Global overview

Author: John Balfour, Beaumont & Son – Aviation at Clyde & Co, London

Last year again saw a number of important developments in aviation law.

Airline liability

There were two court judgments of particular importance, each concerning forum. In June the US District Court for the Southern District of New York granted a motion to dismiss passenger and crew claims arising out of an airline accident in Russia in 2006 on the ground of forum non conveniens. The claimants had commenced proceedings in the US against the US lessor of the aircraft and the Russian airline. The court dismissed the claims on the basis that Russia was by far the more convenient forum, and on condition of the airline conceding liability in Russian courts.

The second case concerned litigation arising out of the West Caribbean Airways accident in Venezuela in August 2005. In a judgment in November 2007 the Federal Court of the Southern District of Florida dismissed claims filed in Florida on the grounds of forum non conveniens, given that the accident had little to do with the US, despite the fact that there was jurisdiction in the US under Article 33 of the Montreal Convention on the basis that the court found that a US company which organised the package tours of which the flight formed part was the contracting carrier (although the defendants argued against this). Previous recent US cases have held that, if there is jurisdiction under the Montreal (or Warsaw) Convention, then the doctrine of forum non conveniens cannot be applied to dismiss a claim.

The last country (as at the end of February) to ratify the Montreal Convention was Uruguay, brining the total number of states party to 85.

EC competition

At the beginning of August 2007 it was announced on the same day that British Airways had been fined £121.5 million by the UK Office of Fair Trading for having colluded with Virgin Atlantic in setting levels of fuel surcharges for passenger fares, and that it had reached settlement with a US DOJ investigation into this and also alleged concerted behaviour with other airlines in setting cargo surcharges, with an agreed fine of US$300 million.

Just before Christmas 2007 the EC Commission served a Statement of Objections on 24 airlines and one other organisation, following almost two years of investigation, alleging that they were parties to a price-fixing cartel in connection with air cargo surcharges. The addressees now have an opportunity to reply to the allegations.

In June 2007 the Commission issued a decision prohibiting Ryanair's proposed acquisition of Aer Lingus, principally on the grounds that the large number of overlap routes between the parties would have an unacceptable effect on competition, which the remedies proposed by Ryanair were insufficient to mitigate.

The block exemption from the competition rules enjoyed by the IATA passenger tariff coordination process, which had been withdrawn as regards intra-EC routes at the end of 2006, was withdrawn in respect of all other routes by the end of October 2007.

In September 2007 the European Court of Justice issued a judgment on an appeal by Olympic against the Commission's decision of December 2002 requiring it to repay illegal state aid, upholding the appeal with regard to a smaller part of the amount required to be repaid, while dismissing it with regard to the balance. The Court issued a further judgment in February 2008 finding Greece to be in infringement of its obligations by not implementing the Commission's similar decision of September 2005.

EC external relations

The most significant event in the area of EC external aviation relations was the signing on April 30 2007 of the Air Transport Agreement between the EC and the US, after several years of negotiations and previously unsuccessful efforts. The agreement will be provisionally applied from March 30 2008.

The agreement is essentially an open skies type of agreement, which provides for unlimited third and fourth freedom rights, and also fifth freedom rights on beyond routes, for the airlines of each side, with more restricted seventh freedom rights. It also provides greater flexibility for wet leasing, codesharing and franchising, handling arrangements and computer reservations systems, and it permits EC airlines to carry certain categories of US government traffic under the Fly America programme. Perhaps the most significant innovation is that the US has accepted a Community clause, whereby it will allow any EC/EEA airline to operate between any point in the US and any point in the EC/EEA. This will enable EC airlines to operate transatlantic services from points outside their own home country, and will also facilitate cross-border mergers and acquisitions between EC airlines.

The other main immediate practical result which will be visible will be the entry into Heathrow for the first time of the US international airlines which have previously been prevented from operating there. Of course, there will still be severe practical restrictions, in the form of shortage of slots, but it is understood that several US airlines have managed to secure slots by way of purchase, reportedly at record prices.

In order to meet concerns from the EC side that the agreement does not go far enough, provisions have been built into it for second stage negotiations to commence by the end of July 2008, covering the main priority areas of:- further liberalization of traffic rights; additional foreign investment opportunities; environmental measures and infrastructure constraints; further liberalisation of wet leasing and access to the Fly America programme.

Horizontal agreements have now been reached by the Commission with some 30 states, under which the non-EC states in question agree that any EC airline flying to/from their territory may be majority owned and effectively controlled by nationals of any EC member state, and not just of its own state (as is normally the case).

In addition, the Commission has been seeking mandates to negotiate more wide-ranging aviation agreements with other countries, in particular with neighbouring states. In 2006 an agreement was concluded with eight South West European states, which will include them in the European Common Aviation Area. An agreement to much the same effect was concluded with Morocco in December 2006, and is likely to be followed by similar agreements with Ukraine, Jordan and Israel. Wide-ranging negotiations also commenced with Canada in November 2007.