Mr.Antonyuk (Head of SAS) insists that the rule
requiring airlines to be controlled by Ukraine or Ukrainian citizens will stay,
but admits that the SAS may reconsider pre-requisites for granting international
route licenses.
This suggests that SAS might be submitting to the pressure from the industry,
and is willing to adjust the rules of the game to reflect interests of the broader
range of the key players. At least, of the ones who can make their voice heard.
Those of us, however, who are not part of
the aviation industry, should be less concerned about whether all Ukrainian air
carriers end up being happy with the new regulations. Instead, our focus should
be a more general impact of regulations and SAS proceedings on the state of
matters in Ukraine, and, in particular, the rule of law in the country. Does
SAS act in accordance with the law? Does it overstep the regulatory boundaries?
Should we allow agencies such as SAS to overrule the Parliament?
There isabundant information on negative
policy implications of the new rules and discussions of their
anti-competitive nature and alleged
illegality. At the same time, there are claims
in defense of the draft regulation, which may sound legitimate to the public
ear. The first such claim
is that Ukraine needs local air travel, and to develop and serve such local
routes should be “social responsibility” of the airlines. Second,limiting
foreign travel benefits to locally controlled airlines is claimed to be
standard practice in international aviation. Third, the new Regulation is alleged to
protect national aviation industry and increase competition, and, through this,
serve the public.
We address these claims from the legal
point. We argue thatthese claims are not fully accurate or, to the extent that
the policy considerations cited by the regulatormay be valid and ultimate
objectives desirable, there are other, lawful options for achieving these ends.
To start, there are several basic legal principles.
First, as opposed to individuals and legal entities, which may do whatever they
choose unless expressly prohibited from doing so by law, state bodies may act
only as directly prescribed by law. The regulator may not exceed its powers set
by the legislation. It may not, in exercising its powers, use any instruments
in addition to those expressly granted to them by law. Second, any regulations issued by ministries
or other agencies should be based on the law and international treaties. The regulator may clarify the law, extend it,
and if expressly allowed, issue regulatory norms. It must not, however, limit
or amend principles set by the laws or international treaties. In particular, the regulator may not override
express norms of the law, including, in the case of SAS, those oftheAir Code of
Ukraine,even if SAS deems such norms unreasonable.
1.
“Social mission” of the airlines
Let us start
with the claim of the regulator that airlines have “social mission”. To the
extent the airlines want to earn on profitable international markets, they
should serve local routes needed by the country. For this purpose, foreign route
license should only be granted if the carrier served local route for at least
12 month, whether or not they would do so at a loss.
There are indeed
situations where the state may desperately need some routes, which, however,
for economic reasons, the airlines are not willing to serve. In the EU, for
instance, this is done via the Public Service Obligations program, whereby the
carriers receive subsidies to serve remote and island communities which would
otherwise be cut off from the rest of the world.
Unfortunately
for the regulator, Air Code of Ukraine provides a completely different
solution, which cannot be overruled by subordinated legislation. Under article
96 of the Air Code, should there indeed be a need for a special route, the SAS
should establish it, setting the requirements as to the frequency, regularity
and even prices that the carriers may charge. The announcement should be
published. If no airlines volunteer to accept the honor, SAS may organize a
tender. To participate, airlines should submit proposals as to the form and
amount of the remuneration and other benefits they expect to receive for
servicing the line.
Thus, first, the
legislator iscrystal clear – servinga “social” line is not an honorable duty of
the carriers, but their free choice. Second, the airline should receive
consideration and benefits for carrying out “social mission”, which may include
various payments from the state, and other preferences. Third, the form and
amount of the benefits are suggested by the airlines, and thus may not be set,
but only approved by SAS.
2.
Effective control or minimum ownership test
SAS claims that
limiting foreign travel benefits to locally controlled airlines is standard for
international aviation. The claim is partially valid. Majority of the bilateral
treaties governing travel between two states indeed provide that the state may
reject designation of the airline of another stateifless than 50% of the
carrier is owned and/or effectively controlled by such other state or its
nationals. The US legislation limits foreign ownership stake in airlines
serving the country’s domestic market to 25 percent. At the same time, any EU
air carrier can serve any routes within the EU – for instance, Ryanair (an
airline registered in Ireland) maintains a very active presence on the Italian
domestic market.
The argument of
SAS, however, is not valid for at least several reasons. First, Air Code sets
exhaustive list of grounds for refusal to grant route license. Such limitation
is not there. Second, to the extent that a bilateral agreement contains such a
requirement, it is incorporated into the route license terms automatically. This
implies that an airline not meeting the requirement of the intergovernmental
agreement would not receive the right to operate a route to a particular
country, irrespective of what the Ukrainian aviation rules say. Thus, there is
no need for additional general ruling, applicable to all carriers, irrespective
of the foreign country involved. Third, depending on the country, the effective
control test may not be relevant at all. For example, this will be the case if
the national legislation of the destination country does not apply such test.
Or the foreign country may grant right of travel in the absence of a bilateral
agreement. Or the applicable treaty may provide for a different test. For
example, draft Common Aviation Area Agreement between the EU member countries and
Ukraine provides that effective control test is met where the control is exercisedthrough
Ukrainian company with principal place of business in Ukraine. The test is
similar to what is stipulated by the Aviation Code, and it may not be changed
by the regulator.
3.
Protection of Ukrainian carriers and encouraging competition
As indicated
above, introduction of the effective control test as suggested by SAS results
in imposition on Ukrainian air lines requirements which may be otherwise absent
in international regulation of the aviation. Thus, carriers, which are
incorporated in Ukraine, employ Ukrainians, pay taxes in Ukraine, will be
prevented from making money on international routes only because they are
controlled from abroad. Instead, the profit may go to foreign airlines not
subject to such unnecessary limitations. Other pre-conditions to granting
license are even more anti-competitive. As such, they may only be introduced by
the Parliament, and not regulator.
It is thus
overall clear that the SAS has in its rulemaking overstepped its authority.
Instead of holding a hearing on changing the regulation, therefore, the
reasonable action in these circumstances will be to repeal the new aviation
rules, and to follow the proper legal procedure, should there be reasons to
believe that the rules for designating Ukrainian carriers to fly
internationally need changing.
Zoya Mylovanova is a member of VoxUkraine law editorial board.
