Regulation
The international airline industry is subject to a high degree of global, European and UK Government regulation covering both commercial activity and operational standards.
UK airlines are regulated by the Secretary of State for Transport and the Civil Aviation Authority (CAA), an independent statutory body. Under the UK Civil Aviation Act 1982, the CAA is responsible for supervising many aspects of an airline’s financial condition, management and operations. European airlines are also subject to EU regulations, drawn up under the provisions of the European Treaty (chiefly Article 71). Responsibility for enforcement is shared between the European Commission and the Member States.
International regulation of airline operations derives from the Chicago Convention of 1944, which established the International Civil Aviation Organization (ICAO). This is a specialist agency of the United Nations, which fosters the planning and development of international air transport. Under the auspices of ICAO, rules establishing minimum operational standards are normally agreed on a multilateral basis. Airlines’ rights to fly over, or make stops in, foreign countries for technical reasons are generally derived from the International Air Services Transit Agreement of 1944. Rights to carry traffic between countries and the regulation of fares are normally agreed on a bilateral basis between governments.
Route flying rights
Our rights to carry scheduled passengers and cargo on international routes outside Europe generally derive from air services agreements between the UK Government and the governments of the foreign states concerned. Under these agreements, each government grants to the other the right to designate an airline or airlines of its state to operate scheduled services between specified points in their respective countries, and sometimes to or from points in third countries, although this also requires the agreement of the third country’s government.
Once an agreement has been reached, the UK Government designates the airlines that will operate the agreed services. We must also obtain the necessary operating permits from the foreign governments concerned. These are unlikely to be withheld so long as our operations meet the required international safety standards. A government may have the right to prevent an airline from operating the agreed services if it is not satisfied that it is substantially owned and effectively controlled by the other government or its nationals (commonly referred to as the ‘nationality clause’). For this reason, our Memorandum and Articles of Association contain provisions that could be used to limit the rights of non-UK and non-European nationals who own shares in British Airways Plc.
In order to comply with EU law, all new or revised bilateral agreements signed by EU countries must contain a Community designation clause in place of the nationality clause. This clause allows any EU airline to apply for available traffic rights between that EU Member State and the third country on a non-discriminatory basis. Currently, most UK agreements still reserve traffic rights to UK airlines, but this is changing gradually as the agreements are renegotiated.
In 2003, EU Member States granted the European Commission a mandate to negotiate changes to existing bilateral agreements between Member States and third countries, to comply with EU law. A general framework was also agreed covering the processes whereby Member States may continue to negotiate bilaterally with third countries.
Within the EU there is a single internal market for air transportation. The most significant elements of this are a liberal pricing regime, free access to all routes within the EU for airlines and a carrier licensing procedure. EU single market policies extend to the European Economic Area (EEA) comprising the EU, European Free Trade Area countries and Switzerland.
Under the UK Civil Aviation Act 1982, the CAA must balance a number of objectives in making air transport or route licensing decisions where applications to operate a particular route are contested. These include encouraging British airlines to provide air services at the lowest fares consistent with safety; an economic return to efficient operators and the sound development of the UK air transport industry; furthering the reasonable interests of users; ensuring that British airlines compete as effectively as possible on international routes; and making the most effective use of UK airports. The CAA grants global route licences for scheduled and charter air services. The absence of the necessary bilateral rights will not result in refusal to grant a licence application.
Charter operations are not generally covered by air services agreements. The CAA adopts a broadly liberal policy towards applications from British airlines for charter flying rights. It is then for the airline to seek the consent of the other government. Within the EEA no distinction is drawn between charter and scheduled operations.
A new multilateral agreement covering air services between the EU and the US signed March 22, 2007, has enabled us to launch our new OpenSkies subsidiary.