Specific Problems Solved by the Negotiation of
Bilateral Air Agreements
Ralph Azzie *
Three of the main problems which come up for discussion during
negotiations are:
1. The “Agreed Services” on “Specified Routes”;
2. The problems of Capacity and Frequencies.
3. The Fares and Rates.
1. EQUITABLE EXCHANGE OF ROUTES. – Each of the parties
to an agreement tries to obtain routes and traffic rights which are
equivalent to the ones he is giving away in return. The traffic rights
on these routes are known as “Freedoms” of the Air.
On February 10, 1945, Canada signed and accepted the Inter-
national Air Services Agreement concluded at Chicago. This Agree-
ment provided inter alia that each Contracting State grants to the
other Contracting State what are known as the First and Second
Freedoms of the Air:
the privilege to fly across the territory without landing;
(i)
(ii) the privilege to land for non-traffic purposes.
‘Subject to certain rules for safety, security and military purposes,
the granting of these privileges does not present any difficulty
between States who are signatories of the Convention. But the real
disputes begin with the three other Freedoms of the Air which do
not only constitute privileges but traffic rights subject to an exchange
* Chief, International Relations Division, Air Transport Board. Mr. Azzie, in
his lectures, centered upon the bilateral air agreement as the pragmatic and
popular means of negotiating aviation treaties. The Chicago Convention of 1944
convened with the hope of recognizing the principle of freedom of air commerce,
but the majority of interested states, to the exclusion of the powerful United
States, favored protectionalism. The death knell sounded for those who desired
multilateral conventions to regulate air commerce: the door was opened for
bilateral arrangements, the majority of which were patterned after the famous
Bermuda Agreement between the U.K. and U.S. in 1946. This latter agreement
represents a compromise in opposite attitudes: liberalism on the American side
and protectionalism on the British. The reasonable precepts and sound economics
of the Bermuda Agreement have greatly influenced Canadian bilaterals. The
following is an excerpt from Mr. Azzie’s lectutres, treating of some problems
encountered in negotiating bilaterals.
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through bargaining. These freedoms or traffic rights are the fol-
lowing:
(iii) Third Freedom –
the right to put down on the territory
of the other Contracting State passengers, mail and cargo taken on
in the territory of the State whose nationality the aircraft possesses:
the right to take on in the territory of
the other contracting State passengers, mail and cargo destined for
the territory of the State whose nationality the aircraft possesses.
(iv) Fourth Freedom –
(v) Fifth Freedom –
the right to put down or to take on in the
territory of the other contracting State passengers, mail and cargo
coming from or destined to points in a third country, or other
countries.
The Third and Fourth Freedoms are essential to the development of
any international air service and they are still considered as constitut-
ing the primary objective of a service. In other words, the main object
of a bilateral air agreement is to regulate and stimulate the direct
flow of traffic between the two contracting States. Any Fifth Free-
dom Air Agreement automatically has the Third and Fourth Freedom
clauses. At present sixteen out of the twenty-one bilateral air agree-
ments concluded by Canada provide for the exchange of the five
freedoms. This type of agreement (providing for the five freedoms)
is particularly important for this simple economic reason: with the
introduction of jet aircraft which fly at much higher speeds, at a
greater range and with a greater capacity, it becomes imperative
for the international airlines to get as many points as possible where
they can exercise traffic rights. However this is one paradox with
which negotiators are confronted: Fifth Freedom traffic rights are
more and more difficult to get because of the excessive competition
between the major international airlines and most especially along
the lucrative North Atlantic Route. Because of this competition,
airlines are apt to put some pressure on their aeronautical authorities
with a view to adopting a protectionist policy, or at least to exchange
Fifth Freedom rights on a strict “quid pro quo” basis which is never
easy to achieve. However, in this horse-trading business one has to
give in order to get something in return: e.g., Montreal – Chicago
has been given to Air France, Alitalia and Lufthansa in return for
concessions from the three respective nations where these airlines
have their origin.
Another reason why Fifth Freedom traffic rights are difficult
to obtain is one which is caused by the proliferation of new inter-
national carriers for “National Prestige” reasons. In his study on
American Bilateral Air Transport Agreements, Albert Stoffel has
properly stated the problem as follows:
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BILATERAL AIR AGREEMENTS
In many cases, small countries.., are conducting farflung operations in
air transportation which have little or no relationship to the size of their
countries, their populations or their economies. In addition, it has become
a point of national honour for almost every independent country to show
its flag in the air as widely as possible. Some of these countries have dis-
covered that this may be an expensive proposition, perhaps more expensive
than they can afford. Nevertheless, they have the right and the desire, and
they present a problem which must be considered.
Or, to quote Lord Swinton, Chairman of the U.K. Delegation
to the Chicago Conference: “Every nation which aspires to be in
the air will wish to have, and indeed will insist on it, in addition
to its own international traffic, a fair share of its external air
traffic as well.”
When an agreement on an equitable exchange of traffic rights
has been reached between two States, only one problem has been
solved. For instance, in the exchange of Fifth Freedom traffic rights,
there is always a third party involved. Here is a typical example of
what may happen: in the Canada-France Agreement, Canada was
given the right to operate beyond Paris to Rome or Vienna, but the
Italians would not authorize a Paris-Rome service by a second
Canadian carrier without new negotiations. Therefore, in the Canada-
France Agreement, Canada has been given traffic rights between
Paris and Rome which cannot be automatically put into operation.
In the same way the Austrians have not agreed to authorize a Canadian
carrier to exercise traffic rights between Paris and Vienna; there-
fore, Canada cannot use the Fifth Freedom traffic rights conceded
by the French.
One other subject which deserves particular attention in inter-
national civil aviation today is: the determination of capacity and
control of frequencies.
2. CAPACITY AND FREQUENCY CONTROL. Here is a subject
that has been and still is the source of many discussions.
There are three schools of thought on this subject. There are the
“free enterprisers,” those who advocate the “freedom of the air,”
and usually they possess strong, aggressive and competent airlines.
Their argument is that carriers operating on international routes
should have full freedom to carry all the traffic that they can develop.
The weaker carriers or those not in a position for one reason or
another to compete effectively would have to leave the market or
curtail their operations.
A second school of thought argues that countries suffering from
basic disadvantages in the right for international air passengers
must be able to allocate or predetermine the volume of traffic carried
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in and out of their countries, in order to protect their national
carriers. e.g., Argentina.
A third school maintains that airlines should have reasonable
freedom to carry traffic of primary interest (third and fourth
freedom traffic) but that there should be sensible rules governing
the carriage of secondary traffic (fifth freedom traffic) e.g., Pakis-
tan.
Canada’s position on the subject of capacity and frequency is
based on the Bermuda Agreement between the U.S. and the U.K.
At Bermuda, as at the Chicago Convention in 1944, the two countries
had opposite attitudes. The United Kingdom wanted to have pre-
determination of frequencies to be operated on any route and a
division of capacity on a 50-50 basis according to traffic originated,
while the United States did not want any limitation of frequencies
or division of capacity. Finally they agreed on a compromise that
would provide a certain control, an “ex post facto” control.
The resolutions adopted at the Bermuda Conference and related
to capacity and frequency read as follows:
That the air transport facilities available to the travelling public
should bear a close relationship to the requirements of the public
for such transport.
That there shall be a fair and equal opportunity for the carriers
of the two nations to operate on any route between their respective
territories (as defined in the Agreement) covered by the Agreement
and its Annex.
That in the operation by the air carriers of either Government of
the trunk services described in the Annex to the Agreement, the
interest of the air carriers of the other Government shall be taken
into consideration so as not to affect unduly the services which the
latter provides.
The above resolutions leave much room for interpretation. For
example, expressions like “the requirements of the public”, “fair and
equal opportunity”, “shall be taken into consideration”, and “not to
affect unduly” are rather vague. However, if the two parties are in
general agreement as to their meaning it can work satisfactorily.
Canada has adopted the Bermuda principles. In many of her
standard bilateral agreements, it is put as follows:
“(1) There shall be fair and equal opportunity for the airlines
of both Contracting Parties to operate the agreed services on the
specified routes between their respective territories.
(2)
In operating the agreed services, the airlines of each Con-
tracting Party shall take into account the interests of the airlines
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307
of the other Contracting Party so as not to affect unduly the services
which the latter provides on the whole or part of the same route.
(3) On any specified route the capacity provided by the design-
ated airlines of one Contracting Party together with the capacity
provided by the designated airlines of the other Contracting Party
shall be maintained in reasonable relationship to the requirements
of the public for. air transport on that route.”
Canada has very seldom questioned the frequency and capacity
in its bilateral negotiations. When a bilateral agreement includes
a restriction on frequency or capacity, as it is the case with Australia,
New Zealand, Mexico and Italy, it has been done on the instigation
of the other Party.
3. FARES AND RATES – Fares and rates can be a most intricate
subject; the facts of the 1963 North Atlantic fares crisis are widely
known.
On the subject of fares and rates most airlines feel that their
establishment should be left to the competence of the airlines. -How-
ever, most governments reserve the right to approve or disapprove
the published fares and rates.
The airlines do not decide the fares individually but through
IATA (International Air Transport Association). IATA has divided
the world into three conference areas, and fares and rates are
negotiated between airlines serving the area:
1 – North and South America.
2 – Europe, the Middle East and Africa.
3 – The rest of the world.
What are the points taken in consideration in such negotiations?
Mr. Gordon Wood of Air Canada in an article entitled “The Com-
plexities of International Fare Fixing” points out that:
Fare negotiations involve a wide variety of factors. There is not only
the cost of providing the service. One must also take into account the cost
of selling it; the traditional charges of competitive means of transport; and
the commercial risks of promotional pricing. On these factors and many
others like them, managements stake their own heads, their shareholder’s
money and their company existence.
Canada’s position is that fares should be, as much as possible,
fixed through the IATA machinery, but it reserves the right to ap-
prove or not the proposed fares. It is clearly stated in the Canadian
Standard Bilateral:
(1) The tariffs on any agreed service shall be established at
reasonable levels, due regard being paid to all relevant factors, in-
cluding cost of operation, reasonable profit, characteristics of service
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(such as standards of speed and accommodation) and the tariffs of
other airlines for any part of the specified route. These tariffs shall
be determined in accordance with the following provisions of this
Article.
(2) The tariffs referred to in paragraph
(1) of this Article
shall, if possible, be agreed in respect of each route between the
designated airlines of the Contracting Parties, in consultation with
other airlines operating over the whole or part of that route, and
such agreement shall, where possible, be reached through the rate-
fixing machinery of the International Air Transport Association.
The tariffs so agreed shall be subject to the approval of the aero-
nautical authorities of the Contracting Parties.”
Although part of the wording may change in the existing bila-
terals the spirit of the Article remains the same. One thing in
common in all agreements is that the tariffs shall be subject to the
approval of aeronautical authorities.
As the above suggests, the case of tariffs and rates might cause
some difficulties if the subject has not been properly explained or
agreed to explicitly. Even in such a case any country is likely to
change some of its regulations and re-negotiations may become
necessary.
