Freeing air cargo

European officials challenge U.S. to lead liberalization of global air freight industry

WASHINGTON

European all-cargo airline executives faced off against a high-ranking U.S. aviation official at The International Air Cargo Association’s biannual forum in Washington, D.C. No ground was gained on any pressing issues relevant to cargo rights between Europe, the United Kingdom and the United States. But the event did give all-cargo carriers a chance to present a united front in their fight for liberalization of international air cargo services.

Cargo executives called for a new system of negotiating international aviation rights based on regional agreements, as opposed to the current system of bilateral treaties that has existed since the Chicago Convention of 1944. They would like to see all-cargo airlines treated separately from their passenger carrying peers, and more like other modes of freight transportation that have been almost completely deregulated for years.

"Government should stop regulating. It should stop treating aviation differently from any other form of world trade," said W.R. Christopher Foyle, chairman of all-cargo carrier Air Foyle and chairman of the British Cargo Airline Alliance. The BCAA, which includes Air Foyle, Heavylift Airlines, Channel Express and Atlantic Airlines, has been petitioning the U.K. and U.S. governments to include cargo issues in their aviation negotiations in recent months.

Government "should stop regulating for its own political advantage," Foyle said, in a speech to the IATA conference. "It should stop manipulating the hopelessly outdated bilateral negotiating system to the economic advantage of its own airlines. It should allow the market to govern the supply and demand for aviation and air services in the same way that it allows the free market to operate in almost every other area of economic life."

Heiner Wilkens, chairman and president of Luxembourg-based all-cargo carrier Cargolux Airlines International, backed Foyle’s arguments.

"Cargolux is put into the same box as the passenger airlines, but our product is very different from the product of passenger airlines," Wilkens said. He argued that air freight is a "value-adding process in the production chain."

"Freight at point B has more value than at point A," he said.

All-cargo airlines should be treated like other modes of freight transportation, such as ocean shipping, that are more or less free to serve international trade without a high-level of intervention from government. Wilkens used the large ocean carrier Maersk Sealand as an example.

"Maersk can sail wherever it wants," he said. "But if an airline wants to fly that is not possible. What I want to stress here is that the regulators in government have to take the all-cargo airlines out of the box of airlines and into the box of freight carriers."

Wilkens called aviation the most regulated industry in the world, and blasted the restrictions on international route rights, foreign airline ownership, cabotage and wet leasing. "These regulations are restricting production, restricting the globalization of the economy and restricting e-commerce," he said.

Turning the argument against the United States specifically, Wilkens and Foyle brought up their objections to U.S. policy in each of the above four areas of regulation. Their remarks, made in the presence of Susan McDermott, deputy assistant secretary for aviation and international affairs at the DOT, carried a degree of political tension in light of ongoing U.S.-U.K. negotiations for open skies. U.S.-EU aviation relations also have been on shaky ground from the saber rattling over a EU ban on engine-muffling "hushkits."

Concerning international route negotiations, Foyle and Wilkens — two of the most influential executives in Europe’s air cargo industry — gave public support to the adoption of a new aviation regime between the United States and the European Union, called the Transatlantic Common Aviation Area, or TCAA. Wilkens and Foyle called the TCAA a necessary first step toward global liberalization around which other countries and regions could model future efforts.

The TCAA "has already been put forward by the European Union," Foyle said, "but, unfortunately, it has not been welcomed very warmly by the U.S. government. "There are several reasons why the U.S. has reacted coolly and these seem to be more related to economic interests ... rather than being based on a genuine philosophical objection to genuine globalization of the airline business."

Concerning foreign ownership, the Europeans said airlines should be free to own as much of a foreign airline as they want. Currently, non-U.S. airlines are permitted to own no more than 25 percent of a U.S. carrier. These regulations stifle investment, reduce shareholder value and create confusion for shippers and passengers, the two cargo executives said.

On cabotage, or the restriction of any foreign airline to fly between two U.S. domestic points, Foyle said those rules basically cut non-U.S. airlines out of nearly a quarter of the entire world aviation market. The Europeans argued that U.S. airlines are able to fly between points in the EU.

On wet leasing, an especially contentious issue with cargo carriers, Wilkens and Foyle lambasted U.S. policy forbidding carriers from outsourcing flying to any non-U.S. airline.

Under a wet lease, an airline contracts another carrier to provide aircraft, crew, maintenance and insurance. The contracting carrier pays for fuel and sells the capacity. This practice has become increasingly common in the all-cargo area and is expected by analysts to play a major role in the growth of the global air freight industry in coming decades. U.S. carriers, such as Atlas Air and Gemini Air Cargo, have built successful businesses operating freighter aircraft under wet leases for foreign airlines. Most countries do not have restrictions against wet leasing.

"If you applied the U.S. regulations to the rest of the world than such successful companies as Atlas and Gemini would not exist," Wilkens said.

Confronted with the European point of view, McDermott chose her remarks carefully, and conceded that more work will have to be done in the area of global aviation relations. She stressed that the United States has led the way in opening up air markets around the globe with its open skies policy initiated in the early 1990s. The United States has formed more than 47 open-skies pacts with other countries in the last seven years, she said.

McDermott also pointed out that the United States has again vowed to lead the world into a new multilateral approach to aviation regulations. DOT Secretary Rodney Slater held a summit in Chicago last year to urge foreign leaders toward the multilateral approach.

The United States is negotiating a multilateral agreement in Asia with four members of the Asia-Pacific Economic Cooperation group, and hopes "that this will become the template for other similar regional agreements, or even better for other nations to sign the emerging agreement," McDermott said.

The United States is also pursuing a "dialogue" with the EU. "At such time as the (European) Commission receives a negotiating mandate from the (European) Union’s member states, we hope that common goals will be made sufficiently clear that we can move forward quickly in negotiating a broad North Atlantic aviation agreement," McDermott said.