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Safeguards and Sustainability to the Liberalization of Air

Transport

Safeguards and Sustainability to the Liberalization of Air

Transport

ICAO 5th Worldwide Air Transport ConferenceICAO Headquarters, Montreal

ICAO 5th Worldwide Air Transport ConferenceICAO Headquarters, Montreal

By

Ambrose AkandondaManaging Director,

Civil Aviation Authority, Uganda

23 March 2003

By

Ambrose AkandondaManaging Director,

Civil Aviation Authority, Uganda

23 March 2003

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Presentation mapForeign investment in National Airlines,

Sustained participation of all in International Air Transport,

Code of Conduct,

Dispute Resolution,

ICAO’s Role.

Conclusion

Background,

State participation in Int. Air Transport,

Liberalization in Uganda,

National against Foreign-owned Airline,

Competition & Sustainability of National Airlines,

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Location Of Uganda

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Uganda Country Profile• Land locked• Strategically located on the continent• Good all-year climate• Ambient temperature -(18° - 29°c)• Rain Fall -50-2000mm pa• Population - 25 million• Size- total area - 241,038 sq. km

- 197,097 sq. km (Land)

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• Reform to industry based on Government, Regional and International recommendations,

• States now more open to liberalization after consensus reached at 4th Worldwide Air Transport Conference,

• Process is being implemented at national and regional levels:– African Union, SADC, COMESA, EAC etc;

• Continental level liberalization program based on Yamoussoukro Decision of 1999,

Background to liberalization

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COMESA, SADC, EAC Member States

COMESA 20 Countries

SADC 14 Countries

EAC 3 Countries

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• Liberalization process is progressing well and brought new opportunities and challenges,

• Non-aviation international agencies e.g. WTO with its GATS, have picked interest in Air Transport Management;

• Plans are in place to review GATS Annex on Air Transport Services to extend its coverage.

Background to liberalization…

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Vital Questions:• How can the desired/expected outcomes of

liberalization be assured?• Is it necessary to have safeguards or is

competition a sufficient safeguard?• Can National carriers survive without

safeguards in liberalized environment?

State participation in Int. Air TransportConvening of the 5th ICAO Worldwide is timely. It should further position ICAO as the legitimate agency to steer Civil Aviation to new heights.

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Questions:

• Can a state allow its national airline(s) to collapse and expect the foreign-owned airlines to provide the services needed?

• How can sustainability of carriers and assurance of services be achieved in a liberalized environment?

• Does it matter if a state has no national airline?

State participation cont..

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• Liberalization of cross-border airline services;• Abolition of royalty payments;• Adoption of multiple designation;• Full liberalization of cargo services;• Removal of capacity restrictions;• Tax exemptions on foreign airlines;• Designation of selected countryside aerodromes

as international entry/exit points to promote tourism;

Liberalization in Uganda

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• Implementation of COMESA Legal Notice No.2;

• Adoption of the Yamoussoukro Declaration of 1999.

• Abolition of restrictions on foreign ownership in national carriers.

• Abolition of requirement for substantial ownership

Liberalization in Uganda cont…

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• Location - 00 º 02’ 26”.93 N

- 32 º 26’ 25”.95 E

• Altitude - 3782 ft AMSL

• Main runway(17/35) - 3658 m

Entebbe International Airport

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Aerial View

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TRAFFIC THROUGH ENTEBBE INT. AIRPORT

0

50000

100000

150000

200000

250000

300000

350000

400000

1991/ 92 1992/ 93 1993/ 94 1994/ 95 1995/ 96 1996/ 97 1997/ 98 1998/ 99 1999/ 00 2000/ 01

FI NA NC I A L Y E A R

OVERFLI GHTS X 10

DOMESTI C PAX

TRANSI T PAX

I NTERNATI ONAL PAX

COMMERCI AL MOV'TS X 15

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TRAFFIC THROUGH ENTEBBE INT. AIRPORT Cont…

0

50000

100000

150000

200000

250000

300000

350000

400000

FINANCIAL YEAR

TR

AF

FIC

OVERFLIGHTS X 10

DOMESTIC PAX

TRANSIT PAX

INTERNATIONAL PAX

COMMERCIAL MOV'TS X 15

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TRAFFIC FORECASTS 2002/2003 TO 2007/2008

0

100

200

300

400

500

600

700

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

YEAR

TR

AF

FIC

International passengers '000 Cargo '00 Tonnes Movements '00 Overflights '00

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• Presence of National airline means continued state participation in Air Transport;

• Air Transport bears with it significant economic, social, political and strategic advantages that should not be delegated to foreign carriers;

• Foreign carriers only provide commercially viable services yet air transport often goes beyond commercial bounds;

• Sustained participation of states will guarantee availability of services that are in national interest.

National against Foreign-Owned Airline

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Uganda’s Wildlife Endowments

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• Healthy and fair competition brings about improved service provision to the benefit of the industry and consumers;

• Competition survival strategies such as cost cutting, code sharing, franchising etc. cannot assure the survival being sought;

• Regulation prevents competition from causing severe market distortions to the detriment of consumers;

• Competition without regulation is not a sufficient safeguard for Air Transport sustainability;

Competition and Sustainability

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• Safeguards must rationally and realistically address disparities relating to level of development, size and location of states including their air carriers to guarantee sustainability;

• Without tailored safeguards, developing country national carriers simply can’t survive in a liberalization environment.

• Recent examples on the African continent serve to vindicate this fact

Demise of Uganda AirlinesDemise of Zambia AirlinesRecent sale of Air Tanzania to South African Airways

Competition and Sustainability…

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• Provides much needed yet scarce capital financing;• However, foreign ownership has implications on

designation and authorization of carrier; under the BASA regime. (Substantial ownership & effective control clauses)

• Foreign ownership creates opportunities as well as regulatory challenges:– Regulatory Challenges:

• Facilitate progress of liberalization process;• Enable airlines take advantage of cross-border

capital financing opportunities;• Avoid creation of flags of convenience.

Foreign Investment in National Airlines

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The ‘Equality of opportunity’ principle should not only be observed but should also be achieved irrespective of extent of liberalization and level of competition.

Safeguards-Create a healthy and fair competition• Airline alliances should be cautiously regulated to avoid

reducing competition;- right of choice by the consumer.• Market access should be open, provided the capacity offered

by each airline is matched by market potential or size to avoid capacity dumping or predation;

• Pricing mechanism should remain flexible so that airlines are free to vary their prices within authorized margins.

Sustained participation for all in Int. Air Transport

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• An acceptable code of conduct should be developed to provide common understanding of what is acceptable and what is not;

• This type of code will help minimize disputes.

Code of Conduct

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• There is need to agree on a dispute resolution mechanism to help settle disputes between contracting states

• Some form of arbitration will be necessary for disputes that cannot be amicably resolved.

Dispute Resolution

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Tribute should be paid to ICAO for its role in ensuring the orderly development of International Air Transport.

Issues that need to be addressed by ICAO include:• Conduct a study on the effects of franchising;• Recommend a code of conduct that will govern healthy

competition among carriers;• Recommend the nature and form of arbitration and

procedures to be followed in resolving disputes between members states.

ICAO’s Role

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Conclusion

• Liberalization with Safeguards is beneficial for the development of Global Air Transport industry.

• The global aviation industry is in transition, with the Challenges and Opportunities of Liberalization requiring our concerted effort; which is why the ICAO 5th Worldwide Air Transport Conference is very relevant and timely.

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Civil Aviation Authority

• P.O Box 5536 Kampala, Uganda

• Tel: 256- 41-320516/9, 321308

• Fax: 256-41-321452

• E-mail : aakandonda@caa.co.ug

aviation@caa.co.ug

• Website: www.caa.co.ug

To maintain the Highest Standards of Safety and Service in Civil Aviation

CAA Uganda, Mission Statement

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? ? ? THANK YOU.