P.P.C.

Haanappel*

AIRLINE OWNERSHIP AND CONTROL,

AND SOME RELATED MATTERS

1. Introduction

The requirement that airlines must be substantially owned by their governments

and/or by the citizens of their countries of nationality, and that they must be
effectively controlled by those governments and/or citizens arose in the
formative years of post-World War II international air transport regulation, i.e.
the years 1944-1946. Today, this requirement is laid down, in one form or
another, in the great majority of bilateral air service agreements, in some
multilateral agreements, and in many national laws and regulations. The
international air transport community had few, if any problems living with the
requirement in the some forty-year period until the early 1990s, during which
period the phenomenon of nationally owned and controlled international ‘flag
carriers’ was the norm. As shall be seen hereunder, incidental deviations from the
norm, such as multinational Scandinavian Airlines System (SAS), Air Afrique,
Gulf Air or the special status of Cathay Pacific Airlines, were carefully
accommodated. It would not be until the past decade that national substantive
ownership and effective control requirements would become a straitjacket for an
increasing number of airlines, and a fortiori for strategic, international airline
alliances preventing some of them from what they would essentially seem to
want to do commercially, i.e. to form one multinational airline company.
Modern day airline internationalization and globalization present many
complications of which national substantial ownership and effective control
seem to be the leading ones. There are, however, interrelationships with other
issues, such as the desire of airlines of one country to provide cabotage air
services in another country; or their desire to establish themselves as foreign
owned and controlled airlines in another country; the new special, supranational
status of the European Community and its carriers; and (inter) governmental
efforts to multilateralize and liberalize international air transport regulation
through regional common aviation areas, and global fora such as the World
Trade Organisation (WTO), the United Nations Conference on Trade and

* Professor of Air and Space Law and LL.M. Programme Director, Universiteit Leiden;
Adjunct Professor of Law, McGill University; Senior Aeropolitical Adviser, International Air
Transport Association. This paper is written in a strictly personal capacity. Any opinions
expressed only bind the author.

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Development (UNCTAD), and the International Civil Aviation Organization

(ICAO).
Increasingly, however, there seems to be a realization – and correctly so, it
seems – that a reform of national ownership and control requirements is at the
very urgent basis of any further development of fruitful reforms in national and
international air transport regulation.

2. The History and Purpose of Ownership and Control Clauses in Air

Transport Agreements

The [Chicago] Convention on International Civil Aviation, opened for signature

in December 1944,1 is, with few exceptions,2 not concerned with the nationality
of airlines. It is rather concerned with the nationality of aircraft.3 This is not
surprising because the Convention principally deals with the technical and
operational aspects of international air transport rather than with the commercial
ones. It is not for lack of trying that the Chicago Conference of 1944, that
designed the Chicago Convention, omitted the commercial aspects of
international air transport. It was a basic policy disagreement between the two
leading aviation powers of the day – the United States in favour of commercial
freedom of airlines and the United Kingdom in favour of governmental
protectionism for airlines – 4 that prevented the Chicago Convention from
containing a comprehensive system of economic regulation of international air
transport.
Article 5 of the Convention contains a limited multilateral exchange of traffic
rights for non-scheduled international flights; Article 6 contains no multilateral
exchange of traffic rights for scheduled international air services, which would
later induce States to grant those rights on a bilateral basis, starting, in essence,
with the Bermuda 1 bilateral air transport agreement between the United States
and the United Kingdom of February 1946;5 Article 7 puts certain, not altogether
transparent conditions upon States if they wish to grant cabotage rights to other
States and their airlines.6
Besides the Convention, itself ratified by the quasi-totality of the world’s
nations, the Chicago Conference also opened up for signature two additional
agreements for the signatories to the Convention: the International Air Services
Transit Agreement (the IASTA) and the International Air Transport Agreement

1. ICAO Docs. 2187 or 7300/6.

2. Ibidem, Art. 7 and Art. 77 et seq.
3. Ibidem, Article 17 et seq.
4. See P.P.C. Haanappel, Pricing and Capacity Determination in International Air Transport,
Kluwer, 1984, at p. 9 et seq.
5. Ibidem, at p. 10 et seq.; and see TIAS 1507.
6. See P.M.J. Mendes de Leon, Cabotage in Air Transport Regulation, Martinus Nijhoff
Publishers, 1992.

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(the Transport Agreement).7 Both are expressions of the wish of certain countries
to liberalize exchanges of traffic rights beyond the very limited exchange
contained in Articles 5-7 of the Convention. The IASTA contains a multilateral
exchange of overflight rights and stops for non-traffic purposes for scheduled
international air services. It is currently accepted by over 110 nations of the
world and greatly facilitates the conduct of long-haul international air services
having to cross the territories of many countries en route. The Transport
Agreement, an expression of United States’ ideas of commercial freedoms for
airlines at the time of the Chicago Conference, exchanges between Contracting
Parties broad commercial rights to uplift and to put down passengers, mail and
cargo in scheduled international air services between the territories of those
Contracting Parties. Currently, only some eleven States remain Parties to the
Transport Agreement; the United States itself withdrew from the Agreement,
shortly after the signing of the above-mentioned, bilateral Bermuda 1
Agreement;8 the Agreement, under present circumstances, has no practical
value, but remains a vehicle through which the International Civil Aviation
Organization (ICAO), created by the 1944 Chicago Convention, might, at some
point in the future, rejuvenate a world-wide multilateral exchange of commercial
rights in international air transport.9

The IASTA and the Transport Agreement were mentioned in some detail,
because they are at the origin of ownership and control clauses in post-World
War II international air transport relations.10 Article I, Section 5 of the IASTA
and Article I, Section 6 of the Transport Agreement mention, in identical
wording, that ‘each contracting State reserves the right to withhold or revoke a
certificate or permit to an air transport enterprise of another State in any case
where it is not satisfied that substantial ownership and effective control are
vested in nationals of a contracting State …’. Historically, there are probably two
reasons behind the appearance of these clauses: a political one and a commercial
one. Politically, the international legal instruments, opened for signature by the
Chicago Conference of 1944, were adopted at a time when only ‘allied’ and
‘neutral’ States were invited to participate in the Conference, with the intention
to keep ‘enemy’ States and their airlines outside the framework of ‘Chicago’.11

7. Op.cit., supra footnote 1. See Haanappel, op.cit., supra footnote 4, at p. 17 et seq.

8. Dept. of State Press Release, No. 510, 25 July 1946.
9. See infra Nos 5.1 and 6.4.
10. In Europe, a forerunner of national ownership and control appeared in Article 7 of the (Paris)
Convention Relating to the Regulation of Aerial Navigation, Signed 13 October, 1919,
Cmd. 670 (1920); in the US, a first ownership and control provision appeared in the Airmail
Act of 1934. In 1940, an international Conference in Lima took ownership measures to
prevent German owned, but South American registered aircraft from operating in the Panama
Canal Zone.
11. See Articles 92 to 93 of the Chicago Convention, op.cit. supra footnote 1.

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Commercially, it would seem to have made good sense to limit the benefits of
multilateral grants of traffic rights to the ‘corporate citizens’, the airlines of
contracting States and not to extend them to the airlines of non-contracting
States.
It is to be noted that the substantial ownership and effective control clauses in
the IASTA and in the Transport Agreement are not particularly restraining, and
that in two ways: they are contained in multilateral agreements, which means
that airlines must be substantially owned and effectively controlled by the
nationals of any other contracting State, of which there were intended to be
many. This is a feature which would be lost in later bilateral air transport
agreements. Furthermore – and this characteristic feature of ownership and
control clauses is not yet lost in bilateral agreements: the clauses are permissive,
i.e. ‘each contracting State reserves12 the right to withhold or revoke…’. It is not
obliged to do so.
The Bermuda 1 Agreement contains what we now consider to be a peculiar
ownership and control clause, a bilateral one, as if it were. It allowed the US to
designate US and UK carriers, and it allows the UK to designate UK and US
carriers.13 Probably a historical anomaly. The Agreement is no longer in force,
having been replaced by the Bermuda 2 Agreement of 1977.14
Bermuda 2, as almost all bilateral air service agreements today, provides, in
essence, that substantial ownership and effective control of (a) designated
airline(s) should be vested in the country making an airline(’s) designation or in
its nationals. From a ‘multilateral’ clause in the IASTA and the Transport
Agreement, via a ‘bilateral’ clause in Bermuda 1, the system has turned
‘unilateral’. Technically, this system operates as follows. Only rarely do bilateral
agreements name airlines. Usually, airlines must be designated pursuant to
bilateral agreements, subsequent to their conclusion. Such designation takes
place via diplomatic channels. The designation may be refused by the foreign
aeronautical authorities, if the designated airline(s) is (are) not substantially
owned and effectively controlled by the designating State or its citizens. Also, a
designation, once accepted, may be revoked if the designated airline(s) cease(s)
to be substantially owned and effectively controlled by the designating State or
its citizens. The reference to the ‘State’ refers to full or partial State ownership of
airlines; the reference to nationals or citizens refers to full or partial private
ownership of airlines.
What is substantial ownership? It is generally held that it means majority
ownership, i.e., more than fifty per cent, although linguistically the word
‘substantial’ would not impose such an interpretation at all.15 The debate,
12. Italics added.
13. TIAS 1507.
14 . TIAS 8641.
15. ECAC, Third Session (March 1959), Records of the Session, Vol. I, ICAO Doc. 7977
ECAC/3-1 at p. 35.

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however, seldom centres on this question, because common opinion is to the

effect that substantive ownership is merely a preliminary condition, with
effective control being the predominant condition. For instance, an airline can be
majority owned by the citizens or the government of its country of nationality;
yet, it can be under foreign effective control.16 If that is the case, it may encounter
difficulties in getting or remaining designated under the bilateral air service
agreements of its country of nationality.
Whereas substantive ownership is, as if it were, a de iure condition, and as
such easy to ascertain, effective control is a de facto condition that must be
judged according to the precise facts of every case. Amongst the factors that may
play a role in determining that effective control of an airline is in foreign hands
are the following: significant foreign minority shareholdings; one large foreign
shareholding with the rest of the capital being divided into small shares; foreign
citizenship of members of the Board of Directors, and especially its President.17
There are countries that have national laws or regulations pertaining to
ownership and control of airlines, but these rules pertain to the national
ownership and control of a country’s own airlines.18 This is a question that is
different from the one addressed in bilateral air service agreements dealing with
the acceptance by one State of the designation by another State of an airline of
such other State. In the latter area, what the bilateral practice of States in
international air transport is essentially concerned with is that, if country A
contracts with country B, country A should then essentially be dealing with
country B and/or its citizens, and not with country C and/or its citizens.

16 . At the time of writing, the Belgian airline SABENA seems to be a good example. It is 51
per cent owned by the Belgian State, yet controlled by Swissair, with a 49 per cent stake. It is
interesting to note that the EU Commission, probably for political reasons, continues to
regard SABEBA as being under Belgian control.
17. It is especially the former US Civil Aeronautics Board (CAB) which frequently had to judge
the national ownership and control of i.a. Canadian, Caribbean and Latin American airlines. It
built up a considerable body of case law in the field, and it occasionally waived ownership or
control requirements. See S. Bollermann, The Nationality Clause in Bilateral Air Transport
Agreements – Substantial Ownership and Effective Control of Airlines, unpublished paper,
Institute of Air and Space Law, McGill University, 1987, at pp. 9-20.
18. E.g., in the United States, 49 U.S.C. app., para. 1301 (1992) provides that a US airline must be
created or organized under the laws of the US or of any of its States, Territories or
Possessions; that the President and at least two-thirds of the Board of Directors and other
managing officers of such airline be US citizens; and that at least 75 per cent of the voting
interest of such airline be owned or controlled by US citizens. However, in DOT Order No.
91-1-41 (1991), a concrete case dealing with KLM investment in Northwest Airlines, the US
Department of Transportation allowed KLM a 49 per cent equity stake in Northwest,
provided that voting (as opposed to non-voting) interest did not exceed 25 per cent.

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3. The Strain on National Substantive Ownership and Effective

Control

This strain does not come so much from national laws and regulations, where a
single country can act alone, but from bilateral air service agreements where one
country must rely on the concurrence of another.
To some extent, there has always been incidental strain on the system, and
accommodations have been found. There are some long-standing examples of
multinational airlines in the world, of which SAS19 and Air Afrique20 are the best
known ones. SAS of Denmark, Norway and Sweden have an interesting bilateral
negotiating practice that may be of more general interest, today, for other future
multinational airlines. The three countries, in their individual bilateral
agreements, use a designation clause, which allows each of them to designate
SAS, part owned and controlled by each of the three countries and their citizens.
What is more, the three countries together negotiate bilaterally with third
countries, although actual bilateral agreements are entered into by each of the
three countries individually with a particular third country.
Two other accommodations from the past merit mentioning: the situation of
developing nations without (long-haul) scheduled international air carriers; and
the situation created by the special geopolitical situation of Hong Kong and
Macao, before their return to main land China. Both situations may hold lessons
for a more general reform of airline ownership and control in the future.
In 1983, the tri-annual Assembly of ICAO recommended that ICAO member
States permit a Less Developed Country (LDC) of one economic grouping of
States to designate the airline of another LDC in the same economic grouping to
perform international air services on its behalf.21 In practice, this system of
designation was used, with some degree of success, amongst member nations of
CARICOM22 and amongst small island nations in the Pacific region.
In order to accommodate Cathay Pacific, the airline of Hong Kong,
incorporated in and having its principal place of business in the former British
Crown Colony, but being owned and controlled by the British Swire Group, a
number of nations accepted a designation clause to the effect that it would suffice
that Hong Kong designate an airline incorporated in and having its principal
place of business in Hong Kong. A similar system was planned for a Macao
based long-haul carrier, but the carrier never materialized.
The real challenges to national substantial ownership and effective control,
however, these days, come from international airline alliances, airline
privatization, and the need for foreign capital investment.

19. See ICAO Circ. 99-AT/20 (1970).

20. See ICAO Circ. 98-AT/19 (1970).
21. See ICAO Doc. A24-W/P 62 EC/13 (23 Sept. 1983).
22. The Caribbean Commonwealth.

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Where an airline is privatized or is set up as a private company, of which the

share capital is traded on the stock exchange, care must be taken that enough
shares (especially large blocks of shares) remain in the hands of nationals of the
country of which the airline is a citizen, and conversely that only a limited
number of shares (preferably small blocks of shares, with a certain maximum
number of shares per holder) circulate abroad. Where permitted by the company
laws of the country of citizenship of the carrier involved, a distinction between
preferential shares, voting shares and non-voting shares may also be helpful,
along with the existence of a ‘golden share’. If these conditions are not fulfilled,
such an airline may encounter both ownership and effective control
complications under the traditional ownership and control clauses in the bilateral
agreements of its country of nationality.
But there is more: airlines, whether privatized or not, with or without freely
circulating stock capital, may be in need of capital investment. If such capital
investment can only be found abroad, either from a foreign airline or from other
foreign sources, national ownership, but especially national effective control
complications may arise. Like in the preceding paragraph, the verb ‘may’ should
be stressed. Foreign countries may raise objections, but need not necessarily do
so. Or, foreign countries may decide not to raise objections, after they have
secured some kind of bilateral benefit other than in the area of ownership and
control (e.g., increased route access).23

Yet, other possibilities arise: one can have domestic airlines whereof the
ownership and / or control are vested in foreign hands.24 As long as domestic
ownership and control laws and regulations permit such a foreign owned/
controlled domestic airline, it can operate domestically without problems, but
not so internationally, where traditional bilateral national ownership and
effective control clauses are used.25
Finally, industry at large is in a cycle of enlargement of scale and scope, and
mergers, take-overs and alliances are commonplace. In the airline industry, there
have been important mergers and take-overs between airlines of the same
nationality, for instance in the United States and in large European countries
such as France and the United Kingdom. Where concentration between airlines
of different nationality is concerned, airlines have to date limited themselves to
international alliances rather than creating new, multinational airlines. Such new

23. E.g., in the past decade Aerolineas Argentinas has been essentially owned and controlled by
non-Argentinean (especially Spanish) interests. Yet, it has continued to operate, with
apparently only few bilateral adjustments. The same applies to Balkan Bulgarian Airlines,
which ceased operations in February 2001, and which, the last few years of its operations, was
majority owned and effectively controlled by Israeli interests.
24. E.g., Australia’s Ansett, essentially in the hands of Air New Zealand.
25. See also infra No. 4. 2.

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multinational airlines might encounter problems under traditional national

ownership and effective control clauses in bilateral agreements. However, the
time may come that airlines will want to create such new multinationals out of
transnational mergers or take-overs. In part this is because of what is sometimes
called the ‘inherent instability’ of airline alliances that always run the risk of
disintegration. More and more, one hears the expression: ‘an alliance is a poor
man’s merger’. Probably there will be a continued use of alliances, plus the
creation of some airline multinationals. Much may also depend on whether US
airlines get involved in a second ‘wave’ of mergers and take-overs during this
new decade, the first ‘wave’ having taken place in the 1980s. Such a second
‘wave’ in the US might induce airlines elsewhere in the world, perhaps
particularly in Europe, to respond by creating large, multinational airlines.

4. Some Related Matters

4.1. Cabotage

Strictly speaking, cabotage means the carriage of domestic air traffic by the
aircraft or airlines of a foreign State. There is no direct link between the subject
of this paper, national airline ownership and control, and cabotage. There may be
indirect links, for instance, where in a common aviation area, such as the
European Union, national ownership and control laws are reformed, and
cabotage and the right of establishment are permitted side by side;26 or, where
multinational airlines are created. E.g., with respect to SAS27 the following
question has been asked: where a SAS aircraft, registered in Denmark, performs
a domestic flight in Sweden, is this tantamount to Sweden having granted
Denmark cabotage rights in Sweden, with the consequences flowing therefrom
in connection with the second sentence of Article 7 of the Chicago
Convention?28

4.2. The Right of Establishment

The right of establishment avoids the complications that may flow from the
aforementioned second sentence of Article 7. By right of establishment, in the
context of this paper, is meant the right of (a) foreign investor(s) or foreign

26. See P.P.C. Haanappel, ‘The external aviation relations of the European Economic Community
and of EEC member States into the twenty-first century’ (1989), XIV Air Law 69 at pp. 136-
140 and p. 142.
27. Supra footnote 19 and text thereto.
28. Cf. Minutes of the 7th Plenary Meeting of the Sixteenth Session of the ICAO Assembly; Doc.
8775 A16-Min. P/1-9; see also ICAO Doc. A-18-Min. P/12 at 123. Generally, as to the
complications caused by Art. 7(2), see Mendes de Leon, op.cit., supra footnote 6 and text
thereto.

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airline(s) to set up an airline in a given country. For instance, in Australia, Ansett

Australia is an Australian carrier owned by foreign Air New Zealand;29 or in
Europe, as a consequence of the third air transport liberalization package,
German BA is a German carrier, part owned and as a franchise controlled by
British Airways.30 Soon, with the coming into force of an air transport agreement
between Switzerland and the European Union, Sabena will be 85 per cent owned
and effectively controlled by Swissair.31 Canada is considering whether to allow
foreign owned and controlled interests/airlines to set up domestic Canadian
airlines, given the fact that since the take-over by Air Canada of Canadian
Airlines International, some 90 per cent of the Canadian domestic market is in
the hands of Air Canada.
A problem for foreign owned and/or controlled domestic airlines is that, with
the proper national legislation, they can fly domestic routes, but they may be
prevented from flying international routes if the country in question, which is
most often the case, has bilateral air service agreements operating with
traditional substantive national ownership and effective control provisions.

4.3. Reforms in the European Union and the European Economic Area

As a consequence of the Licensing and Market Access Regulations32 in the third

air transport liberalization package, a Community carrier may receive an air
carrier’s license from its national aeronautical authority if it is majority owned
and effectively controlled by an EU member State, by EU member States, and/or
by nationals of an EU member State or member States. In other words,
Community ownership and control have been substituted for national ownership
and control. This allows for the right of establishment throughout the EU, as
previously explained. Once validly licensed, an EU carrier may fly any route
within the EU: any international route within the EU, any domestic route within
its own country, and any domestic route within another EU country (cabotage).
In practice, EU carriers seldom exercise cabotage rights. The right of
establishment has been used more frequently and, it seems, more successfully.
Whereas the EU internal air transport market has been completed, this is not
the case for its external air transport relations. Routes between the EU and third
countries are still governed by bilateral air service agreements between
individual EU countries and third countries. In most cases these bilateral
agreements operate with traditional national substantive ownership and effective

29. See supra footnote 24 and text thereto.

30. See infra footnote 32.
31. Cf. supra footnote 16 and text thereto. Recent negative, financial developments in the Swiss-
air Group might have as a consequence the postponement or even the cancellation of the
increase to 85 per cent.
32. Council Regulations (EEC) 2407 and 2408/92 of 23 July 1992.

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control clauses. The Licensing Regulation33 provides for the possibility that EU
majority ownership and effective control may be waived by agreement between
the EU as a whole and third countries, but this has not happened yet in practice.
The European Economic Area (EEA) Agreement and the future EU-Switzerland
air transport agreement do not contain such waivers and are not traditional
bilateral agreements. The EEA Agreement is an association agreement and
extends most features of the EU internal market, including the single air
transport market, from the 15 EU countries to three additional European
countries: Iceland, Liechtenstein and Norway. The EU-Switzerland agreement is
an aviation specific association agreement whereby Switzerland takes over the
provisions of the EU internal air transport market.
The problem then that EU carriers face at the present time is that they operate
with dual systems of ownership and control provisions: one for air services
wholly within the EU, and another for extra-EU air services under bilateral air
service agreements with third countries. Take an example from The Netherlands
and Great Britain. Mother company KLM, with many long-haul, international,
extra-Community air services, must, given bilateral air service agreements of
The Netherlands, remain substantially owned and effectively controlled by
Dutch interests. A fully owned KLM subsidiary, Air UK, is through
establishment in the UK, a British carrier limited to British domestic, and intra
EU/EEA flights, given traditional substantive ownership and effective control
clauses in UK bilaterals.34 Ownership and control questions and complications
under UK and Netherlands bilaterals with respect to extra-Community routes
were also amongst the factors that, in the autumn of the year 2000, caused a
breakdown in negotiations between KLM and British Airways on a merger
between the two airlines.
Germany, in a number of recent instances, has been reported to have
negotiated a designation clause allowing Germany to designate German owned
and controlled carriers, but also carriers majority owned and effectively
controlled by other EU States and/or nationals of such States. That, of course, is a
solution to alleviate the dual systems of ownership and control in the common
aviation area that the EU, and by extension the EEA, is.35

4.4. Common Aviation Areas

The dual systems of ownership and control, and the complications arising
therefrom would also prevail in two further common aviation areas still in the
planning stage: the European Common Aviation Area (ECAA), comprising the

33. Article 4, para. 2 of Regulation 2407 (supra footnote 32).

34. Notwithstanding the fact that the UK intends to begin using a different bilateral clause: see
infra No. 5. 5..
35. For other solutions, see infra Nos 5 and 6.

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18 EU/EEA countries, Switzerland, and eleven Eastern European countries; and

the Transatlantic Common Aviation Area (TCAA) between the EU and the US.36
Whereas the ECAA may eventually come about as an EU association agreement
in the next few years, this is more doubtful with respect to the TCAA: essentially
a more difficult harmonization and convergence agreement between EU and US
laws and policies. Perhaps more importantly, the US, as a matter of principle,
seems opposed to a TCAA grant of the right of establishment to EU carriers in the
US, and a fortiori opposed to a grant of cabotage rights for EU carriers in the US.

4.5. The New APEC Agreement

The US would be more inclined towards ‘multilateralizing’ international route

rights from open-skies agreements. As a first step – in the framework of Asia
Pacific Economic Cooperation (APEC) –, in November 2000, the US entered
into a multilateral open-skies agreement with Brunei, Chile, New Zealand and
Singapore, all like-minded liberal aviation countries. In the agreement,
traditional substantive national ownership and effective control were replaced by
a requirement that an air carrier must be effectively controlled by the designating
Party’s citizens, subject to a discretionary right of another Party to reject a
designation if substantial ownership is vested in nationals of the Party receiving
the designation.37
This innovation does not seem particularly helpful to deal with some of the
constraints on ownership and control that were analyzed above: regarding
privatization and foreign equity participation, the problem is not so much one of
ownership rather than one of control. The same applies to any future
multinational airlines where effective control may be vested in several countries.

5. Possibilities for Reform of National Ownership and Control

5.1. Bilateral Reform

By bilateral reform in this context is meant not so much the development of a

new ownership and/or control clause for bilateral air service agreements, but
rather the possibility that various governments, responsible for the negotiation of
bilaterals for one and the same multinational airline, co-ordinate their bilateral
negotiations with third countries. This is an ad hoc solution, either temporary or
permanent, to suit the needs of a particular multinational airline. The best
example, currently available, is seen in Scandinavia in the context of SAS.38
36. Countries other than the EU member States and the US, such as perhaps Canada, could
eventually join the TCAA: see ‘Towards a Transatlantic Common Aviation Area’, AEA
Policy Statement, AEA Publication, Sept. 1999.
37. See US DOT, Docket OST – 2000 – 8393.
38. See supra No. 3.

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5.2. National Reform

Reforms of national laws pertaining to ownership and control of airlines may be

necessary where countries wish to allow cabotage in their territory or the right of
establishment for foreign airlines/investors, or where they wish to allow/increase
foreign equity participation in their airlines.39

5.3. Regional Reform

This heading refers to common aviation areas, where, as indicated above,40 there
may be dual systems of airline ownership and control provisions for airlines. One
solution might be the extension of ICAO recommended community of interest
designation41 from economic groupings of LDCs to also economic groupings of
developed countries.42

5.4. The General Agreement on Trade in Services (GATS), the United

Nations Conference on Trade and Development (UNCTAD) and the
International Civil Aviation Organization (ICAO)

It is likely that world-wide multilateral organizations like the WTO – in the

framework of the periodical revisions of the Air Transport Annex to the GATS –,
UNCTAD and/or ICAO will put the reform of airline ownership and control on their
formal agendas. The first concrete evidence thereof is a preliminary agenda for an
ICAO Conference on the Liberalization of International Air Transport, tentatively
scheduled for March 2003.43 Further details are not known at the time of writing.44

5.5. Towards a New Global Criterion Based Upon the Place of

Incorporation and/or the Principal Place of Business

The European Civil Aviation Conference (ECAC) is developing an ownership

and control clause that would be helpful in the cases of airline privatization,
foreign equity participation, multinational airlines and foreign owned domestic
airlines having, according to national laws, received permission to fly
international routes also .45

39. See supra No. 4. 1 and 4.2.

40. See supra No. 4. 3 and 4.4.
41. See supra No. 3.
42. The German designation clause, supra footnote 35 and text thereto, is essentially an example
thereof.
43. ICAO Doc. AT-WP/1893, 15/1/01.
44. See also supra footnote 9 and text thereto.
45. The ECAC clause would also be an appropriate object of consideration for the 2003 ICAO
Conference, supra footnote 43 and text thereto.

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 leading articles

Actually, a Task Force on Ownership and Control of ECAC recommended

developing a model bilateral clause requiring a designated airline to be
incorporated in and to have its principal place of business in the country of
designation. A footnote to the ECAC text suggests to assess a carrier’s principal
place of business according to whether a carrier has a substantial amount of its
operations and capital investment in physical facilities in the designating
country, whether it pays income tax and registers its aircraft there, and whether it
employs a significant number of nationals in managerial, technical and
operational positions.46
In a somewhat similar move, the United Kingdom has recently revised its
model air service agreement, particularly in the light of multinational airline
alliances, to the effect that airlines must have their principal place of business in
the designating country and must have their air operator’s certificate issued by
that country.47
The ECAC clause seems preferable for two reasons. First, the UK clause, by
not requiring incorporation in the country of designation, would seem to allow
‘fiscal’ flags of convenience, by having the principal place of business of an
airline in one country, and its company incorporation in another. Second, the
ECAC clause would seem to fit in better with the future SE company structure in
the EU, as discussed below in point 5.6.

5.6. International Accommodation of the Supranational Reality of the

European Union (EU)

The EU was earlier characterized as an example of a common aviation area.

Actually, it is more: it is also a strong supranational organization, where
eventually EU common institutions – the Commission and Council – will be
broadly charged with the negotiation and conclusion of bilateral air service
agreements with third countries. Such agreements will likely contain carrier
designation clauses in favour of EU carriers, rather than in favour of carriers
from one specific or several specific EU countries. Where in such an EU-third
country bilateral agreement there is not a system of multiple and unlimited air
carrier designation, the EU will have to develop a carrier selection procedure,
like exists, for instance, in the United States.
In an EU context, the creation of the Societas Europeae (SE), in the year 2004,
must also be mentioned. It seems that airlines, like other companies, may use the
new EU corporate structure of a SE as of that year. After many decades of
discussion, it was finally decided, on 20 December 2000, to introduce this new

46. The ECAC draft clause is essentially based on the Hong Kong clause, discussed supra No. 3.
47. See (UK) Department of the Environment, Transport and the Regions, The Future of Aviation.
The Government’s Consultation Document on Air Transport Policy, Dec. 2000, paras 281-
283.

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form of SE company incorporation, in addition to the existing national EU
incorporations. Incorporation as a SE is a hybrid form of incorporation: the
incorporation takes place according to common EU rules; however, the
implementation is decentralized. The actual incorporation of a SE must take
place in the EU country where the company in question has its principal place of
business. The main advantage of EU incorporation as a SE is that only one
incorporation needs to be effectuated in the EU: additional incorporations, for
instance of subsidiaries or franchises, are unnecessary. A SE, once validly
established in one EU country, can do its business throughout the Community.
The SE, with common EU rules and decentralized implementation, seems to fit
in well with the above-discussed, new ECAC ownership and control clause.

6. Concluding Remarks

As the foregoing has shown, there are a variety of solutions for airline ownership
and control problems and complications. A number of different new clauses will
probably emerge and co-exist at least for some time to come, with old, traditional
substantive national ownership and effective control clauses. Eventually, a
clause based upon the place of incorporation and the principal place of business,
as suggested by ECAC, seems to have the best chance of universal acceptance.
There are those who say that no national airline ownership and control clauses
are needed at all at this day in age, and point their fingers at other industries. Such
an opinion seems, at the very least, premature. At any rate, what would always
seem to be needed is a clause that creates a real link between the country of
incorporation of an airline and the country issuing the airline’s operator’s
certificate: if not, the road would be opened to technical and operational ‘flags’
of convenience. The country of incorporation and of issuance of the certificate
should remain responsible for compliance with ICAO’s minimum standards
under the [Chicago] Convention on International Civil Aviation48 and the
Annexes thereto.

48. Supra footnote 1.

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