Transport Policy Guidelines. The use of aircraft not owned by an airline itself in form of leasing and subcharter LS02/ //15 June 2001
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1 LUFTRECHT-ONLINE Transport Policy Guidelines The use of aircraft not owned by an airline itself in form of leasing and subcharter LS02/ //15 June 2001 Liberalization of the use of aircraft not owned by an airline itself in form of leasing and subcharter by German and foreign airlines I. Objective Liberalization, globalization and privatization in international aviation require worldwide, also in the framework of global alliances and cooperation agreements between airlines, and to an increasing extent the use of use of aircraft not owned by an airline itself in the framework of leasing, subcharter, code sharing, and franchising with very different legal and economic constructions; the purpose is to reduce operational costs and to optimize the air services in line with market requirements. These transport policy guidelines refer to leasing and subcharter. They are oriented towards higher operational flexibility and efficiency in the use of the aircraft fleet with the aim of securing the competitiveness of the German airlines against the background of the continuing growth of air transport. The use of aircraft not owned by an airline itself in dry-lease, wet-lease, and subcharter leads to: Efficient adjustment to the market situation in case the traffic demand exceeds the capacity, there are delivery delays or longer times of delivery of new aircraft, failure of aircraft, or if a certain type of aircraft for special kinds of transport (e.g. for the transport of special types of cargo) is not available; reduction of capital investment (purchase of new aircraft is connected with high capital requirements) and of the operating costs through a lower burden on the liquidity, especially by using the market benefits of a worldwide leasing market (price fluctuations), and to a minimization of the risk for the residual value which exists for the purchase of aircraft depending on the market development. II. Definitions Leasing means the hiring of aircraft on the basis of a contractual arrangement (leasing contract). According to this, the lessee has the economic benefit from the use of the leased aircraft, but the ownership is not transferred.
2 LUFTRECHT-ONLINE 2 For regulatory purposes, a difference must be made between the following basic types of leasing: Dry-lease means the letting or hiring of aircraft without crew; as a rule, the aircraft is deployed under the operational permit of the lessee, as the holder, so the lessee is competent and responsible for operational and commercial purposes. The lessee state as the holder state has the supervision of compliance with the operational/technical standards by the lessee. Wet lease means the letting or hiring of aircraft with the crew; as a rule the aircraft (especially for short flights) remains in the technical and operational responsibility of the lessor (the airline), the holder in the meaning of public law. The lessee, the holder in the meaning of civil law and the operating carrier, has the commercial control of the leased aircraft. The lessor state maintains the supervision of compliance with the operational/technical standards. In addition to that, there are special forms of the use of aircraft not owned by the operating carrier: Subcharter means the operation of flights by an airline (operating carrier as the contractor) on behalf of another airline (contracting carrier as client). The holder responsibility remains with the contractor. This means that the state of the contractor is responsible for the supervision of compliance with the operational and technical standards. Special situation of subcharter in case of Aircraft on Ground (AoG) means the short-term use of aircraft not owned by an airline (limited to a maximum of 5 days) in the case of unforeseeable technical or operational bottlenecks in the aircraft fleet of the client. The supervision of compliance with the operational/technical standards by the contractor remains with the contractor state as the holder state. III. Decision parameters on the basis of transport policy Starting out from the objectives described under I., the use of aircraft not owned by an airline itself is more and more becoming an important tool for maintaining and increasing competitiveness in worldwide air transport. The present framework of the practice of authorization, especially through the time limitation of the use of aircraft not owned by an airline itself to a maximum of one flightplan period, is not in line with this. It is, therefore, necessary to liberalize leasing and subcharter for the airlines. The extent and speed of such a liberalization exercise depend on the progress made in the liberalization of air transport in general. As long as international air transport is still mainly subject to bilateral agreements, and market access in individual countries is still subject to restrictions, a liberal procedure should be agreed gradually or first bilaterally or between groups of countries. As regards the extent and speed of such liberalization, a difference has to be made between passenger and cargo transport.
3 LUFTRECHT-ONLINE 3 Passenger Transport 1. Use of aircraft registered in the state of the lessee The use of dry-leased aircraft is not subject to any time limit or to any other restrictions (use in the same way as aircraft owned by the airline, see Regulation (EEC) No 2407/92, Article 8). The precondition is that the aircraft is registered in the state of the lessee and thus is deployed under the operational permit of the lessee and the operational/technical responsibility/control of the lessee/the lessee state. This applies regardless of whether the aircraft are EEA or third-country aircraft and whether they are deployed by an EEA or a third-country airline. 2. Use of aircraft in leasing (dry- and wet-lease) or subcharter without registration in the state of the lessee 2.1 Leasing (dry- and wet-lease) or subcharter of EEA aircraft EEA and non-eea airlines may operate aircraft to and from Germany in leasing and subcharter without any time limitation (i.e. for a longer term more than one flightplan period) if they are registered in an EEA state. The authorization is granted if the conditions mentioned under 2.3 are met. An authorization for the use of EEA aircraft by EEA and third-country airlines from and to Germany without any time limitation increases the flexibility of EEA airlines and also of non-eea airlines, facilitates the exchange of aircraft in the framework of alliances and equity participation, transfers the EEA aviation safety standards to third-country airlines. Furthermore, it is also possible to allow the short-term use of aircraft not owned by an airline itself in wet-lease or subcharter if a long-term use is not necessary or not desirable under operational/technical and/or commercial aspects, or if the conditions mentioned under 2.3 cannot be met. 2.2 Dry- lease of aircraft registered in third (non-eea) countries EEA and non-eea airlines may operate aircraft which are registered in a third (non- EEA) country in dry-lease to and from Germany without any time limitation if the conditions mentioned under 2.3 are met. An unlimited application is tied to an amendment to Regulation (EEC) No 2407, Article 8 para 3. Until the legal basis is amended, it would be suitable to resort to the characteristic "extraordinary circumstances" (Regulation (EEC) No 2407/92, Article 8 para 3) in order to ensure a longer-term use of third-country aircraft by means of this interpretation. This requires, however, that at certain intervals evidence has to be presented for the fact that these circumstances still prevail. In addition to higher flexibility, the necessity to structure leasing of non-eea aircraft more liberally also results from the necessity to have a more liberal use of aircraft
4 LUFTRECHT-ONLINE 4 not owned by an airline itself in the framework of the aspired Transatlantic Common Aviation Area (TCAA) and other forms of cooperation which exceed the EEA. 2.3 Conditions for a liberalization concerning point 2. For both points no difference is made between scheduled and occasional air services. The authorization must be tied to the following conditions: Entry of the leased aircraft into the operating permit of the lessee, always for dry-lease and if necessary also for longer-term wet-lease. Clear regulation of the operational/technical responsibility and of governmental control of the compliance with the required aviation safety standards in accordance with ICAO Annexes 6 and 8. Since the use of aircraft not owned by an airline itself has to be judged mainly under the aspect of compliance with the relevant safety standards, this requirement has to be met in case of a longer-term use of leased aircraft by signing an agreement under international law according to Article 83 bis ICAO, or by another form of agreement appropriate for this purpose. As opposed to leasing, no contractual arrangements for compliance with aviation safety standards have to be made for subcharter, since here the operating carrier has the responsibility for compliance with the aviation safety standards and the state of the operating carrier has the responsibility for the control of compliance with these standards. The client, however, is required to only conclude contracts with airlines which can prove that they meet the required ICAO aviation safety standards. The lessee (in subcharter: contractor) must hold the relevant traffic rights. Reciprocity (opening of the air transport market by the other contracting party under the same market-economy conditions) must be guaranteed. Furthermore, the authorization can be refused or restricted if there is an important public transport interest of a longer-term nature which conflicts with such use of aircraft not owned by an airline itself. Important public transport interest is apart from the above-mentioned conditions a lack of reciprocity if the bilateral aviation market is only opened partially or to a minor extent, and/or it also exists if after an objective balance of general interest it is found that considerable disadvantages occur for the German side if the leasing rights are granted. In order to guarantee compliance with the safety standards and the legal responsibilities, an airline which uses an aircraft of another carrier or lets an aircraft to another carrier has to apply beforehand with the competent authorization authority for an authorization for the operation. The conditions of the authorization are part of the leasing contract between the parties (Article 10 Regulation (EEC) No 2407/92). The application must be filed by the lessee.
5 LUFTRECHT-ONLINE 5 3. Use of aircraft in wet-lease or subcharter when using aircraft registered in a third (non-eea) country The use of wet-leased non-eea aircraft is, according to Regulation (EEC) No 2407 Article 8 para 3, in the EEA in scheduled and charter traffic subject to a maximum of one flightplan period. The use of non-eea aircraft by an EEA airline is subject, when entering the Federal Republic of Germany, to the regulations of the national authority of the other EEA state (the home state of the airline), also in accordance with Regulation (EEC) No 2407 Article 8 para 3. The use of wet-leased non-eea aircraft by third-country airlines is, when entering the Federal Republic of Germany, also subject to a time limitation in scheduled and charter traffic. In addition to that, it must be made sure by asking the German carriers that they cannot make any aircraft available. The time limitation which the German authority also applies to the use of thirdcountry aircraft by a third-country airline has the purpose of preventing a situation where these carriers are given preferential treatment compared to EEA airlines. In Germany, the essential components of this framework were also transferred to subcharter traffic, although neither the EU nor ICAO have laid down regulations for subcharter. A decision on liberalization and on the relevant modalities has to be taken at a later point in time. If necessary, a further opening can first take place by means of bilateral arrangements between countries or groups of countries on the basis of reciprocity. 4. Subcharter in the case Aircraft on Ground (AoG) In the case of Aircraft on Ground, EEA and non-eea airlines may operate, without prior application for authorization limited to five subsequent days - subchartered aircraft which are registered in an EEA or a non-eea country if the operator has a route authorization according to Regulation (EEC) No 2408/92 or a general entry permit for Germany. Instead of a prior application for authorization, subsequent information with an explanation of the reasons for the back-up flight is sufficient. This regulation enables German and third-country airlines, in case of short-term, unforeseeable technical and/or operational problems, to act fast and in a flexible manner in the interest of the consumer. Cargo Transport Air cargo transport is characterized, nationally and internationally, by particularly dynamic growth. The increasing globalization in worldwide trade exchange, the position of air cargo transport as an important element in the international transport chain, and the growing demand for worldwide, time-sensitive transport services require, apart from liberalization, also flexibility in air cargo transport. Especially the liberal structure of leasing contributes, through the fast and flexible adjustment to
6 LUFTRECHT-ONLINE 6 market requirements that thus becomes possible, to an improving satisfaction of consumer interest and to an increase of the competitiveness of the airlines. This concerns in particular the use of leased aircraft for the short-term back-up of the airlines own capacity, for the preparation of the development of new markets, for the purchase of capacity in the case of insufficient supply of new cargo capacity, and for the development of charter capacities. For this reason, EEA and non-eea airlines may operate aircraft which are registered in an EEA or a third (non-eea) country in dry- and in wet-lease as well as in subcharter to and from Germany without any time limitation. No difference is made between scheduled and charter traffic. It is not necessary to ask the German carriers if they can make any aircraft available. In principle, the same conditions as in passenger transport apply to the use of aircraft not owned by an airline itself, i.e. compliance with the aviation safety requirements and strict reciprocity in order to prevent competitive disadvantages. This also applies to the restriction or refusal of an authorization if there is an important public transport interest of a longer-term nature which conflicts with such use of aircraft not owned by an airline itself. IV. General parameters for the use of leased aircraft The transport policy principle that liberalization means the opening of access to the aviation market and a far-reaching replacement of governmental by entrepreneurial decisions fully applies to the liberalization of the use of aircraft not owned by an airline itself. It, therefore, becomes more and more the task of the government to develop the relevant parameters which allow for a liberal structure of leasing. In detail this means: Guarantee of the required aviation safety The decisive factor for compliance with the required safety standards is the precise determination of the responsibilities. The Convention on International Civil Aviation ties, in principle, the responsibility for the compliance with the safety standards to the state of register. This is useful for some types of leasing (like short-term wet-lease), but proves to be problematic for longer-term dryand wet-lease. In the interest of greater flexibility in the use of third-country aircraft with simultaneous guarantee of the required aviation safety it would be useful to make more use than up to now of the possibilities of Article 83 bis of the ICAO Convention, in order to be able to authorize the operation for longer periods than the present framework of 6 months (see annex). Creation of the relevant transport policy/transport law scope The liberalization policy pursued by the Federal Ministry of Transport, Building and Housing gradually opens up access to the worldwide aviation markets for the German airlines, and thus creates the transport policy preconditions for an efficient use of aircraft not owned by an airline itself.
7 LUFTRECHT-ONLINE 7 In this context it is ensured that the best possible results are achieved to the benefit of all those participating in the aviation system, whereby the principle of reciprocity is applied. Attention has to be paid to the fact that the use of aircraft not owned by an airline itself is not abused for evading a lack of traffic rights by means of leasing or subcharter and to thus bring about distortions of competition. In view of the liberalization of leasing with the use of aircraft registered in third (non-eea) countries, the Federal Government will support more flexibility in the framework of Regulation (EEC) No 2407 Article 8 para 3. Responsibility of German transport policy for fair competition and recommendations for consumer information Aircraft leasing as a structural economic element widens the scope of action of the airlines and ensures the competitiveness of the German carriers. The responsibility of German transport policy, therefore, lies more and more in the field of guaranteeing the parameters for fair competition. Market observation is to help with a prevention of distortions of competition. The responsibility for consumer information, especially if wet-leased aircraft are used, lies with the airlines. It is recommended to inform the consumer on the longer-term wet-leasing product at the time when the flight is booked in order to ensure the relevant transparency.
8 LUFTRECHT-ONLINE 8 - Annex - Guarantee of the required aviation safety More competition in world aviation must not lead to a situation where the pressure to reduce costs is detrimental to aviation safety, and where technical standards for the guarantee of safety and for the protection of human beings and the environment are undermined. The aviation safety standards that must be met are laid down in Annex 6 "Operation of Aircraft" and Annex 8 "Airworthiness of Aircraft" to the Convention on International Civil Aviation of 7 December 1944, and the individual responsibilities for compliance with the standards can be found in Articles 12, 30, 31, and 32(a) of the Convention on International Civil Aviation. The EU stipulates the terms for compliance with the safety standards and the legal responsibilities in Articles 9 and 10 of Regulation (EEC) No. 2407/92 of 23 July The compliance with the terms mentioned in the two documents is a minimum precondition for the authorization to use aircraft not owned by an airline itself. In addition, an amendment to Regulation (EEC) No. 3922/91 is currently being prepared so that JAR-OPS 1 and with it a number of safety standards can be implemented in a legally binding way in European law. The decisive factor for compliance with the required safety standards is the precise determination of the responsibilities. The Convention on International Civil Aviation ties, in principle, the responsibility for compliance with the safety standards to the state of register. This is useful for some types of leasing (like shortterm wet-lease), but proves to be problematic for longer-term dry- and wet-lease. In the interest of greater flexibility in the use of third-country aircraft with simultaneous guarantee of the required aviation safety it would be useful to make more use than up to now of the possibilities of Article 83 bis of the Civil Aviation Convention, in order to be able to authorize the operation for longer periods than the present framework of 6 months. Article 83 bis of the Civil Aviation Convention, which in Germany has been in force since 20 June 1997, offers for the case of leasing without entry in the national aviation register of the lessee state the possibility of a transfer, in principle, of the supervision of aircraft from the state of register to the lessee state (operator state), provided the following conditions are met: The lessee may operate under the operating permit of the operator state if the countries concerned have ratified Article 83 bis and if a relevant leasing clause has been included in a bilateral agreement between the register and the operator state, or if a special bilateral transfer arrangement was made. The operator state must be in a position to undertake his responsibility for the operation of the relevant aircraft type (the aircraft type has to be known, and the competent authority must be able to supervise it). Once the responsibility has been transferred to the lessee state, this state assumes the obligation to fulfil all the duties and functions resulting from ICAO Annexes 6 and 8 and from Articles 12, 30, 31, and 32(a) of the Convention on International Civil Aviation. The transfer arrangement must contain
9 LUFTRECHT-ONLINE 9 detailed information on the aircraft and on the duties and functions of the operator of the aircraft; fundamental terms from the leasing contract between the lessor and the lessee, for example contractual arrangements concerning the maintenance of the aircraft and the insurance of the aircraft. The change in the responsibility between the register and the operator state contained in the transfer agreement only becomes effective vis-à-vis third parties when the agreement has been registered with the ICAO Council and published according to Article 83 bis of the Civil Aviation Convention, or when the existence and the extent of the agreement has been notified by one contracting state of this agreement to the authorities of the other contracting states(s).
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