Studies On The Substantial Ownership And Effective Control Of Airlines

Globalization is the most important characteristic of the word economic development. Civil Aviation plays an important role in promoting the process of globalization. Because of the Sovereignty of the air space, civil aviation has always been regulated by a strict regime since it was borne before the first Word War. Every state exchange traffic right through the bilateral air services negotiations and consultations. Along with the deepening of economic globalization, the international air transport moves towards a more and more liberalization direction.However, bilateral regime is still the most important regulation model of the current international air transport. According to the statistics, there are about4000pieces of bilateral air services agreement of the whole world. The bilateral model has the merit of flexibility, but it takes a lot of time to negotiate so many bilateral agreements and has a low efficiency.Specially, most of the ASA retains the provisions of ownership and control, which hamper the free transnational merger and acquisition between airlines like other sector. This is not in accordance with the benefits of the state, airlines, and customers and etc.and also confront the tendency of current international air transport development.This dissertation consists of6chapters, about1950,000Chinese words. With comparative, logical and positive approaches, this dissertation tries to make a comprehensive and profound study of the legal issues of ownership and control of airlines. The first chapter mainly studies the basic theoretical questions of ownership and control of airlines. Ownership and control originated from modern corporate governance structure, section1of this chapter introduces the advent and development corporate ownership and control. Section2chapter introduces the concept of substantial ownership and effective control of airlines mainly from the macro level of international law. Because there is no unified definition of ownership and control in the current civil aviation field, this section introduces detailed the stipulation in the domestic law or in the bilateral air transport in some major aviation countries or regions by listing examples, like US and EU and attempts to summarizes the connotation of ownership and control of airlines according to our country’s practices. Meanwhile, this chapter analyses the difference and connection about the ownership and control in the traditional corporate and airlines. As the key part of this chapter, Section3studies carefully the international law sources of substantial ownership and effective control of airlines. In the international convention, this is no direct provisions in the Paris Convention in the1918, which is the first regulation governing the international air transport and in the Chicago Convention with the constitutional nature in the international air transport convention, but indirectly gives authorization to each country to decide their own international aviation policy according the requirement of national security by emphasizing the exclusive rights over their airspace. The International Air Services, which was enacted in the same time with the Chicago Convention, reads the ownership and control provisions firstly in the multilateral agreement. In the bilateral filed, the US and EU air services agreement in1946, which is known as the Bermuda agreement I, reads the ownership and control provisions in the bilateral agreement. Today, most of the bilateral agreements retain the above-said provisions.Chapter2studies the law and policy of the substantial ownership and effective control of airlines in the US from the perspective of air transport liberalization. There is tradition for the US to prohibit the foreign investment into its infrastructure, such as radio telecom, electric power, nuclear energy, shipping, etc. Section1of this chapter studies the stipulation and history of the ownership and control in the US domestic law. The laws and policy The US Air Commerce Act of1926first puts forward the American citizen requirement and has the strict stipulation with the percentage of foreign investment and the definition of US citizen. After the amendments in1938and1958, the US lifts the threshold of the foreign investment into US civil aviation filed and still uses the substantial ownership and effective control provisions in the1958Federal Aviation Law. Section2studies the substantial ownership and effective control in the US aviation policy. The US adopted the Air Deregulation Act in1978, canceling the government’s limitation on capacity, price, and frequencies. The airlines can decide their own operation according to their own development. This action promotes the efficiency of airlines greatly, providing the customs better services with air tickets fares. Although there is no director connection between the air deregulation and ownership and control, the liberalization from the air deregulation have great influence on US foreign ownership. The US pushed to sign the liberal air transport agreement since90s in the20th century. The US and Netherlands conclude the first open skies agreement in1992, and in2008,2010, the US signed the first and second stage open skies agreement, canceling the market access limitations and promotes the exportation of US airlines’capacity. Sections3mainly study the decision on the ownership and control of the competent department of US. According to the authorization of US congress, the US Civil Aviation Board or the Department of Transport has the ultimate privilege to interpret the law on the substantial ownership and effective control of US airlines. Before the90s of the20th century, due to the influence of the cold war between the western and eastern world, US interpret the airline ownership and control strictly in the name of national security. Since the90s of the20th to today, due to the deteriorating word economy and the liberalization tendency of international air transport, US began to interpret the ownership and control flexibly on case by case basis to meet the capital requirement of their airline. Section3studies the attempt of DOT to push the US domestic law to relax or cancel the ownership and control limitation. Since the Clinton Administration, DOT pushed to lift the foreign voting stock to49%, but experienced the preliminary failure due to lack of enough support. Especially, the US and EU conclude the first stage open skies agreement on the conditions that the US promised to promote the Congress to amend the relevant domestic law to lift foreign investment with voting rights. Because the complex and the great impact of this issues, DOT still do not have breakthrough over this matter till now. The US establishes the CRAF program to transport military goods during war times, which played an important role sometimes. To keep the sustainability of CRAF, although the CFIUS carried out strict review over foreign investment, which can mitigate the concern over national security, US still retains the strict foreign ownership.Chapter3studies the law and policy of the substantial ownership and effective control of airlines in the EU from the perspective of air transport liberalization. In addition, this chapter introduced briefly the law and policy of ownership and control of Canadian airlines and some exception to the tradition standard in some countries. Section1is the main part of this chapter. After three stage’s packaged liberalization measures, EU set up single and liberal air transport market. EU put forward the concept of EU carriers based on the article43of1958Roman Convention, which wrote the right the establishment of rights. According to the regulation, those who were established in EU and substantial owned and effectively controlled by the EU or its nationals are considered to be regarded as the EU carries, and can enjoy all the rights which the EU carriers have. However, the EU still limited the foreign investment to49%of the total stock. Compared with the US, EU’s regulations on this matter are more clear and definite and implement able. But both have the same objective to protect the competition of their owner airlines and to meet the requirement of their economy and society. Referring to the US’s practice, Canada has the similar standpoint on the airline ownership and control with US. Based on the same reasons, there are lots disputation over whether cancel or relax or still retain the strict law and policy. Section4introduces some exception to the traditional standard in some countries. In the international area, the multi-nationality airlines appear and in the domestic area, Singapore, Newland and Australia etc relax or even cancel limitation on foreign investment. The cases that substitute the foreign ownership provisions with principal operation place provisions increases more and more. Chapter4studies the disputation over cancel or retains the ownership and control of airlines. Despite the strong characteristic of the civil aviation industry and that airlines can carry the passenger and cargo to every corner conveniently in the world by its owner network. The existence of airlines ownership and control with a long history becomes the last obstacle in the process of realization of the air transport liberalization. There must be some hidden background behind this. The Chapter is divided into three parts and starts its studies respectively from the disadvantage of the existence of the airlines ownership and control, the risks and advantage of cancellation of the traditional standard. Section1studies the disadvantage of the existence of the airlines ownership and control. First, the provision hinders the free flow of capital between airlines leading to the operation difficulty of some airlines serious lack of capital, lost the opportunity of survival and development. Second the state-owned airlines or airlines with state support are easy to form the monopoly, distorting the market competition and the high cost will be borne by the consumers. Finally, in order to expand the market access opportunity, the airlines have to choose the loose and unstable alliance cooperation, destroying the air transport market stability. Section2studies the risks of canceling the foreign ownership limitation. First, the risks of economy interest, including the unfair competition between the domestic airlines and the foreign airlines, the formation of monopoly, the unemployment, and the loss of traffic rights. Followed this is the law risks. When the tort liability, it is difficult to find the responsibly body and when criminal offence, it is difficult to determine the jurisdiction court. In addition, as the most important safeguard of the air transport safety and security, it is difficult to identify the aviation security supervise body without the airline ownership and control. Section3studies the benefits of cancellation of the traditional standard. First improve the opeiation efficiency and competition capability. Secondly, the merger or the acquisition of airlines can reduce the overlapping network, cut the operational cost and provides the customers’better services with low ticket fares. Again cross-border mergers can expand the market access opportunity and protect the stability of air transport market. Finally, civil aviation industry can enjoy the foreign rights of establishment, realizing the real liberalization and internationalization.Chapter5studies the paths and method to realize the liberalization of airline ownership and control. The international community has the some reorganization over the tendency of air transport liberalization and cancellation of airlines ownership and control is the key point in the process. The chapter is divided into three part, starting its work respectively from the pre-condition of cancellation of airlines ownership and control, the steps of realizing liberalization of air transport., the role of some international organization have played in the process.Section1studies the pre-condition of cancellation of traditional standards, including the liberalization of traffic rights to avoid the lose of traffic rights, the uniformity of aviation safety and security to easily identify the supervise body, coordination the uniform of the competition law to lay the base for the airlines cross-border mergers or takeovers. Secondly, because US and EU dominate the air transport liberalization process, their realization of air transport liberalization is very crucial. These are only the most important parts of realizing the air transport liberalization. Except that we can reach consensus on the uniformity of aviation safety and security standard easily due to their technology nature. It is very hard to realize the liberalization of traffic rights, the uniformity of completion law and the change of US and EU’s standpoint on the airlines ownership and control which involve important politic and economy interest. Section2studies the steps of realization of liberalization. With the further liberalization of international air transport, more and more countries with the same interest in the some region conclude regional agreement, realizing the market access liberalization and canceling the investment limitation in this region. The EU is a very typical example with the internal full liberalization. In2002, under the lead of US, five members of the Asia and Pacific Economy Cooperation conclude an agreement with more broaden parties from different continents, representing further air transport liberalization. Multilateralism is the most efficient way managing the international air transport, means the realization of full liberalization. When more and more regions coordinate to get consensus on their regional agreement, air transport realizes full liberalization in the formation of multilateralism. Section3studies the important role some international organizations have played in the air transport liberalization process. OECD has put forward some very constructional suggestion on the cargo labialization. WTO is now actively negotiated on enlarging the scope of GATS trying to incorporate the air transport wholly. ICAO plays a dominate role in the air transport liberalization process and put forward lots of good suggestion by the means of ICAO Conferences and ICAO Air Transport Conference and some of them have been implemented by some member countries.Besides IATA also countries to cancel the airline ownership and control limitations to realize the air transport liberalization.Chapter6is conclusion and suggestion. This Chapter summarizes the liberalization tendency of international air transport and put forward the proposals we should adopt in the process from the international and domestic perspective. Section1studies the tendency of the international air transport. Along with the globalization of economy and freedom of trade, under the leader of US-EU Open Skies, liberalization is the tide of international air transport. Section2studies the relationship between China civil aviation and the liberalization of international air transport.After several round of reform, China civil aviation has formed the pattern of separation of the government and enterprise, the competition capacity of Chinese airlines have been greatly increased. Currently, under the lead of the policy "positive, gradual, order, safeguard", China civil aviation has been positively joining the air transport liberalization process. Section3demonstrates that airline substantial ownership and effective control has been the final obstacle to realize the air transport liberalization. Relaxation or Cancellation of such limitations should depend on different countries’actul situation and is a gradual process. Section4introduces the domestic law and bilateral agreement on the substantial ownership and effective control of Chinese airlines and the advantages and disadvantages of such provisions and put forward some suggesting on how to revise the relevant international and domestic law.