two carriers from both sides of the Atlantic- continue coordination within IATA undermines such cornpetition." Order 96- 11-1 at 46.- 243 See Order 96-1 1-1 at 19. 4.3. The Proposed Alliance: British Airways/ Arnerican Airlines The proposed Bnti~hAirways and American Airlines alliance has already attained an unprecedented Ievel of attention for an alliance between air carriers. The first major consequence of this probable alliance was the "awakening" of the EU Commission. As a resuit, the Commission decided to study all immunized @y the US DOT) alliances. The involvement of the EU also Ied to the review of the carriers agreements by national authorities. Consequently, the United Kingdom Govemment Iaundied its own inquiry. This inquiry wiU be discussed in the foLlowing section, but first we will review the position of the United States and of the United Kingdom with respect to an open skies treaty. 1 The US-UK Bilaterai The Bermuda 1 Agreement, entered into in 1946 by the Unites States and the United Kingdom, is the most famous and first major bilateral treaty in aviatiom2* It represented a compromise between the free market approach of the United States and the more conservative approach of the United Kingd~rn.~~~This treaty became the mode1 for many future bilateral agree~nents.2~6In 1976, the Bermuda 1 Agreement was denounced by the United Kingdom, and was eventudy replaced by the Bermuda II Treaty2ia generaily more restrictive accord." The 2w Agreement Bctween the United Kingdom and the United States, 11 February 1946, 60 Stat. 1499, TIAS 1507, 3 UNTS 253. 245 R.I. Abeyratne, Would Cornpetition in Commercial Aviation Ever Fit into the World Trade Organization?" [1996) 61 J. Air. L. and Corn. 793 at 805. 246 See B. Stockfkh, supra, note 24. 247 Agreement Between the United States and the United Kingdom and Northem Ireland, July 23, 1977, 28 U.S.T. 5367, T.I.A.S. 8641. See Stockfish, supro, note 24 at 616. The Bermuda II constrauled the market, particularly for senrices from London. London is only able to scwe a furcd Est of airports in the United States. Ah, faxes must be appmved by both countries on aU UK-US flights. shift from these types of accords to the open skies treaty is, therefore, a significant advancement- The United States and the United Kingdom have attempted on many occasions in the past years to reach an aviation agreement that would liberaüze the airihe traffic between then Negotiations have been more intensive in the last few months, but stiU to no avail. In late August 19%, the US Government cancded a negotiation meeting between both Govemments foIlowing its review of the proposal submitfed by the United Kingdom for that The US Govemment felt that the proposai did not contain the essential elements required by the open skies regime, agreements that they have already attained with other countries.250 The negotiations resumed in December 19% and February 1997, but to date an agreement has yet to be reached. The current state of negotiations does not seem to indicate the signing of an open skies in the near Currently, the goals of both countries are very different. The UK, in their proposal, daimed they had made significant changes that remove many of the restrictions in the current USUK markets; they argued the easing of these restrictions would open access to every airport on both sides of the Atlantic, induding Heathrow and Gatwidcs2 Both countries, however, C. Shifnn, WS Scutües Talks with UK" Aviation Week and Space Technology, September 2, 1996, at 78. Ibid. The December 1996 t&s restarted the negotiating process, with no negotiation, however, on corc subjects. Some suggest that the open skies negotiators will remain tied until the British final decision on the proposed alliance. See E. Fernandes, "No US/UK Open Skies Deal Sen Until 1997", The Reuter European Comniunity Report, December 6, 1996. Sec also WS-UK Air Taiks May Go Nowhere Any Time Som: Shanen,World Airline New, September 16, 1996. "US Canceîs Talks with UK After Disappointing Proposal", World Airline News, September 2, 1996. still do not seem to see eye to eye on three different issues: beyond rights, pncing, and dispute resolution mechanism.w The issue of the bilateral negotiations is, hence, a very important one, since the proposed alliance between British Airways and Arnerican Airlines will probably not occur without a liberalized agreement- It is likely that the US DOT will probably not grant antitrust immUNty without an open skies treaty. The UK Government also requires a substantiaily liberalized accord? The proposed alliance is, thus, pushing both governments into negotiation The other ahnces considered in this study revealed that the possibility of receiving immunity, at least in the United States, was possible only after or at the same time of the signing of an open skies (even if the open skies treaty was not entirely applicable). In the USUK case, the alliance is not only accelerating the negotiating process, but it is also king reviewed by many cornpetition authorities. These reviews are occurring More any liberalized accord or concrete promises of such an accord. T~us~the carriers filed their application to the US DOT without any blueprint for an open skies treaty king in place. The situation, accordingiy, cannot be compared to any pievious immunized alliance. In the case of Lufthansa and United, although the immunity was signed More the treaty itself, the treaty had been finalized and had to be signed in oider for the immunity to survive its initiai approvai. For Canadian and Arnerican, the open skies was already signed. Therefore, if the immunity is granted in this British Airways/American case by the US DOT before an open skies accord is in 254 The alliance is foreseen to operate only if the market for air senrices betwcen London and the United States is Libcralised substantially" were the comment of Ian Lang, Presidcnt of the Board of Trade and Secrctary of State for Trade and Industry. 'British AUways/Amencan Airlines: Ian Lang Sets Out Undertakuigs Needed to Address Cornpetition Concems", DTI Ress Release, December 6, 1996, P/96/916, at 2. place, it would, in ou.opinion, run counter to the estabiished "reward poücy" of the United States. Although both carriers are confident that the signing of an open skies treaty between theu respective countries is imminent, the present negotiations are still on subsidwes issues which must be addressed prior to achievùig a formal The open skies treaty is ody one of the obstacles facing the carriers. They will also have to gain the approval of London, Washington and the European Commission for their proposed aIIiance. This cornplex and diffidt process is the pnce the alliance must pay to become the world's largest air transport entityF 4.3.2 The United Kingdom Govemment Review British AiMrays and American Airlines signed an agreement on June 11,1996 for the establishment of an integrated air transport system between both carriers for transatlantic services between Europe and the United States.2S7 The joint operations are planned to start on April 1, 1997. In order to meet regulatory approvais, the carriers made a submission under the merger provisions of the UK Fair Trading Act on June 17,19%. In order for the British Goverrunent to have the power to review the proposed alliance under the N Competition Laws, it had to propose legislation dedaring its cornpetence and authority to apply Community cornpetition des. They did so by enacting the EU Competition Law (Articles 88 and 89) Enforcement lS5 Washington Aviation Summary, February 1997, Baker and Hosteler LLP, at 14. 256 "British Aimays/American Airiines Alliance on Holda, European Report, Novemkr 16, 1996, European Information Service. 257 Office of Fair Trading, Wraft Competition Analysis under European Comptition Law", December 1996, United Kingdom, at p. 1. (hereinafter 'Campetition Analysisn) Regdations 1996(a).a This Regulation has aiso enabled the UK Governrnent to gant antitrust irnmunity according to Article 85 paragraph 3 of the EC Treaty.259 The enactment of the Regdation 1996(a) details that UK authorities insist on their own sole cornpetence under Artide 88 of the Treaty, and that they do not intend to cooperate with the Commission with respect b competition issues arising £rom the proposed alliance.2m As a result of this daimed sole authority, the Department of Trade an Industry of the UK, asked its Office of Fair Trading (OIT) to cary out a prehnhary investigation of the proposed In their Competition Ana.Iysism2, the O£T adcnowledged that the merger was, in fact, already king considered by the EU Commi~sion26~ 4.3.2.1. The Analysis of thc ODce of Fair Trading The legal assessrnent of the OlT was divided into several parts: relevant market, concept of agreement, restrictions on competition, efkt on trade between Member States, artide 85(3), and conditions of exemption The conditions of We have recently made reguiations under Article 88 of the EC Treaty setthg out procedures for applying Article 85 and 86 in areas where the Community has not made implementing reguiations, primarily air transport outside the European Community. We are cumntly using those new powers to investigate a proposed alliance between British Airways and American Airlines-" John S- Bridgeman, Director General of Fair Trading, The Relation Between EU Cooperation Law and National Competition Law on the Eve of Maastricht II", a speech given to the International Bar Association in Berlin, July 7, 1996. Supm, note 106. The OFT stated that the merger was king reviewed by the Commission under Regulation 3975/87 for intra-EU flights, under Article 85 of the Treaty for other related intra-EU services, and Article 89 for the transatlantic elements of the alliance. See Cornpetition Anaïysis, at 1. "London subsequently said it regarded the Commission Investigation as subsidiary to the work of the British competition authorities". G. Mahich, 'More Delay Seen Over BA/American Alliance', The Reuter European Community Journal, November 15, 1996. exemption wiil be reviewed in the following section. The Legal assessment of the OFT wiIl be examineci next. The first issue the OET undertook was to analyze the Relevant Markets. The OFT considered three markets as relevant for the purpose of their examination: (1) the routes between Europe and the US, more specifically the UK-USâty-pair routes, for business passengers (2) the general passenger UK-US transatlantic market, induding Ieisure passengers and (3) the EU-US transatlantic cargo market.264 They primarily concemed thexnseives with the tirne-sensitive passengers of the market described in (l), as it was here that the OFT foresaw the rnost negative potential for market power from the alliance. The OFT then discussed the possibility of an agreement- It emphasized that the purpose of the alliance was to estabiish a very dose cooperation, a comrnon consultation structure, but without Iegal Third, the OFT undertook an assessment of the restrictions on competition that would arise from the proposed alliance. The OFT noted that, as a result of the alliance, Amencan Airlines wouid loose the freedorn to set prices for passengers originating in Europe, just as British Ainvays wouid lose the same heedom for passengers originating in the United States. Obviously, the alliance would restrict competition between the carriers on ail The OFT underhed that the USUK routes accounted for 40 per cent of ail USEU traffic. On these routes, 61 per cent of the passengers are cddeither by British Airways or American Airline~.~~~Presently, the carriers compete directly on six routes.268 264 Cornpetition Anaïysis, at 1 1. 265 Cornpetition AnaLysis, at 12. 266 CornpetitionAnalysis, at 12. 267 Under the present regime set by the Bermuda II Agreement (See Cornpetition Analysis, at 13). The alliance, therefore, is a very powerful one; it wül set bamers to entry for other carriers, especÏaUy under the current restrictive regime of Bermuda II. The alliance exercise control over a large number of frequenues on transatlantic The predicted überalization of the USUK routes will aiter these aforementioned figures. Both carriers, however, will keep their economic strength and power in the relevant markets (even though 0th- airlines are free to enter) due to the large number of frequencies, joint bequent nyer programs, and slot s~araty.~ Consequentiy, in the event that the agreement would be authorized with no conditions and that the USUK markets were, in tum, Iiberalized, barriers to entry would still subsist for other carriers. Although it is hard to predict how the alliance would affect trade between member states, the OFT found that competition in passenger transportation would occur as a result of the alliance and that, consequendy, the diance would fdwithin the meaning of Article 85(1) of the Treaty of Rome.271The effect on competition, however, would be far less important in the event of a liberalized market between the United States and the United Kingdom The foliowing routes overlap; the parenthesis indicate th= share in percentage of passenger numbers that both carriers detain on those routes: London-Dallas/Fort Worth (100%);. London-Boston (68%); London Heathrow-New York JFK (71%); London-Los Angeles (56%); London-Miami (77%) and London-Chicago (94%). See Cornpetüion Analysis, at 13. The share of frequencies of both airiines on the route that overlap wouid be as iollows: London-Dallas/Fort Worth (100940); London-Boston (80%); London Heathrow-New York JFK (80%);London-Los Angeles (45%); London-Miami (81%) and London-Chicago (81%). Sec Co-tion Anuiysis, at IS. It is important to note that numbers are based on the currcnt restrictive regime of Bermuda If. CornpetitionAnalysis, at 18. Article 85(1) of the EC Treaty refers to altiance that are incompatible with the common market, i.e. alliance that affect cornpetition withui the common market- After finding that the alIiance contravened Artide 85(1) of the EC Treaty, the OFT further dixussed whether such an infringement could be justified by factoring in the contribution of the alliance to economic progress, and by noting its derived benefits to the consumers. This wouid apply the criterion of Artide 85(3). The OF?' noted the imbalance in cornpetitive strength between the United States and the EU national airlines; it emphasized the need for the United Kingdom to increase access to the United States market, and underiined that the alliance involving the United Kingdom's largest carrier, accompanied by the liberaiized treaty between the United States and the United Kingdom, wodd provide such Overall, the analysis concluded that the proposed alliance would irnprove the senrice rendered to consumerSI as it would Iikely contribute to economic pr~gress.~~~Direct benefits to passengers are alço foreseen, but only if some conditions are imposed to ensure that the benefits are actually passed on to con~umers.~~Since there might not be competition here, due to the market power of this alliance on some routes, British Airways and American would have no incentive to pass on the benefits of the alliance to the passengers. Based on the OFT finding, the Secretary of State came to the following condusion: The Soç is therefore of the opinion that the restrictions of competition are necessary given the expected market post- Liberalkation of USUK transatlantic services. He must nevertheless impose conditions and accept undertakings to ensure that the restrictions of competition remain within the bounds of what is necessary and to safeguard the presence on the market of competing airhes post-liberali~ation.~~~ 272 Cornpeîition AnalysiS, at 20. 273 Such a conclusion, howevcr, is for British Airways and American. It is possible that the alliance dasnot lead to economic progress for other airlines in the transatlantic market. 274 Cornpetition ARQIySis* at 22. 275 Cornpefifion A~lysis,at 23. Subsequently, numerous conditions were proposed to both carriers by the Çecretary of State, who wili grant the exemption under Artide 85(3), in order to safeguard market access and reduce problems of barriers to entry. The preceding undertakings will have to be taken by the parties. The Director GeneraI of Fair Trading (DGFT) recomrnended that the Secretary of State for Trade and industry seeks these undertakings fiom the parties in order to grant them the exemption required? If such conditions are refused by the carriers, the Secietary of Trade, following a recommendation of the DGFT, wilI refer the alIiance for fizrther review to the British Monopolies and Mergers Cornmissi~n-~~ 4.3.2.2. Conditions to Exemption The conditions proposed will be applicable for a period of ten years. The Secretary of State argued that sudi a period was necessary to dowother airlines to estabiish themselves on routes where barriers to entry WU be considerable as a result of the alliance.m8 The following undertakings, as weil as the conclusion of a liberal air services agreement, are necessary to prevent the alliance from king sent to the Monopolies and Merger Commission for further consideration: The release of 168 take-off and Ianding dots per week at Heathrow for use exdusively on USUK transatlantic se~ces;~~~ 276 These undertakings must be sufficient to remove the competition concerns arising from the acquisition and aUow an exemption to be granted under article 88 of the Treaty of Rome." Supra, note 254 at 1. 2n Supra, note 254 at 1. 278 Compeîition Analysis, at 28. 279 The release of dots at Heathrow will be made available over a period. An additional 70 dots will also available for leasing to other airlules on request, and under certain conditions. Sec Competi'tion A~iysis,at 30. AUow third party access to their joint frquent flyer program where the appücant does not have access to an quivalent program. Remove the clause in the BA/US code-share agreement which prevents US Air fiom competing on transatlantic route between the UK and the US_= Obviousiy, the release of dots does not enchant British Airways and American. The 168 dots represent more than 90% of the dots presently controiIed by Amencan." British Airways and American, however, are hoping to sel1 the dots rather than simply abandon them.- This plan, of course, is raising outrage fiom opponents to the alliance and from the EU.= The EU competition coLTU1ZiSSioner, Karel Van Miert, is fimily opposed to the seliing of dots that were granted for free to British Airways.2M CoIIunissioner Van Miert argues that the selling of dots is illegai under EU For British Airways and American, however, the slots have commercial value; they are not ready to abandon them without financial cornpensati~n.~~The argument that the actuai exemption from competition desand the approval of their alliances is, in fact, the compensation for releasing the dots has yet to be presented to British Airways and American. This situation once again exposes the cornpetence struggle between British Authorities and the EU. Even if the conditions set by the UK Çecietary of State for the approval of the alliance are met by the carriers, it will not mean the end of their problems on the European side of the Atlantic. Cornpetition Amlysis, at 29-30. Compeîition AMLYS~S,at 30. P. Conradi '%A Set for Heathrow Battle with EU", Sunday Times, JanuaIy 5, 1997. "Amencan, British Airways Look for 90-Day Approval of Alliance", Aviation Daiiy, January 13, 1997, at 65. Supra, note 282. ibid. Lbid. 4.33. The EuropeanCOIIllIUSSion Review Indeed, the EU does not intend to be set aside by the British Authorities. The EU has been dauning their cornpetence to review transatlantic alliances (as discussed in Chapter Three). The EU has dearly ddded to pursue this matter, if necessary, to higher authority. Cornmissiorter Van Miert spoke about the mentsituation in clear terms: "the EC continues to review the American-BA alliance and 'a series of proceedings to their fuil end', he said repeating a warning that if the British approve American-BA before the EC weighs in, the case WU be referred to the European Court of Ju~tice."~It is, at this moment, hard to predict how this current conflict will be resolved. If the British National Authorities wait for the EC decision, problems rnay not actuaily arise after all. Such a solution, however, is unlikely.2MCurrently, we do not see a Liberalized agreement, which is the first condition to be met for the granting of an exemption by the British Seaetary of State. Furthermore, there is no indication of such an agreement being concluded any time soon. This could delay the final decision of the British government and lead to more harmony with the EU. Treaty negotiations, however, are unpredictable and efficient Iobbying by Amerïcan and British Airways to their respective govemrnents could lead to unexpected resdts. Furthermore, the lobbying is probably growing in intensity in Washington, as American and British Airways have recently fïled their application for approval and antitrust immunity to the US D(YT.2s9 Supra note 283. Unïike the German authonties, the UK government does not intend to cooperatt with the EU. E-mail inte~ewwith Dieter Bartkowski, supra, note 106. Such a position is also revealed by the British authorities actions, and by admission of the EU itself. Filed on Januaxy 10, 1997, This review by both authorities Ieads to many uruesolved issues. if both the Commission and the British Govemments render conflïcting decisions, it is undear whïch one will prevail. As mentioned, the EU cIearIy decided it would take the matter to court- An overview of the interrelation between Article 88 and 89 will heip in assessing what could be a probable decision of the Court. 4.3.3.1. Confricting decisiuns of both authalttlrorities Due to the absence of implementing regdation, it is not argued that in the case of rdations between EU and non-EU countries in air transport, the pertinent sections of the EC Treaty are Articles 88 and 89. It is the interpretation of those articles that could settle the war over competence rising from the British Airways and American proposed alliance- Article 88 gants the member states the authority to intervene and act on practiceç that are prohibited by both Article 85 and 86. The member states can do so by relying either on their national laws, or on Artides 85 and 86. While Article 89 allows the Cornmission to review those same practices, the Commission has no direct means to intervene. Thus the Commission has to rely on the assistance of national authontie~.~~Furthermore, the wording of article 89 reveals that the Commission has to act "without prejudice to Artide 88". No such reciprocal provision exists291 Those articles seem to indicate that national authorities have more power to enforce measures reiated to Article 85 and 86 and to gant exemption from Article 85. Member states, however, have to act in confonnity with the objectives 290 Supra note 106. 291 J. Balfour, 'EC/US Airline AUiance - Who Regulates?" Confmnce presented at the 1997 iATA kgai Symposium, 4-5 February 1997. of the EC Treat~.~~2The Commission would probably make this argument if the matter lands in the European Court of Justice. The Commission could conceivably convince the Court that the exemption was incorrectly granted under Article 85(3), arguhg that the granting of the exemption did not take ïnto account the European dimension of the alliance and the common air transport policy of the EU.293 4.3.3.2. Conflicting laws Artide 88 states, as underhed in the previous section, that member states can apply their national Iaws with respect to the application of Artides 85 and 86 of the EC Treaty. This is why both Germany and the United Kingdom referred to sections of their national Iaws when stating that they wodd review a transatlantic alliance. The United Kingdom analysis of the alliance, however, is mostly based on EU competition law. In case of a cofict between both laws, the supranational laws of the EU will prevail.2g4 If there is no conflict, it wül be possible to apply both national and EU taws, as long as the application of one doem't jeopardize the ~ther?~Whether it is the Commission, therefore, or national authorities that obtain final cornpetence for the competition review of transatIantic alliances, principles stated in Artides in 85 and 86 wiII have to be res~ected.~ This condudes the European review of the proposed alliance. The United States, however, the country that started the whole antitrust process, also wiU obviously 292 Article 5 and 90(1) of the EC Tieaty. Ibid. 293 See supra, note 129. 294 See Costa v. ENEL, ECR 1964 585. 295 See Wiihehv. BundeskclrtelIamt, ECR 1969 1. review this mega-alliance, that is already king compared to a merger between "Coke" and "Pepsi" .r" 4.3.4. The US DOT Antitrust Application While this application was expeded by everyone, the time of filing was unknown. Finally ending the expectation, the carriers of this mega-alliance filed their application on January 10, 1997. The carriers submitted their proposed alliance for'approval to the US DUT, confident that the British authorities wilI approve their alliance, folIowing the considerations the carriers gave to the OETs conditions.= The carriers also seem confident about their US DOT request for immunity. One representative of American Airiines qualified their application as "pretty routine proceedins" stating, furthemore, that the alliance could be immunized within 90 daysm This remof antitrust immunity is the toughest to date that the US DOT will have to face. First, it is dealing with the largest of ail alIiances. The effecton competition by the remifkation of those two powerful airlines could be tremendous. Other airlines wodd definitely have to seek new aIliances to face the cornpetitive advantage that this megasarrier wodd own. Secondly, to date, there is no open skies treaty signed between both counhies. The US has always insisted on an open skies. WU the DOT aeate a precedent with the British Airways and Arnerican alliance? It will probably not if the Bermuda II treaty rernains in place. A more liberdized agreement, not necessarily a pure open skies or even a phased-in open skies, couid be the resdt of the present- tah 296 For more on conflict of laws and competition laws, see 1- Bael and J.F. Beilis, supra, note 109. 297 C.A. Shifrin, *American-BA Await Decision on Alliance", Aviation Week and Space Technology, October 14, 1996, at 34. 298 Supra, note 283. between the United States and United Kingdom. Under such a büateral, the US DOT couid probabiy manage to justify the granting of open skies, as it has already granted the immunity in the case of American and Canadian, in which the open skies was not Myapplicable. Such a decision, however, would go against what the DOT stated while granting the above mentioned immunity (in which it qualified the Canadian-American as unique, and unlike any European market) . The third reason some problems couid occur for the DOT is due to the concurrent review of the alliance. For the first tirne, an alliance is behg reviewed by three different entities. The DOT is no longer the master in the antitrust field, as national authorities and the European Commission have joined in. It wiIl be interesting to see how the US DOT will take into consideration the reviews of the OFT and of the EU (when completed). Needless to say, some kind of cooperation will have to emerge fiom these authorities. This rnight be diffidt, as there is not great cwperation between the EU and the United Kingdoa The future of antitrust immunities and exemptions may wd be in jeopardy if the different entities involved decide to act on their own. The British Airways/American alliance could be the "make-it or break-it" of globaiization through strategic alliances. This review of the British Airways/American Airlines alliance concludes this study. This latter carriers' agreement rdects the present state with respect to immunity and exemptions granted to carriers. It also reveals the importance to airlines of alliances that allow them to join forces, reduce cos& and become more effective camers. Antitrust immunity, alliances and open skies treaties, however, are only temporary solutions in an international aviation environment requiring an ongoing serious evaluation and transformation. How will the British Airways and Arnerican Airlines alliance saga unfold? The outcorne of the requests for immunity made to authorities on both tides of the Atlantic is, at this the, impossible to foresee. What is certain, however, is that the final decisions of the US DOT, the EU Commission and the British Government wiII have a tremendous impact on the concept of antitrust immunity with respect to intefiational air transport. The following months will be decisive as antitrust immunity is currently undergohg its first real test: one alliance is being scnitinized by three different entities. For carriers seeking antitrust immunity, there is presently uncertainty as to which are the competent authorities, any as to what are the desking applied and the type of conduct prohibited by those Carrier alliances are unlikely to gave way to outright mergers, however, given existing limitations on foreign ownership and control. Instead of giWlg up the possibiiities offered by carrier alliances, airlines will probably continue their search for partners. In the event that antitrust imrnunity becomes too complicated a process, it is likety that carriers will form alliances that do not require antitrust immunity. Sudi alliances would then have to indude complementary route networks and not overlapping ones. An alliance not reducing cornpetition on routes, Le. an alliance, for example, not involving a 300 See P. Mendes de Leon, The Need for convergence of Cornpetition Laws and Policf, Conference presented at the 1997 IATA kg& Symposium, 4-5 February 1997. significant number of routes served by both carriers, would in most cases not violate antitrust or cornpetition laws? The alliances studied in the present thesis demonstrate the desire of many carriers of different nationalities to consolidate their operations and unify their activities. The dose Iink between antitrust immunity and open skies treaties also underlines certain countriesf aspiration to free the skies kom any kind of regdation. It is important to undedinef however, that in some cases this desire was strongly urged by the United States. The U.S. Goverrunent is not hiding its strong intention with respect to the iiberalization of the skies; it is leading international aviation towards globalization, airning at adapting air transport to the era of free trade. Our study of carrier strategic aiiiances is also a dear illustration of the important role of antitrust immunity in today's internationai air transport It has added a new dimension to open skies treaties. Both open skies and antitrust imniunity are now dosely Iinked. Immunized alliances have the potential to become a powerfd tool. They are changing the face of aviation, and slowly breaking the barriers of nationality without any amendment to laws or bilateral treaties. It is precisely those laws and biiaterai treaties irnposing foreign ownership requirements that have rendered carriers eager to obtain imrnUNty. Such eagemess will remain since the amendment of every national law and basicaily every aviation bilateral is not foreseeable in the near future. Presently, antitrust immunity is the only solution for airlines that for economic reasons need to join forces. See P.. Haanappel, aAiriïnes Challenges: Mcrgcrs, Take-Overs, Alliances and Franchisesw(1995) XX Anna of Air & Sp. L. 179 at 19 1. Open skies treaties, antitrust immunity and strategic alliances are, however, only Myinterrelateci and active in a few markets. The United States, Canada and some European countria are to date the only markets Myinvolved in these concepts. The fact that Canada and the EU had also gone through deregulation or liberalization aeated a dimate proper for the open skies policy of the US. The United States shares solid economic and cuitural ties with both Canada and Europe, it was naturd for the US to seek its first agreements with countries that were aiready strong trading partners. The United States is still negotiating to condude more open skies treaties, and consequently to bring additional bUowea to its commercial international aviation philosophy. The bait of antitrust immunity wiii, therefore, become uicreasingly attractive as more global carriers emerge and try to compete with already immunized alliances. In order to compete against two major or more carriers uniting their market power, carriers that have to date not allied with a partner will have to start seeking one. They will probably be looking for an Arnerican counterpart, as the US market is one of the most attractive market for airlines. The combination of antitrust immunify and open skies treaties couid lead to serious discrepancies between regions of the world, and between camers. Countries that are not yet ready to liberalize their markets and to sign an open skies treaty with the United States will not be in a position to have their carriers join a strategic immunized alliance involving an American carrier. Sder airlines, which often cannot b~gmuch benefit to potential partners will be left out, and perhaps face £inancial difficulty.m2 Srnalier markets may also be put in 302 See Ai-Ghamdi, supra note 41 at 58. The author refets to the necessity of having a strong partner or to devclop a niche strategy in order to be prepare to face market pressures. jeopardy if smaiier carriers are dnven out of the market Global carriers will be- concerned with profitable routes, and wiU be diffidt to insure that every market, induding non-profitable ones, WU be served. The whole concept of globalization and of mega-carriers may lead to disadvantages for small communities without safeguards to monitor the emergence of globalization. The other concem that arises with respect to antitrust irnmunized alliances is the absence of control or monitoring by any entity. Competition/antitnist laws were foreseen as the tools that wodd regdate ex post ficto actions of airlines in deregulated/liberalized markets, replacing previous a regdations that were governing airlines' actions. The concept of antitrust immunity, however, is to prevent the application of the these previous laws against actions of airiines that have been imrnunized. The United States, thus, while concentrating on its goal of international open skies, gave away through antitrust immunity the main tool it had to controI this new market, at least in its own territory. Since the United States fully intends to pursue liberalization through open skies treaties, and considering that immunity is now expected as a reward for signing an open skies treaty, one question will arke: what will happen when every major carriers is immunized? The antitrust immunity, intended as an exemption, may well become the nom, creating a market where there are no measures to prevent anti- competitive behaviors £rom carriers. On the other hand, it may be that temporary antitrust immunity becomes difficuit to admïnister, as airiines will be obliged to such renewai periodically. Todayfs willingness to grant antitrust immunity could give way to future pressure for oversight. Although the strategy of the United States in its application of antitrust Immunity raises some questions with respect to the appropnateness of the antitrust Unmunity in certain circumstances, the objectives of the Unites States are in fact the same as those that many counhies or organizations are pwsuing. GlobaIization has been on the agenda for a few years, and represents for many the way of the future for international aviation. But the United States has been able to pursue its goal more aggressively, and more successfuliy, king in a position to infiuence the world aviation market conaetely. The motives behind US support for iiberalization are weii recognized, and have raised some expectations: it is Iaudable that the United States has chosen to lead the carnpaign for Liberalization-its rightful role as the most important individuai aviation market-but if it is to effectively advance this agenda, the United States shodd widen its horizons and seek to secure open-skies agreements with as many countries worldwide as possible, whatever their size and The United States is presently trying to implement its open skies concept in the Asia-Paafic Market. Although it will be a harder task than the European market, countries such as Malaysia, South Korea, Thailand, Taiwan and New Zealand are prospective partner~.~Probably the most favorable country to liberaiization, Singapore, has recently conduded an open skies with the United States. It will be interesting to see if Singapore Airlines consolidates its relation with an American carrier through antitrust immunity. The aftermath of the Singapore-US aviation treaty wiU &O be of interest, as it might perhaps, trigger the domino effect the US is hoping for in the Ana-Pacific market. In a perfect world, the globalization of intemational air transport would occur through a muitilateral treaty. intemational multilateralism with respect to the deregulation/liberahation of the international aviation market is, however, at this point, far on the horizon. There are many attempts to achieve such a result, 303 C.C. Kong, 'Open Skies: The U.S. Offers a Way Forward", in Handbook of AVline Economics, (US.: McGraw Ha, 1995) at 52, See 'Asia's Liberai Minority", Airline Business, September 1996 at 96. including by the World Trade Organization through the General Agreements on Trade and Services (GATS) or by ICA0.J05 Furthennore, there is a trend toward countries in the same geogaphicd area deciding to integrate their air transport markets. This trend, reférred to as Regionalism, is present in Europe, and arnongst African and Andean countries306 The United States adopted the objectives of globalization and open skies because of the benefits it foresaw for its carriers and its economy. As dixuçsed throughout thk thesis, the desire of the US to open the skies led to antitrust immunity. The dose relation between antitrust Unmunity, open skies and carrier alliances has indeed moved intemational aviation towards globalization. Many questions, however, remain with respect to antitrust immunity. Tirne WU tell what exactly are the effects of the immwüty on the intemational aviation market. It will also reved how other countries will react to and intemene in this process initiated by the US. There is, nonetheless, one certainty: antitrust immunity is presentIy changing many aspects of international aviation. It has become an important component of the open skies poiicy of the United States. Considering that these open skies treaties could well create part of the loundations for a future multilateral accord, antitrust immunity, the carrot for open skies, is a strong predicament for globakation, the ultimate goal of the United States with respect to Uiternationd aviation, 305 See R. Janda, 'Passing the Torch: Why ICA0 Should Lcave Economic Regulation of International Air Transport to the WTO", (1995)XX-1 Ann. of Air & Sp. L. 409. 306 See H. Wassenbergh, Pn~pZesand Pmctices in Au7hnsport Regulation (Paris: ITA, 1993) at 13. Books Adkins, Bernardine, Air Transporf and EL. 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