Select Committee on European Communities Minutes of Evidence

Examination of witnesses (Questions 150 - 159)




  150.  Mr Schulte-Strathaus, we are most grateful to you. I understand you have flown in this morning from Frankfurt.
  (Mr Schulte-Strathaus)  From Hamburg.

  151.  I beg your pardon. Was it a direct flight?

  A.  Yes.

  152.  We might pursue that later on! We are very grateful to you and to your company for agreeing to give evidence in front of this Committee. I think you understand that we are looking at the proposed airline regulations. We would be particularly interested in hearing the views of Lufthansa in this context. I am glad that I saw that you had sat in on the previous evidence session and so you now realise how we conduct these affairs. If you have any introductory remarks you would like to make we would love to hear them, but we tend to get the most benefit from a question and answer session rather than a long monologue. If I may repeat my comments regarding BA/AA. If you wish to make an opening comment, please do so.

  A.  Thank you very much, my Lord Chairman. I apologise that Lufthansa was not able to provide you with a written submission beforehand. I have taken the liberty of preparing a brief statement that I would like to present to you this morning and I will leave it with you. I also have a number of comments that I have written down on some of the questions that were alluded to in inviting us to attend today's meeting. Thank you very much indeed for giving Lufthansa the opportunity to provide its views on the proposed extension of Regulations 3975/87 and 3976/87 to air transport with third countries. I will make my comments brief and tectonically candid. It is extremely important to distinguish between two issues. The first is whether it is desirable to give the Commission the power to negotiate international air service agreements with third countries on behalf of the European Union as a whole. For reasons that I will go into a little later, Lufthansa supports such a grant of authority in principle, provided that the agreements are properly structured and serve the interests of the Community. The second issue is whether it is desirable to extend Regulations 3975/87 and 3976/87 to give the Commission direct enforcement competence under Articles 85 and 86 in respect of air services to third countries. This is the specific issue now under consideration by the Sub-Committee. Lufthansa is opposed to giving the Commission this authority until such time as Community-wide agreements governing air services to third countries are in place. Lufthansa is opposed to extending the Commission's direct enforcement powers at this time for three reasons. First, we are unconvinced that the current situation, where the enforcement powers of the Commission can only be exercised under Article 89, is in fact unsatisfactory for either the airlines or consumers. Lufthansa is unaware of any case where there has been real inconsistency between the enforcement activities of national competition authorities in the aviation field. Second, Lufthansa sees definite advantages in the present system until such time as Community-wide air transport agreements are in place. Under existing bilateral arrangements the EU carriers providing air transport from a Member State to a third country will almost invariably be based in that Member State. This means that the principal EU parties to any agreement subject to Article 85 or any practice that is allegedly abusive under Article 86 will usually be based in that country. The principle of subsidiarity, which as you may be aware is becoming increasingly popular in Germany, suggests that it would be appropriate and desirable for the national competition authority to exercise the primary responsibility for enforcement under these circumstances. Furthermore, as long as the Member State remains responsible for the political relationship with the third country involved, this arrangement makes it easier to ensure that the authorities responsible for competition policy are sensitive to the political issues that enforcement activity may raise in the other country involved. Third, and most important, Lufthansa opposes giving the Commission added enforcement powers because it is concerned that the Commission will use such powers to push its own political agenda. It has been very evident that the Commission is using the Article 89 cases involving the various transatlantic alliances as a lever to obtain additional political authority vis-à-vis the United States and various Member States. I would like to stress that I would not have the same reservations if competition law enforcement at the Community level were the responsibility of an independent enforcement authority. The problems we see are the result of the political nature of the Competition Directorate. Lufthansa has had its problems with the German federal kartel office over the years, but we have always respected the fact that they approach cases on the basis of competition policy as they understand it and not on the basis of some overt political agenda. As regards the question of a mandate for the Commission to negotiate air service agreements on behalf of the Community, I would stress that the Lufthansa position in favour of such a mandate is not based on a precise calculation of the likely commercial advantages and disadvantages for itself in such an arrangement. We are, however, confident that as an efficiently managed privatised airline we can benefit from any measures that illuminate regulatory barriers and reduce government intervention in the airline markets. I do not that it is necessary to be too concerned at this stage about the winners and the losers. The creation of a broader market is not necessarily a "zero sum game". All EU carriers and passengers on all routes, long haul or short haul, could potentially benefit from the increased opportunity created by a properly drafted agreement. If any carriers lose out, it will be because they are too dependent today on state subsidies or have taken ill-fated commercial decisions. I have just referred to the benefits of a properly drafted agreement. A properly constructed agreement with a third country should incorporate all the parameters for an external aviation policy, including competition policy, upon which a single aviation agreement could be concluded with a third country. Such an agreement should also include the guidelines for the enforcement of a competition policy and such a competition policy must be agreed upon with a third country, it should not be imposed universally by the European Union. I realise that I may start to sound like the famous prayer of Saint Augustine "Give me celibacy Lord, but not yet!"—I do see the logic of giving the Commission increased enforcement powers in the context of a single aviation agreement with a third country but not yet; not until there is an EU agreement in place with a given third country, not until there are guidelines for the exercise by the Commission of its powers, and not until we can be reasonably confident that the Commission would not use those powers as a lever to achieve political ends. Until that time I would oppose extending the scope of Regulations 3975/87 and 3976/87. In essence, that is the brief presentation I wanted to give, my Lord Chairman.

  153.  Thank you. That has given us quite a lot to digest. You started by saying you welcomed the proposed Regulations and that lasted about three seconds and you then proceeded to say "but" and for the rest of what you said you said you did not welcome them. You have just finished by saying not yet. I am not quite sure why you said you welcomed them in the first place.

  A.  Because there is an inherent logic in the proposals. We currently have a single aviation market within Europe and there is a level playing field for competition in this area. We cannot, however, have a single aviation market in Europe completely irrespective of the goings on outside of Europe and we believe that it is necessary to have a level playing field not just within Europe but also for services to and from Europe. Therefore, the logic of applying some kind of competition rules to cover not only transportation within Europe but also to and from Europe is one we cannot deny. The question is how does one proceed in achieving that goal? The Commission's approach is one which we do not take kindly to because what they are currently doing, in our view, is to act upon individual cases and these cases then drive the competition policy which in turn then dictates the contents of a negotiation mandate from the Member States to the European Union. We believe it should be the other way round. We believe that, first and foremost, the Council of Transport Ministers should develop an aviation policy, as I outlined before, which includes what they consider as the important and necessary elements of the competition policy. They should then determine the way in which such a competition policy could be enacted. The Commission should then come up with specific proposals as to which countries should be considered as potential partners for such a new agreement. There are several criteria that would have to be met. First of all, the third country involved would have to have open skies arrangements in place with several, if not all, European Member States. They would certainly have to be prepared to negotiate a liberal aviation agreement, which means no market access restrictions, no capacity limitations, no tariff clauses. The ultimate objective of the aviation policy of the European Union should be to ensure that aviation becomes an industry like any other. The extent to which the other country is prepared to accept these goals would then be the determining factor for the Commission and everyone would have to negotiate a single aviation agreement with that country. Once that is done competition policy can be implemented and enforced.

  154.  I think what you are saying is—and I quote a joke but only to make the point—that it is really like the Irishman giving directions saying, "I would not start from here if I were you"! You seem to be implying that you would like this concept to be driven by DG VII and you mentioned European aviation policy and it would have as part of that a competition element to it which would involve DG IV. Please contradict me if I am getting the wrong impression.

  A.  This is true, my Lord Chairman, because we are dealing with third countries. As long as we remain in the scope of the European Union DG IV must clearly implement and enforce the competition rules that we have in place within the European Union. Once we move to third countries their concerns must also be taken into consideration and that can only be based upon an agreement. The European Union cannot dictate the way it wishes to have aviation policy enacted and it cannot dictate the way it wishes to have competition policy enacted. Therefore, it appears to me reasonable that DG VII should first try and develop such a basis or framework based upon guidelines set forth by the Council and once that is achieved you then have the framework for the implementation of whatever kind of competition policy they agree upon.

  155.  You must be lobbying quite hard in Brussels—and I am not asking you to answer that question, I am assuming that that is a fact—but do you find that there is any difference of opinion between Directorates VII and IV in this context?

  A.  Yes, we do.

  156.  Could you expand?

  A.  It appears to me that the Competition Directorate (DG IV) is becoming a little impatient with the progress achieved in coming up with a mandate to negotiate, at least with the United States. As outlined in the introductory remarks, DG IV would now appear to be taking the alliances hostage as a means to increase the pressure on the Member States to grant that mandate. I also have the impression that DG IV has different views on the contents of such future negotiations between the European Union and third countries and DG VII, issues such as slot trading, for example. The question of whether DG IV or DG VII should be entitled to regulate in areas such as CRS displays (Computer Reservation System) or frequent flyer programmes is also one which appears to be in dispute between the two Directorates.

Lord Berkeley

  157.  You have been very critical of the European Commission's competition policy. How different is that policy from the German competition policy, for example, and are you critical of it because it is coming out of Brussels or because you do not like its policy?

  A.  We are critical of it for both reasons. As long as the responsibility for trade in the aviation area remains with the Member States we perceive there would be enormous difficulties in the third countries accepting any form of intervention from the Commission because this would in effect erode the contents of the bilateral arrangements in place between the Member State and the third country. That is one reason for being somewhat reluctant to accept the competence of the Commission. The second is that we foresee technical difficulties for the Competition Directorate in actually enforcing whatever kind of competition policy they have with third countries. This is not just lack of expertise, it is also difficulties for them being able to focus on competition policy as such. We have made the observation that they are a politically driven entity and that it is just not possible to discuss with them some of the specificities of the airline industry.

  158.  Is not the German government politically driven? Is not the British government politically driven? What is the difference?

  A.  The German government is, but the German competition authority, the Kartellamt office, has constitutional rights which make it completely independent of the German government and that is something that has given rise to concern within Lufthansa at certain times, but as a matter of principle it is something that we completely adhere to.

Lord Haslam

  159.  You mentioned the Kartellamt. Is it still called the Kartellamt?

  A.  Yes.

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