Privatization of Airlines

Yet the idea of EC airline ownership is gaining currency in Europe. Privatization is weakening government as France, Belgium, West Germany, and perhaps even Spain. Frederick Sorensen, director of Air Transport at the European Commission, has already submitted a draft plan to allow the Commission to conduct international negotiations for all European carriers. Furthermore, he claims to have the support of West Germany and France.

However, the report does not stop there. Recognizing that a country could cancel an airline's traffic rights if it passes into foreign hands, the report recommends placing a nondiscriminatory clause in national laws, assuring that EC member states would not reduce an airline's traffic rights simply because it is taken over by another Community state. The point is well taken: when the SAS bid for ACal looked promising, British Airways threatened to ask the UK Secretary of State to cancel traffic rights granted BCal by the British Government, if the sale to SAS succeeded. If the report's recommendations are adopted, such threats would no longer have force.

Perhaps the most important recommendation to ease the merger process is the report's call authority to be given the European Commission to clear mergers in advance. Up to now, the Commission could only act under Article 86 of the Treaty of Rome, the EC's constitution. While Article 86 can be a potent weapon to outlaw 'abuse of dominant position', it can only be invoked after a merger has already taken place. The report recommends that the Commission be empowered to enter the process at an early stage, before the harmful effects of a merger can be felt.

There is a precedent for these recommendations: before the European Commission approved the merger of British Airways and BCal, it required that BA drop services between Gatwick Airport and four major European cities. It also required that the airline not use more that 25 percent of the slots at Gatwick, removing the possibility that BA would dominate both Heathrow and Gatwick simply by virtue of its picking off another airline.