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Global Overview

John Balfour

Clyde & Co LLP

Thursday 03 October 2019


An international business needs international rules. So it is not surprising that international conventions provide a number of rules that apply to international air transport. That the need was recognised at an early stage is evident from the fact that the Warsaw Convention was signed in 1929 and the Chicago Convention in 1944.

The Warsaw Convention deals with the liability of air carriers in respect of carriage by air. It has been amended on several occasions, and has recently been replaced to a large extent by the Montreal Convention 1999. The Chicago Convention is concerned with various aspects of air transport, particularly aircraft and the right to fly, and also established the International Civil Aviation Organization (ICAO). It provides the basis for the regulation of many areas of air transport. In addition, there are several international conventions about crimes on board or involving aircraft, and the Cape Town Convention 2001, which is relevant to aircraft financing.

Air transport is also highly regulated at a national level – principally from a safety point of view, but also from an economic point of view. Traditionally, access to the market and the behaviour of airlines in the market have been restricted and regulated, although there has been significant liberalisation recently, at least in some areas of the world. Somewhat paradoxically, as access to markets is liberalised and deregulated, it becomes more necessary to regulate behaviour in the market in other ways, particularly through competition laws, which have an increasing relevance for the air transport industry.

There is a third level of regulation, at regional level, most notably in the European Union, where much has been done to break down national barriers and liberalise air transport on the one hand, and to harmonise conditions and introduce regulation intended to ensure that competition is not distorted on the other.

The Chicago Convention

Other than the establishment of the ICAO, the Chicago Convention is concerned with two main areas: the basic system of the registration and regulation of aircraft; and the right to fly (or rather lack of it).

The Chicago Convention requires every aircraft to be registered on the national register of a contracting state, which is to be responsible for regulating the safety of the aircraft and its operation and the competence of its crew and those who maintain it. The convention provides for the adoption of international standards and recommended practices in a number of areas, such as airworthiness of aircraft, licensing of personnel, etc. The basic principle is that certificates and licences that meet these standards and are issued by one contracting state should be recognised by other contracting states, although exceptions are allowed.

The other main area dealt with by the convention is the right to fly internationally – or rather the lack of such right, as the convention is restrictive in this respect. It commences by affirming that the contracting states recognise that every state has complete and exclusive sovereignty over the airspace above its territory, and goes on to provide that no scheduled international air service may be operated over or into a contracting state without its special permission (although there is a greater degree of liberalisation in respect of non-scheduled services). This has led to the emergence of a web of bilateral air service agreements between countries, under which traffic rights are granted on a reciprocal basis. Traditionally, these agreements have been restrictive and protective of competition, although there has been significant liberalisation recently in some parts of the world.

One restrictive provision remaining in most bilateral agreements, however, is that of enabling one party to the agreement to refuse to grant operating permission to, or to withdraw it from, a carrier from the other party if that carrier is not substantially owned and effectively controlled by its home state or nationals of its home state. This provision in bilateral agreements has essentially prevented cross-border mergers and takeovers between airlines, and has encouraged the development of consolidation by way of alliances.

Liability and Warsaw/Montreal

The Warsaw Convention was a visionary initiative, particularly as at the time it was conceived and agreed, aviation was still very much in its infancy. Since 1929, the convention has done much to bring order where there might otherwise have been chaos, and to contribute to the orderly development of a broadly harmonised system of liability in respect of carriage by air.

The main features of the Warsaw Convention are:

  • presumed liability of the airline for passenger death and bodily injury, loss or damage of baggage and cargo and delay, with only limited defences;
  • limits of liability, breakable only in exceptional circumstances;
  • rules on the jurisdiction in which claims may be brought;
  • a two-year time bar; and
  • exclusivity of remedies regarding claims within its scope.

In many ways, the convention has worked well, particularly in resolving difficult conflicts of laws and jurisdictional questions that otherwise would have arisen. Its liability limits, however, particularly in respect of passenger death and injury, became increasingly controversial. Starting some 40 years ago, various steps were taken outside the convention to try to remedy the situation – partly by airlines voluntarily agreeing a higher limit and partly by certain countries, or groups of countries, requiring airlines to do so. By 2000, most major airlines in the world, either voluntarily, or as the result of such national or regional requirement, had agreed not to apply any limit in respect of passenger death or injury, and also to waive any defence up to a level of 100,000 special drawing rights (SDR).

These changes, and certain others, were incorporated into international law by the Montreal Convention, signed in 1999, and designed to replace the Warsaw Convention where it applies. The principal innovation that the Montreal Convention makes – the abolition of the passenger liability limit and the introduction of strict liability up to a level of 100,000 SDR (increased as from 1 January 2010 to 113,100 SDR, to take inflation into account) – is less radical in practice than it looks, because many airlines had already adopted this position, as mentioned above.

There are three other main differences between the Montreal and Warsaw conventions:

  • the baggage liability limit is more or less trebled and no longer based on weight (so that Montreal introduced a limit of 1,000 SDR per passenger, now 1,131 SDR to take account of inflation, compared with a previous limit of 250 gold francs or 17 SDR per kilogram) – a change with greater practical than legal consequences;
  • the cargo limit (of originally 17 SDR per kilogram, but increased to 19 SDR, to take account of inflation) is unbreakable – even in the event of intentional or reckless misconduct. This is also the position under the Warsaw Convention as amended by Montreal Protocol No. 4, but not many states are party to that; and
  • the Montreal Convention adds a fifth jurisdiction in which claims may be brought in respect of damage resulting from the death or injury of a passenger, namely the country of the passenger’s principal and permanent residence, provided that the airline operates there, either on its own or under an arrangement with another airline such as code-sharing. The effects of this additional jurisdiction still have to be seen, but they could be quite significant in legal terms in some cases, where they enable a US passenger, or his or her dependants, who would not otherwise have been entitled to do so, to bring a claim in the US and recover US levels of damages.

At present, 136 states and the EU are party to the Montreal Convention, including all EU states, the US and most other important aviation states. However, because some states are not yet party, a potentially confusing position exists whereby, depending on the route of the journey, sometimes the Montreal Convention applies and sometimes the Warsaw Convention applies. This situation will continue, although increasingly diminish, until all states have ratified the Montreal Convention.

Two further conventions were signed in Montreal in 2009 on the subject of damage caused by aircraft to third parties, but neither is yet in force.

Crimes

There are four international conventions specifically concerned with crimes on aircraft and affecting aviation, as follows.

The Tokyo Convention 1963

The Tokyo Convention 1963 was drawn up principally to deal with problems that had been experienced in practice concerning jurisdiction and extradition in the case of criminal offences committed on board aircraft off the ground. It entitles and obliges the state of registration of the aircraft, if it is party to the convention, to establish jurisdiction in respect of such offences, and entitles other states to exercise jurisdiction if the offence has effects for that state. It also provides that such an offence is to be treated for extradition purposes as if committed in the state of registration of the aircraft, as well as where it was in fact committed, so that extradition may be sought and granted under existing extradition treaties, although the convention creates no obligation to grant extradition.

It gives power to the aircraft commander to impose appropriate measures if he or she has reasonable grounds to believe that a person has committed or is about to commit such an offence, or an act jeopardising safety or good order on board. The measures, including restraint, are those that are necessary to protect the safety of the aircraft, and persons and property on board, to maintain good order and discipline, or to enable the commander to deliver the person to competent authorities or to require the person to disembark.

A protocol to amend the convention was signed in Montreal in 2014 but is not yet in force.

The Hague Convention 1970

The Hague Convention 1970 is aimed mainly at hijacking. It makes it an offence for a person on board an aircraft in flight to unlawfully, by force or by other form of intimidation, seize or exercise control of the aircraft, or attempt to do so or be an accomplice to such an offence or attempt.

The convention applies if either the place of take-off or the place of landing is a state other than the state of registration of the aircraft. Each of the states of registration of the aircraft, the state where the aircraft lands with the offender on board and the state in which any lessee of the aircraft has its main residence or place of business must take all necessary measures to establish jurisdiction. The state in whose territory the offender is must either extradite the offender to one of those states or take steps to establish its own jurisdiction.

The convention also aims to facilitate extradition by treating the offence as having been committed not only where it occurred but also in the other three states mentioned above, and providing that it is to be treated as an extraditable offence as between contracting states.

The Beijing Protocol 2010, which entered into force on 1 January 2018 for the 31 states currently party to it, supplements and modernises the convention to include different forms of aircraft hijacking and emerging threats created by modern technological means.

The Montreal Convention 1971, supplemented by the Montreal Protocol 1988

The Montreal Convention 1971 is aimed at similar behaviour, but with a broader scope. It makes it an offence to perform an act of violence against a person either when the person is on board an aircraft in flight and the act is likely to endanger the safety of the aircraft, or when the person is at an airport and the act is likely to cause serious injury or death, or cause other types of damage or destruction prejudicial to safety.

The convention applies if either the place of take-off or the place of actual or intended landing is situated, or the offence is committed or the offender found, outside the state of registration of the aircraft. The convention obliges the state where the offence is committed, the state of registration of the aircraft, the state in which the lessee of the aircraft has its main residence or place of business and the state where the aircraft lands with the offender on board to take all necessary measures to establish jurisdiction. The state in whose territory the offender is must either extradite the offender to one of those states or take steps to establish its own jurisdiction.

The Beijing Convention 2010

The Beijing Convention 2010, which entered into force on 1 July 2018, modernises and consolidates the Montreal Convention 1971 and the supplemental Montreal Protocol 1988 and prevails over both instruments as between the parties. The states party to the convention (currently 27) agree to criminalise a number of acts, such as using civil aircraft as a weapon to cause death, serious bodily injury or serious damage to property or the environment, or using a biological, chemical or nuclear or similar substances against or on board an aircraft or to attack other targets on the ground. The convention also introduces new provisions on extradition, such that none of the offences shall be regarded as political offences for the purpose of avoiding extradition.

Aircraft financing

The Cape Town Convention on International Interests in Mobile Equipment, supplemented by a Protocol on Matters Specific to Aircraft Equipment, was adopted on 16 November 2001 and entered into force on 1 March 2006. At present, 76 states and the EU are party to it.

Its principal aim is to establish common rules dealing with the financing and leasing of aircraft and an international system for the registration of rights and interests arising in connection therewith, so as to reduce the risks of lending for aircraft financiers, and hence reduce the cost of borrowing. The convention also establishes an international register, administered by the ICAO, in which various interests in aircraft can be registered, whereupon they will take priority over unregistered and subsequently registered interests.

European Union measures

Although the European Economic Community (now known as the European Union) was founded in 1957, it was not until the 1980s that it started to make its effects felt in the air transport sector. Since then, progress has been significant and there now exists a virtually complete internal market in air transport among the 28 EU member states (and the three EEA states). The UK’s departure from the EU — following the vote in the referendum on 23 June 2016 — which is due to take place on 31 October 2019 (unless the period is further extended), will result in significant changes to the aviation regulatory situation in the UK, unless agreement otherwise is reached.

Liberalisation

The liberalisation of air services in the EU was achieved principally through three ‘packages’, which liberalised access to routes, fares and rates in a phased process between 1988 and 1993. In addition, the third package introduced common licensing requirements for air carriers and the principle that any air carrier satisfying these requirements had to be allowed to operate, thus at the same time bringing an end to national monopolies and enabling an airline from one EU member state to establish itself and acquire an airline in another member state. Although the legal changes were slow to produce practical results, in due course they led to significant developments, not least the emergence and increasing expansion of low-cost carriers and cross-border operations. The third package was consolidated into and replaced by a new regulation with effect from 1 November 2008, which basically continues the previous provisions but adds some new rules, particularly on the transparency of fares.

Air transport policy legislation

The basic liberalisation laws have been accompanied by a growing body of legislation dealing with other aspects relevant to air transport, complementing liberalisation measures and harmonising rules and standards in the areas of environmental and consumer protection.

Regulation (EEC) No. 95/93 (as amended by Regulations (EC) Nos. 894/2002, 1554/2003, 793/2004 and 545/2009) provides common rules on slot allocation at airports within the EU. Directive 96/67/EU introduces greater competition into the ground handling market at airports within the EU. The practical effects of both measures have been somewhat limited. More recently, Directive 2009/12/EU on airport charges was adopted, but it makes only modest changes.

On the technical front, Regulation (EEC) No. 3922/91 as amended provides for the harmonisation of technical requirements and administrative procedures, and mutual recognition, in connection with the design, manufacture, operation and maintenance of aircraft and persons and organisations involved in these tasks. This regulation has been significantly supplemented by Regulation (EC) No. 216/2008, which also establishes the European Aviation Safety Agency.

Regulation (EU) No. 996/2010 (as amended by Regulation (EU) No. 376/2014) establishes rules concerning the investigation and prevention of civil aviation accidents and incidents and Regulation (EU) No. 376/2014 contains rules on occurrence reporting in civil aviation. Regulation (EC) No. 300/2008 lays down common basic standards on aviation security, and the rules and procedures for ramp inspections of third-country aircraft using airports within the EU are laid down in Regulation (EC) No. 216/2008.

In March 2004, four Regulations ((EC) Nos. 549/2004 to 552/2004) were adopted with the intention of creating a single European sky by laying down common rules on various aspects of the provision of air traffic management services. They were amended by a ‘second package’ of measures in October 2009, and there is a current proposal for a further update. There have been several directives aimed at reducing aircraft noise (most recently Directive 2006/93/EU), and Directive 2008/101/EU included aviation within the EU emissions trading scheme.

In relation to passenger protection, Regulation (EC) No. 2027/97 abolished the Warsaw Convention’s passenger liability limit in respect of EU-based airlines, and was amended by Regulation (EC) No. 889/2002 to bring the liability position of these airlines into line with the Montreal Convention.

Regulation (EC) No. 785/2004 as amended imposes various minimum insurance requirements on air carriers and aircraft operators. Regulation (EC) No. 261/2004 lays down rules on compensation and assistance to passengers in the event of denied boarding, cancellation and long delay. Regulation (EC) No. 2111/2005 authorises the European Commission to establish a blacklist of airlines banned from operating in the EU, and obliges carriers and others selling air tickets to advise passengers of the identity of the carrier actually operating the flight. Finally, Regulation (EC) No. 1107/2006 imposes obligations on airlines and airports with regard to passengers with reduced mobility.

Competition rules

The internal market in aviation within the EU has been achieved largely by the legislative measures mentioned above, but application of the competition rules contained in the EU Treaty has also played an important part. Original doubts about whether the competition rules even applied to air transport were dispelled by the landmark judgment of the European Court of Justice in 1986 in the Nouvelles Frontières case. Following that judgment, special regulations were introduced implementing the competition rules for air transport within the EU. This special regime ended on 1 May 2004, and since then air transport has been subject to competition rules in exactly the same way as other industry sectors. This means that air transport between the EU and non-EU states is now fully subject to competition rules – a fact perhaps not as widely appreciated as it should be.

The European Commission has applied the competition rules to a number of airline practices, agreements and arrangements. It has issued decisions granting exemptions for a number of airline alliances, subject to conditions – including the three main global alliances.

The European Commission has also imposed fines in several cases where it has found infringement of the competition rules – most significantly, fines amounting to almost €800 million imposed on 11 airlines in November 2010 for a cartel on air cargo surcharges. (The Commission’s decision was overturned by the General Court on appeal in December 2015, but the Commission subsequently adopted a new decision essentially confirming its previous decision.)

The European Commission has applied the treaty’s rules on state aid to a number of cases of assistance to airlines, in most cases permitting the assistance, either on the ground that it does not constitute ‘aid’ or in return for commitments given by the government or airline concerned. In some cases, the European Commission has found the assistance to be contrary to the rules – for example, in February 2004 in respect of assistance given by Charleroi Airport in Belgium and its regional government owner to Ryanair, although its decision was annulled by the European Court of Justice towards the end of 2008.

The European Commission has also used its powers under the Merger Regulation (Regulation (EC) No. 139/2004) to investigate a number of concentrations involving airlines, in each case except three (Ryanair/Aer Lingus (twice) and Aegean/Olympic (the first time)) permitting the concentration to proceed, but often on the basis of various commitments accepted by the airlines in question intended to facilitate new entry and competition, principally by way of giving up slots at congested airports.

Although the state aid rules apply only to aid given by governments of EU member states, Regulation (EU) No. 2019/712 empowers the Commission to investigate and take redressive measures against practices that distort competition between EU and non-EU carriers. This regulation replaced Regulation (EC) No. 868/2004, which had contained similar provisions in respect of non-EU airlines receiving public subsidy or engaging in unfair pricing practices, but which had never been applied in practice.

External relations

With the internal air transport market in the EU more or less completed, the European Commission has recently been turning its attention to the question of external aviation relations. Its hand was considerably strengthened by the judgments of the European Court of Justice in November 2002 in infringement proceedings that the European Commission brought against various member states in respect of their air services agreements with the US. Although the court upheld the validity of these agreements in most respects, it held that member states had infringed their EU law obligations in connection with the right of establishment by allowing a traditional ‘nationality clause’ to subsist in the agreements – namely, a clause permitting the US to withhold or withdraw operating rights from an airline if it is not substantially owned and effectively controlled by the home state or its nationals.

Following the judgments, the European Council gave the European Commission a mandate to negotiate with third countries to amend air service agreements to bring them into line with the judgments, while the right of individual member states to continue to negotiate air service agreements was recognised, provided that they respect certain conditions. Such negotiations have been successfully concluded between the Commission and over 40 other countries. At the same time, the European Commission has been proceeding with fuller negotiations with various other states, particularly neighbouring and nearby states: common aviation area agreements have been concluded with Georgia, Israel, Jordan, Moldova, Morocco, Switzerland and with the eight Balkan countries. A significant breakthrough took place on 30 April 2007, with the signature of the Air Transport Agreement between the EU and the US, which came into provisional effect on 30 March 2008. While it did not go as far as the Commission would have liked, and was only extended to a limited extent by the protocol that has been applied since 24 June 2010, it essentially applies ‘open skies’ principles between the US and the EU and confirms that the US will accept that any EU airline can operate to or from the US from any point in the EU. A similar agreement was signed with Canada early in 2009. An agreement was initialled with Brazil in 2011 but is currently subject to renegotiation.

Rules and regulation

The air transport industry will always remain highly regulated from the safety point of view. In relation to other forms of regulation, the focus is moving from regulation controlling entry to the market and the ability to compete to the other types of regulation necessary in a competitive market. This is in the form of competition rules and other measures designed to ensure fair conditions for competition and protection of consumers.

As such rules and measures are applied on a national or regional (eg, EU) basis, there is an increasing risk of international fragmentation, and of airlines having to satisfy a variety of differing rules – something that the Chicago Convention and the ICAO system have on the whole successfully avoided in relation to safety rules. Paradoxically, this is taking place at the same time as increasing consolidation among airlines. It may become desirable for the ICAO’s areas of competence to be extended, or for air transport to be more fully involved in the WTO system.


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