Air Transport: Infringements Concerning Bilateral Aviation Agreements with Russia

MEMO/11/46

Brussels, 27January 2011

Air transport: Infringements concerning bilateral aviation agreements with Russia

The European Commission has launched infringement procedures against several Member States (seeIP/10/1425 and IP/11/74) and is actively assessing the compliance with EU law of the remaining Member States' bilateral aviation agreements with Russia. The Commission is concerned that these agreements may hinder competition, breach EU rules on freedom of establishment, and provide a basis for Siberian overflight charges which may be illegal.Thismemo provides further background information on bilateral air service agreements and the infringement cases.

Bilateral agreements

The legal framework for air transport between countries is traditionally defined through bilateral air service agreements (known as ASAs) between the respective governments. Within Europe, the situation changed significantly in the early 1990s when a single European aviation market was created. The so called "Open Skies" Court rulings of 2002 (seeIP/02/1609) were a further crucial milestone. The Court stated that provisions limiting the benefits of ASAs to nationals of the Member States concerned are in breach of the Treaty's provisions on freedom of establishment. Hence, ASAs between MemberStates and third countries must now include an "EU designation" clause. With the exception of a very small number of third countries, ASAs between Member States and third countries have been adapted either bilaterally (between a single Member State and a third country), or through "horizontal agreements" (between the EU and a third country). But Russia is still one of the few third countries in the world that does not accept this fundamental change.

Siberian overflights

In addition to the problem of EU designation (freedom of establishment), EU airlines are obliged to pay Siberian overflight charges for routes to many Asian destinations. This may be in breach of international law[1] and incompatible with EU competition law. The Siberian overflights issue was negotiated between the European Commission and the Russian government in 2006. In November 2006, an agreement to phase out Siberian overflight duties was signed by the Commission, the Council Presidency and the Russian Transport Minister Igor Levitin. Russia has, however, never implemented it as it has linked its implementation with the need to first be allowed to become a fully fledged WTO partner. Since then, Member States efforts to address the issue with Russia bilaterally have failed.

With respect to Siberian overflight charges, EU carriers are de facto forced into agreements with their competitor, Aeroflot. In 2008 alone, EU carriers paid around USD420million – most of it directly to Aeroflot.

EU designation

The absence of an "EU designation" creates serious practical problems. For example, after the takeover of Austrian Airlines by Lufthansa, Russia started to argue that flights operated by Austrian Airlines to Russia would no longer be covered by the ASA between Austria and Russia because the airline was no longer owned by Austrian interests. To the extent that "traffic rights" for flying over Russian territory are so far only granted for short time periods, this creates uncertainty as to whether Austrian Airlines – not being recognised as an "EU carrier" – might continue to have the right to fly over Russian territory. And there are other similar cases (see below).

Effects on Member States

Some examples relating to the countries against which infringement proceedings have been launched –Belgium, Denmark, Italy, Luxembourg, The Netherlands, Sweden and the UK – are listed below.The issues at stake are particularly important for Belgium, The Netherlands and the UK which are immediately affected by problems caused by both the lack of an "EU designation clause" and the Siberian overflight charges.

Belgium:On the "EU designation" issue, Brussels Airlines is affected following itstakeover by Lufthansa (in a similar way as Austrian Airlines, see above). In relation to Siberian overflight charges, all Belgian carriers flying to Asia(such as Brussels Airlines) are affectedand have to pay the charge.

Netherlands:Both issues also affect the Netherlands. On the "EU designation" issue, KLM isaffected after the merger with Air France. On Siberian overflight charges, all Dutch carriers flying to Asia (such as KLM) are affected and have to pay.

UK:Both issues affect the UK. In the case of the "EU designation" clauses for example, British Midlands is affected after the take-over by Lufthansa (in the same way as Austrian Airlines). All UK carriers flying to Asia are also affected by Siberian overflight charges and have to pay (including for example British Airways and Virgin).

Italy:The main issue for Italy, currently, is the Siberian overflight charges. Italian carriers (such as Alitalia) flying to Asia are affected and have to pay.

Luxembourg: Luxembourg is also affected by Siberian overflight charges, all carriers flying to Asia (such as Cargolux)are affected and have to pay.

Sweden/Denmark: The main issue for Sweden and Denmark at the moment is the Siberian overflight charges.All Scandinavian carriers flying to Asia (such as SAS) are affected and have to pay.

For more information on EU infringement procedures, see MEMO/11/45.

[1] Article 15 of the Chicago Convention, according to which "no charge shall be imposed by any ContractingState solely for the right of transit over or entry into or exit from its territory of any aircraft of a ContractingState or persons or property thereon". However, the European Commission cannot activate this Article, as the EU is only an "observer" and not a Party to the ICAO.