EU Tries to Force Revision of Air Pacts With Russia

By DANIEL MICHAELS

BRUSSELS—The European Commission plans to launch legal proceedings against Germany, France, Finland and Austria on Thursday to force revisions to bilateral aviation treaties with Russia, which EU authorities say violate the bloc's single-market and competition laws.

Similar deals between the 23 other EU countries and Russia are also under investigation, said a spokeswoman for EU Transport Commissioner Siim Kallas, who pushed for the infringement proceeding.

The move is a roundabout measure of last resort by the Commission, the EU's executive arm. Commission officials and member states have for several years tried unsuccessfully to negotiate with Russia to eliminate billions of dollars in fees that Russia charges European airlines to fly across Siberia. The Commission also wants Russia to start recognizing airlines from the EU as a group, not as from their individual countries.

Unable to cement deals with Russia, the Commission is instead taking legal action against EU members. The Commission says their deals with Russia infringe EU rules that require citizens and companies from all 27 states to be treated equally.

The Commission's aim is to force member countries to renegotiate their treaties with Russia to make them comply with EU law.

Current arrangements with Russia increase ticket prices on many routes and cause significant legal uncertainty for several EU airlines, the Commission says. The uncertainty stems from Russia's objections to cross-border airline takeovers within the EU, which Russian authorities have said violate its bilateral aviation treaties with individual EU members.

EU nations could respond to the Commssion's push by giving it a mandate to negotiate a comprehensive deal on their behalf. That approach might give the bloc more clout with Moscow. Currently, Moscow is able to play off EU countries against each other, say aviation officials.

Since the 1940s, airlines have flown internationally under rules agreed in a global web of bilateral pacts that specify each carrier's country of nationality and ownership. EU laws have forced changes in that approach.

In 2002, the Commission won a European court case over member states' bilateral air agreements, which Brussels argued violated the EU's single market by granting traffic rights and other privileges to airlines from only one country at a time.

As a result of that case, EU governments have renegotiated thousands of aviation treaties worldwide, with countries including the U.S., Canada and Australia. The treaties now view all airlines from the 27 countries uniformly, as EU airlines.

This "EU designation" allowed British Airways PLC in 2008 to start an airline flying from France and the Netherlands to the U.S., which wasn't allowed under the old bilateral system. It also helped secure Air France's takeover in 2004 of KLM Royal Dutch Airlines. Without EU designation, other countries could argue KLM was no longer Dutch, and so could no longer fly to their airports from Amsterdam. Japan briefly raised this objection in 2004, but later accepted the Franco-Dutch deal.

Russia has never accepted the EU designation. Instead, it has questioned the 2009 takeover of Austrian Airlines by Germany's Deutsche Lufthansa AG, saying Austrian can no longer fly to Russia under terms that were negotiated between Vienna and Moscow. It has granted temporary waivers to let Austrian continue flying from Vienna.

Siberian overflight fees are a separate issue that has frustrated the Commission and members for years. Since around 1970, Moscow has imposed fees on European and Asian carriers for flying nonstop across its airspace, collecting almost $10 billion in total.

Most of the money from overflight fees goes to Russia's national carrier, Aeroflot. Russia is unique in charging such fees, details of which are kept secret.

The EU estimates that its carriers in 2008 paid charges of roughly $420 million.

The Commission says the overflight fees are "both a blatant breach of international law and in contradiction with EU competition law" because carriers must strike exclusive commercial agreements with Aeroflot that the Commission says are collusive.

Russia justifies the fees as compensation for lost revenue. Before 1970, European and Asian airlines had to refuel in Moscow en route, and competed directly against the Russian carrier, which is based in Moscow.

But then Europeans and Asians started flying nonstop, bypassing Moscow and offering shorter trips. Soviet officials said that since Aeroflot would suffer commercially, rivals had to compensate it for the lost revenue. Carriers that didn't pay were forced to fly around Siberia, adding hours and great expense to trips. So everyone has paid the overflight fees.

The Commission in 2006 struck a deal with Moscow to phase out the fees, but Russia has never implemented it.

Results from the Commission's new legal action could take time. After the 2002 European Court decision, it took the Commission five years of negotiations for the U.S. government to accept EU designation for airlines. (FONTE: Wall Street Journal)