Washington Aviation Summary Kirstein & Young Attorneys District of Columbia Washington

Global passenger demand slumped by 2.4% in April, reports the International Air Transport Association (IATA), as a result of massive cancellations due to ash cloud from an Icelandic volcano. European carriers posted an 11.7% demand drop in April (compared to 6.2% increase in March). North American carriers posted a 1.9% decline (7.8% increase in March), primarily due to impact of ash crisis on North Atlantic routes. Asia-Pacific carriers saw strong growth slow to 3.5% (12.9% growth in March). Middle Eastern airlines recorded the strongest traffic growth at 13% (25.9% increase in March). African carriers saw recovery slow to 8.6% growth (16.9% growth in March). Latin American carriers posted a 1.2% increase (4.6% growth in March). The recovery pace of international scheduled cargo traffic slowed to 25.2% growth (down from 28.1% improvement in March). Looking ahead, IATA challenged Europe to reform its air traffic management. "The ash crisis was an embarrassing wake-up call for European governments. We need leadership to deliver the Single European Sky, fair passenger rights legislation and continent-wide coordination," said Giovanni Bisignani, IATA Director General and CEO. "Unfortunately, we are trading ash for two additional uncertainties-strikes and a growing currency crisis-both of which are also focused on Europe. . . It's a tough competitive world. Airlines need to reduce costs to be competitive. Labor must realize that their pay checks are supported by the performance of the company. The middle of a very fragile recovery is not the time for striking. This mentality is divorced from reality," said Bisignani.

More than 100,000 flights were cancelled and some 10 million passengers were stranded, when airspace was shut down across Northern and Central Europe for six days due to a cloud of ash from an Icelandic volcano. The International Air Transport Association (IATA) estimated the event cost airlines $1.7 billion in revenue, and the European Union (EU) estimated total industry losses could reach $3 billion.

Global passenger demand was up 9.5% in February, compared to February 2009, and cargo demand grew 26.5%, reports the International Air Transport Association (IATA), which also noted that February 2009 marked the bottom of the cycle for passenger traffic during the global economic recession. Passenger demand must recover a further 1.4% to return to pre-crisis levels.

The U.S. Department of Transportation proposed to grant antitrust immunity (ATI) to American Airlines and oneworld partners British Airways, Iberia, Finnair and Royal Jordanian to form a global alliance. The alliance would include a "metal neutral" joint venture among American, British Airways and Iberia, enabling those carriers to operate the most efficient schedules without regard to which carrier they select to operate the flight. As a condition of approval, DOT proposed that the applicants make four pairs of slots available to competitors for new U.S.-London Heathrow service. DOT also would require changes to the agreement to ensure capacity growth, and require that carriers submit traffic data and implement the proposed alliance within 18 months of a final decision. In its show-cause order, DOT tentatively found that granting ATI to oneworld would provide travelers and shippers with lower fares on more routes, increased services, better schedules and reduced travel and connection times; and the alliance would create competition with the Star and SkyTeam alliances, which already have been granted immunity. The February 13 notice provides 45 days for objections. ATI approval is still under review by the European Union (EU), which said it has received commitments from British Airways, American and Iberia to alleviate competition concerns. Sir Richard Branson, Virgin Atlantic Chairman and tenacious foe of the oneworld request for ATI, called the DOT decision a "kick in the teeth" for consumers.

President Obama said security reviews he ordered from intelligence, homeland security and law enforcement agencies after the failed Christmas Day attack reveal "human and systemic failures . . . This was not a failure to collect intelligence; it was a failure to integrate and understand the intelligence that we already had." A failure of our intelligence community to connect the dots fed into shortcomings in the watch-listing system, said the President, which resulted in the suspect not being placed on the 'No Fly' list, thereby allowing him to board the plane. President Obama directed the intelligence community to immediately begin assigning specific responsibility for investigating all leads on high-priority threats. Intelligence reports, especially those involving potential threats to the United States, must be distributed more rapidly and more widely, and the analytical process must be strengthened. He ordered an immediate effort to strengthen criteria used to add names to terrorist watch lists, especially the 'No Fly' list. He directed agency heads to establish internal accountability reviews and national security staff to monitor their efforts.

White House Reviews Security Procedures After Failed Terror Attempt. Following a failed explosion onboard Northwest Flight 253, en route from Amsterdam to Detroit on Christmas Day, the White House ordered immediate reviews of the U.S. watch list system and all screening policies, technologies and procedures related to air travel. The father of the alleged terrorist earlier had warned U.S. officials in Africa about his son's extremist views, confirmed President Obama. "A systemic failure has occurred," he said. "This information was passed to a component of our intelligence community, but was not effectively distributed so as to get the suspect's name on a no-fly list." The suspect, a Nigerian national, was said to be trained and supplied by an al-Qaeda group in Yemen. The group claimed responsibility for the attempted attack, saying it was in retaliation for U.S. air strikes against them.

DOT Convenes "Future of U.S. Aviation" Forum. Ray LaHood, Secretary of the U.S. Department of Transportation (DOT), invited aviation stakeholders to a closed-door "Future of U.S. Aviation" forum, where the Air Transport Association (ATA) called for: no new taxes and fees; fully funded and accelerated modernization of the air traffic control system; enhanced oversight of energy markets to curb excessive speculation and volatility of oil prices; elimination of restrictions on airlines' ability to operate efficiently in the global marketplace; and a global sectoral approach to climate change developed through the International Civil Aviation Organization (ICAO). In a letter to LaHood, US Airways Chairman Doug Parker, who could not attend the forum, wrote, "Our request [is] 'Do No Harm' . . . do not impose any additional taxes, fees or unfunded mandates on this already over-taxed industry [and] allow us the ability to fix our industry through rational business decisions and actions and self-help mechanisms." Union officials said they are not seeking re-regulation, but want tighter barriers to entry for low-cost startups, which sometimes drive air fares below cost, causing economic chaos for mainline carriers. LaHood will create a federal advisory committee of government and industry stakeholders to seek solutions to challenges facing U.S. airlines. Kevin Mitchell, Business Travel Coalition Chairman, and Bob Crandall, former American Airlines Chairman, urged LaHood to allocate the first two months of the committee's efforts to "develop public-policy objectives and a framework for effective analysis and oversight such that it does not take a tragedy outside Buffalo to recognize a flawed regional airline business model; or to identify that there is significant safety and security risk when U.S. aircraft are sent to third-world countries to be overhauled by workers whose backgrounds cannot be verified, who are not tested for drugs and alcohol, who rely on pictures in manufacturers' manuals to perform repairs because they cannot read detailed English instructions and whose oversight by FAA and TSA [Transportation Security Administration] is uneven, or non-existent."

International travel to the United States will "regain its footing" in 2010, predicts the U.S. Department of Commerce. Reflective of the current global economic environment, international travel is expected to decline by 8% this year, with a 3% rebound projected for the U.S. by the end of 2010, followed by 5% annual increases through 2013. This year, 22 of the top 25 arrival markets will post declines, with the largest from Taiwan (-17%), Ireland (-14%), Sweden (-13%), Mexico (-12%), United Kingdom (-12 %), and Netherlands (-10%). The U.S. hosted a record 58 million international visitors in 2008. International arrivals are predicted to reach 64 million by 2013.

International scheduled passenger demand declined by 1.1% in August, an improvement on the 2.9% decline in July, reports the International Air Transport Association (IATA). Compared to the low point of March 2009, seasonally adjusted passenger demand improved by 6%, but traffic levels remain 5% below May 2008 when the fall in demand began. Freight demand fell by 9.6% in August, an improvement over the 11.3% drop in July. Compared to the December 2008 low point, seasonally adjusted freight demand improved by 12%, but remains exceptionally weak at 16% below April 2008 levels when the fall in demand began. Average fares continue to be depressed (-22% for premium seats and -18% for economy). To match capacity with demand, airlines have reduced daily aircraft utilization, said IATA. Average daily hours for the global Boeing 777 fleet dropped by 2.7% to 11.1 hours per day through the first eight months of the year. Lower utilization helps load factors, but spreading fixed asset costs over fewer hours in the air pushes up unit costs. IATA predicts airline losses will reach $11 billion in 2009, after earlier loss projections of -$9 billion. Revenues for the year are expected to fall by $80 billion (15%) to $455 billion, compared with 2008 levels. IATA also revised 2008 estimates from a loss of $10.4 billion to a loss of $16.8 billion. For 2010, IATA anticipates average international passenger growth of just over 4%, compared to an expected full-year decline in 2009 of almost 5%.

The Federal Aviation Administration (FAA) and National Air Traffic Controllers Association (NATCA) reached a collective bargaining agreement after three years of negotiations. A mediation process produced an agreement that is subject to ratification by union members. An independent arbitration team released a decision on five issues, including compensation, which are not subject to ratification. The agreement provides employees with greater flexibility in work schedules, childcare support and a new grievance review process. It gives FAA "flexibility to more effectively redeploy labor to congested airports using Controller Incentive Pay," said FAA, and "restores a more equitable pay standard to benefit new hires as well as veterans nearing retirement." Associated costs will be phased in over the three years of the contract.

The U.S. Department of Transportation (DOT) granted final approval for antitrust immunity (ATI) to Continental for its participation in the Star Alliance, and allowed Air Canada, Lufthansa, United and Continental to place a portion of their international air services within a new joint venture, to be called Atlantic Plus-Plus. Under the venture, the carriers will jointly arrange capacity, sales and marketing, and share revenues in international markets. DOT concluded the joint venture would support increased levels of service in international markets served by the carriers, give consumers more travel options and shorter travel times and reduce fares. The United States has open skies aviation agreements with the home countries of the carriers involved in the decision. Following comments from the Department of Justice and other parties on its April 7 tentative decision, DOT placed new limitations (carve outs) on the immunity in several markets to preserve competition: four transatlantic markets, four U.S.-Canada markets and all U.S.-Beijing markets. Star carriers may continue to serve these routes, but will not be covered by ATI. The carriers are required to implement the new joint venture within 18 months, and provide annual reports to DOT about implementation of their alliance agreements. They remain subject to antitrust laws with respect to domestic service. DOT first granted immunity to Star partners in 1996, when it approved a United-Lufthansa alliance. Other Star members are Austrian, British Midland, LOT Polish Airlines, SAS, Swiss and TAP Air Portugal.

The global airline industry is expected to lose $9 billion this year, reports the International Air Transport Association (IATA), nearly double the March estimate of a $4.7 billion loss. IATA also revised its 2008 loss estimate of $8.5 billion to -$10.4 billion. Revenues are forecast to decline an unprecedented 15% ($80 billion), from $528 billion in 2008 to $448 billion in 2009. Air cargo demand is expected to decline by 17%. In 2009, airlines are forecast to carry 33.3 million freight tons, compared to 40.1 million tons in 2008. Passenger demand is expected to contract by 8% to 2.06 billion, compared to 2.24 billion in 2008. Revenue impact of falling demand will be further exaggerated by large falls in yields-11% for cargo and 7% for passenger. Losses forecast for carriers worldwide: North American, -$1 billion; European, -$1.8 billion; Asia-Pacific, -$3.3 billion; Middle East, -$1.5 billion; Latin American, -$900 million; and African, -$500 million.

Washington Aviation Summary - June 2009
President Obama's choice to lead the Federal Aviation Administration (FAA), Randolph Babbitt, was confirmed by the Senate. A former Air Line Pilots Association President, Babbitt said his priorities as FAA Administrator would include funding the Next Generation Air Transportation System (NextGen); resolving air traffic controller labor disputes; and improving landing techniques that would reduce fuel consumption, noise and congestion. The Senate also approved John Porcari as Deputy Secretary of the Department of Transportation (DOT); he has served as Secretary of Maryland DOT.

Washington Aviation Summary - May 2009
In a rapidly evolving situation, at least nine countries officially reported cases of influenza A/H1N1, said the World Health Organization (WHO), and the death rate climbed. Most of the cases were in Mexico, followed by the U.S. WHO raised the level of influenza pandemic alert to Phase 5, with 6 being a full pandemic, and advised countries to activate pandemic preparedness plans. WHO advised no restriction of regular travel or border closures, but advised sick people who are ill to delay international travel. Several nations suspended flights to Mexico. Some nations also urged avoidance of travel to the U.S., which Atlanta-based Centers for Disease Control (CDC) said was unwarranted.

Washington Aviation Summary - April 2009
The global air transport industry can expect losses of $4.7 billion in 2009, reports the International Air Transport Association (IATA), revised from a December forecast of a $2.5 billion loss. Industry revenues are expected to fall by 12.0% ($62 billion) to $467 billion. In the post-9/11 decline, revenues fell by 7% ($23 billion) over the 2000-2002 period. Passenger traffic is expected to contract by 5.7% this year, cargo by 13% and yields by 4.3%. In January, passenger traffic was down 5.6%, with premium off 16.7%; cargo traffic fell 23.2%. IATA also revised its forecast losses for 2008 from $5 billion to $8.5 billion. "This is a resilient industry capable of catalyzing economic growth. But we are structurally sick.

Washington Aviation Summary - March 2009
The $787 billion American Recovery and Reinvestment Act of 2009 provides for $1.1 billion in Airport Improvement Program (AIP) funding to be made available by the Federal Aviation Administration (FAA) for "shovel-ready" projects this year, and provides federal income tax breaks to those who buy airport revenue bonds. The stimulus plan also includes $1 billion for the Transportation Security Administration (TSA) for procurement and installation of airport baggage screening and checkpoint security equipment.

Washington Aviation Summary - February 2009
The International Air Transport Association (IATA) released scheduled traffic results for December and full-year 2008. In December global cargo traffic plummeted by 22.6% compared to December 2007, while passenger traffic fell 4.6% with load factor at 73.8%. For full-year 2008, international cargo traffic was down 4%, passenger traffic increased 1.6% and international load factor was at 75.9%.

Washington Aviation Summary - January 2009
Ray LaHood was selected by President-Elect Barack Obama to be the next Secretary of Transportation. The seven-term Congressman (R-Ill.) served on the House Appropriations Committee and is expected to play a key role in obtaining bipartisan support for infrastructure revitalization programs planned by the new Administration.

Washington Aviation Summary - December 2008
Global passenger traffic declined 2.9% and cargo traffic dropped 7.7% in September, compared to the same month in 2007, reports the International Air Transport Association (IATA), due to the economic recession. Load factors tumbled by 4.4% from 79.2% in August to 74.8% in September.

Washington Aviation Summary - November 2008
Saying the merger of Delta and Northwest "is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition," the U.S. Department of Justice Antitrust Division closed its six-month investigation and approved the arrangement.

Washington Aviation Summary - October 2008
The global airline industry is expected to post losses of $5.2 billion in 2008. The revised forecast, issued by the International Air Transport Association (IATA), is based on an average crude oil price of $113 per barrel ($140 for jet fuel).

Washington Aviation Summary - September 2008
Cargo and passenger traffic continued to slow in June, reports the International Air Transport Association (IATA). Cargo contracted by 0.8% compared to June 2007 and passenger demand growth fell to 3.8%, compared to 7.4%. Capacity growth of 5.5% outstripped demand, pushing the passenger load factor down to 77.6%, compared to 78.8% last June.

Washington Aviation Summary - August 2008
Amid the current environment of high oil prices and falling demand, airlines have introduced capacity cuts that have a severe impact on employees, passengers, airports and communities. Industry leaders are debating whether a return to some form of regulation is needed.

Washington Aviation Summary - July 2008
The International Air Transport Association (IATA) called on governments, industry partners and labor to address the fuel crisis, forecasting a potential loss of $6.1 billion for 2008 based on an average oil price of $135 per barrel.

Washington Aviation Summary - June 2008
Year-on-year international passenger demand grew by 3% in April, reports the International Air Transport Association (IATA), or 4% with seasonal and other adjustments, compared to 6.7% growth for the first four months of 2007.

Washington Aviation Summary - May 2008
Aloha, ATA, Skybus and Eos ceased operations in April, charter operator Champion Air announced it will end operations on May 31 and Frontier filed for bankruptcy protection but continued operating.

Washington Aviation Summary - April 2008
The U.S. Department of Transportation (DOT) and the European Commission (EC) announced a joint research project to determine how alliances have affected competition in transatlantic markets and the potential impact of the open skies agreement between the United States and the European Union (EU), set to take effect March 30, 2008.

Washington Aviation Summary - March 2008
For full-year 2007, worldwide passenger traffic rose 7.4% and cargo traffic was up 4.3%. This year, demand rose 4.3% in January, year-on-year, but was down sharply from the 6.7% growth of December.

Washington Aviation Summary - February 2008
The U.S. Department of Transportation (DOT) proposed a new landing fee structure that would permit airports to impose a per movement charge, in addition to current weight-based runway charges, and increase fees during congested periods to encourage airlines to operate at other times, use secondary or reliever airports or "up-gauge" aircraft.

Washington Aviation Summary - January 2008
The U.S. Department of Transportation (DOT) selected US Airways to inaugurate U.S.-China service (Philadelphia-Beijing) and awarded additional U.S.-China passenger flights to American (Chicago-Beijing), Continental (Newark-Shanghai) and Northwest (Detroit-Shanghai), all to begin on or about March 25, 2009.

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