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Date: 8 July 2003

European Civil Aviation Conference, Strasbourg

INDUSTRY CRISIS

You don't need to be reminded of the air transport industry crisis.  As government officials you have had to deal with the social and economic consequences of the spectacular downturn the industry is facing.

Just a few global figures to set the stage for our discussions.  Our industry has been hit by the Four Horsemen of the Apocalypse. The successive impacts of September 11, a world economic slowdown, Iraq and SARS have been devastating.

Globally the industry lost almost 25 billion dollars in 2001 and 2002.  Total international traffic dropped in May by 21% year-over-year and only June will show some slightly improved figures.

INDUSTRY REACTION

Under tremendous pressure, the airlines have reacted quickly and efficiently.  Extensive re-structuring has taken place.  We are doing this to survive. It can be done.

But we need your help in order to regenerate our industry and prepare it for the future.  Don't get me wrong; we are not talking subsidies or financial assistance here.  Far from it.  We are simply asking you to do your job as regulators and in some cases as service providers.

WHAT WE NEED FROM EUROPEAN GOVERNMENTS

The big issue is what to regulate and how to do it. 

Safety is clearly an area where government action and regulation is welcome. But should our industry continue to operate under the same rules as it did in 1944, when it was flying on DC3?

Internally Europe has moved beyond the bilateral system but the rest of the world is still operating with principles established in the Chicago Convention.  Why is it so difficult to get a single sky?  If every country used its national currency with its own parity but change its name to call it a Euro, would we have a single currency?  What is being implemented as a single sky is a puzzle of national skies with limited synergies and little added efficiency.

Unit costs of the European ATM system are 60 to 70 percent higher than those of the US FAA, which itself is not the most efficient system in the world.  And much of the difference is due to unnecessary bureaucratic duplication and the multiplication of national authorities. 

This and inadequate economic regulation and a lack of incentives to reduce costs are responsible for the unit rate increases across the Eurocontrol region. These increases amounted to 13% in 2002 and 11% this year.  The present proposals for 2004 should be reviewed and the charges significantly reduced.

You have abolished the borders on the ground but they are still there in the sky!  We are facing a very acute crisis, improved productivity is strongly needed, and ATM charges must be reduced for 2004.

But we also need a long-term plan to steadily increase efficiency and close the efficiency gap with the United States.  In last year's report, the Performance Review Commission pointed out that if all Eurocontrol states and ANSPs were on the so-called "efficiency frontier", this would save 650 to 850 million Euros per year.  Why not start with this target?


SECURITY COSTS

Security is a government responsibility.  When I take the train, my security in the station is guaranteed by the state and this is why citizens pay taxes.  When I fly, the airline, the airport and I are paying the security bill.  This is discrimination, pure and simple.

Last year, the airlines paid 5 billion dollars in extra security. The US Government has finally recognized the problem, implemented a reimbursement program for the US carriers and suspended the security charges for all airlines.

What are the European governments doing in this area?  Action is badly needed if only to preserve an international competitive level playing field.

REGULATOR OR SERVICE PROVIDER?

As Directors General of Civil Aviation you play multiple roles.  As partners, we the airlines, interact with you at different levels.

You regulate us on crucial matters such as safety and security.  In some cases, you run some of the services we use: airports and ATM.  In many cases, you regulate us commercially and examine issues such as conditions of carriage or passengers' rights.  Some of you, even have a role in competition issues.

In many cases you are also asked to commercially regulate the very service you are providing.  More appropriately, some of you economically regulate the services delivered by autonomous service providers like in the UK.  In the majority of cases, and I thank you for that, you are our industry's advocates with other government services and departments.

There is no doubt that there is some confusion and many contradictions in what you do. 

As far as we are concerned, in an ideal Europe, there would an autonomous Single Sky ATS provider regulated by a European authority that would also regulate safety and security.  Airports would also be autonomous entities and, as monopoly service providers, effectively regulated nationally.

We are not asking for the moon.  We just cannot afford the costs associated with the fragmented skies and the monopolistic behavior of the unregulated service providers.

THE THREE PILLARS OF STAGNATION

Many of you participated in the ICAO Air transport Conference.  There, in March, I listed the institutional obstacles that kept our industry from changing.  I called them the "Three Pillars of  Stagnation".  The bilateral system, national ownership rules and inadequate competition policies.

I stressed there that one needed to modernize these pillars rather than bringing them down.  I feel extremely encouraged by the ideas expressed recently in the media by Señora de Palacio.  Modestly, I must say, we are on the same wave length.

The mandate given to the Commission to negotiate traffic rights with the US is a step in the right direction to deal with the first two issues.  As you are well aware, bilateral negotiations are complex matters that require specific skills and a lot of experience.
US Government negotiators are tough customers.  My humble advice to the Commission would be to make full use of the great competence that exists within the national administrations.  While EU/US talks will be crucial in shaping the institutional future of air transport, other markets are also important.

On the third issue, competition, I would just state that the European airline industry is hopelessly fragmented.  It needs consolidation.  I would hope that the European competition authorities would understand that situation.  Competition issues affecting the monopoly ATM and airport service providers require the same attention as does consumer protection.

CONCLUSION

In conclusion, we need your help in removing the obstacles to change. 

As far as Eurocontrol is concerned, I hope we are now on the right track.  The CEOs of our ATS providers have agreed to make the changes that are required.  The Provisional Council, at its meeting last week, took note of the excellent work that has been accomplished by airlines and ATS providers.  It urged them to continue and to provide a more detailed work programme in the coming weeks.  There is no longer any excuse for resisting change.

The other issues are simple: Regulate what needs to be regulated, liberalize what the market can regulate.  Make the single sky the Euro of the sky.  Open up the Atlantic and global markets and let us ally, merge, buy and die!

Strasbourg, France, at the European Civil Aviation Conference, 27th Plenary Session: "State of the Air Transport Industry in Europe"
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