Category AVIATION &ТНЕ ROLE OF GOVERNMENT

One of the biggest reasons for the failure of deregulation to meet its promise of widespread competition has been the existence of barriers to entry of new airlines. Some of the barriers to entry were identified by opponents to deregula­tion, but some were not anticipated. After some 20 years of actual experience in the deregulated environment, the Government Accounting Office and the Transportation Research Board released the results of studies on anticompetitive develop­ments in the air carrier industry. These reports classified barriers to entry for new airlines as “operational barriers” and “marketing barriers.” Operational barriers include takeoff and landing slots at high-density airports, access to boarding gates, access to ticket counters, the availability of ground handling and airport apron facilities, baggage handling and storage facilities, and perimeter rules. Marketing barriers include strategies designed to bind travelers to a particu­lar airline through frequent flyer programs and loyalty incentives, computer reservation systems, and code-sharing alliances.

Slots

Historically, arrivals and landings at U. S. airports have been on a “first-come, first-served” basis. In 1968, the increase in commercial air traffic at the nation’s busiest airports caused the FAA to institute limitations on arrivals and departures under a regi­men known as “High Density Rules”(HDR). This procedure capped the number of hourly arrivals and departures at five airports, Washington National (now Ronald Reagan National—DCA), O’Hare (ORD), and the three New York City area airports, Kennedy (JFK), LaGuardia (LGA), and Newark (EWR). This system of required reservations was implemented at that time by scheduling committees set up by the airlines themselves to allocate “slots” for arrival and departure operations. A “slot” is a reservation for an instrument flight takeoff or land­ing by an air carrier. A small number of slots were set aside for general aviation use.

During regulation, the slot system worked well since the number of air carriers, routes, and access to these airports were controlled by the CAB. With deregulation, however, new startup airlines appeared and established airlines sought out new markets for themselves, greatly increas­ing the demand for access to these airports. In 1985, DOT revised its rules and procedures to allow slots to be bought and sold by airlines.1 Slots became a limited commodity, subject to being traded like a commodity. Under the buy/ sell rule, DOT explicitly stated that slots were not carrier property and that DOT retains owner­ship of the slots, so that they can theoretically be withdrawn at any time, but DOT grandfathered all slot allocations to airlines holding them as of December 16, 1985. Under the buy/sell rule, slots have taken on the look of property rights and ownership that resides with the airlines. DOT retained about 5 percent of outstanding slots and, in early 1986, distributed these in a random lot­tery to airlines having few or no slots.

After 10 years, by the end of 1996, the Gen­eral Accounting Office (GAO)2 found that estab­lished (grandfathered) airlines had increased their total number of slots, while airlines that went into business after deregulation had lost slots. Slots held by startup airlines that went out of business were often acquired by lenders (banks and other financial institutions) since these slots had been pledged as collateral to the lenders. The lenders were then free to transfer ownership rights in the slots to the highest bidders, which were often the established airlines, although Southwest was able to gain access to LaGuar­dia by purchase of AT A slots out of bankruptcy court. Established airlines also acquired slots by absorbing startup airlines by merger or buyout.

By 1999, slots had become concentrated among incumbent carriers. The four largest carri­ers controlled 87 percent of all slots, and the larg­est six airlines controlled 98 percent of all slots.3 Because the number of slots is limited, slots have become very expensive, even if they can be bought at all. This unforeseen development is a disincentive to competition.

As an alternative to sale, established airlines have leased slots to startup airlines. This proce­dure is anticompetitive, as well, since the estab­lished airlines often lease slots in order to avoid the “use or lose” rule, also known as the 80/20 rule, imposed by the FAA. This rule requires the airline to use the slot at least 80 percent of the time or the slot will revert to the FAA. When the established airlines do lease slots, they typically do so only on a short-term basis, from 30 to 90 days. Entrant airlines find it difficult to justify startup costs of new service at an airport with no guarantees of the right to continue to use slots, which are its only means of access to the airport and its market.

In 1994, by the FAA Authorization Act,4 Congress authorized DOT to grant slot exemp­tions to new entrants where DOT found it to be in the public interest and based on “exceptional circumstances.” Slot exemptions, unlike regu­lar slots, could not be transferred. DOT inter­preted this authorization narrowly and granted very few exemptions until GAO issued its 1996 report to Congress on the anticompetitive effect of the DOT’s failure to grant slot exemptions. By 2000, DOT had amended its criteria such that, for example, slot exemptions at LaGuardia had been awarded to startup airlines Frontier, Spirit, Pro Air, AirTran, and American Trans Air. DOT also awarded 75 slot exemptions to startup JetBlue. Although major airlines con­tinued to oppose it, the revised DOT practice of awarding slot exemptions stimulated competition at these airports.

In April 2000, Congress passed the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21). (See Figure 33-1.) AIR-21 mandated the phasing out of the slot rules at LaGuardia, JFK, and O’Hare. The effec­tive date for the elimination of all slot restrictions at O’Hare was July 1, 2002, and at the New York airports, January 1, 2007.

Upon expiration of slot controls at O’Hare in 2002, resulting congestion during peak hours caused serious delays at that airport. In consul­tation with affected airlines, the FAA issued an order limiting scheduled operations at ORD. This order is under periodic review, and the arrange­ment in place is not viewed as a long-range solu­tion to congestion nor a substitute for slots. The construction of a new runway (9L/27R) in 2008, however, provided significant relief to the prob­lem of congestion since there are now seven pri­mary runways. Pre-construction projections were that delays would be reduced by as much as 66 percent by this new runway.

This kind of renovation and reconfiguration is not an option at LGA (and possibly other HDR airports) due to physical land constraints. LGA is located eight miles from downtown Manhattan and bordered on three sides by water and by a multilane highway on the fourth side. It is, how­ever, central to flight operations in the United States. One study showed that on one particular day, “some 376 flights traveling to 73 airports experienced flight delays because their aircraft had passed through LaGuardia at least once that day.”5 It is clear that delays at LGA are propa­gated throughout the National Airspace System on a daily basis.

In October 2004, DOT and FAA contracted with NEXTOR6 a cooperative group of univer­sity departments named the “National Center of Excellence for Aviation Operations Research.” to carry out research on the question of congestion management alternatives, centered on operations at LGA. The NEXTOR results were reported back to the FAA in 2005.

As the date approached for expiration of slot allocations for the New York airports, mandated

by AIR-21 to take effect on January 1, 2007, it was clear to the FAA from prior experience that chaos would result if those expirations were allowed to go into effect as scheduled. On August 29, 2006 the FAA proposed new slot rules for the New York airports. Relying partly on NEXTOR study results, the proposed rules for LGA not only continued HDR caps, but also sought to impose minimum aircraft size require­ments for much of the fleet, to limit the duration of slots (OAs),7 and to employ market principles (probably auctions) for the reallocation of slots/ OAs. Under this proposal the stage was set for the airlines to not only lose their implied property rights in the slots/OAs (and their value) but also to be told how large their aircraft must be if they were to service LGA.

The storm of protest was universal, and it came from every quarter, including the Port Authority of New York and New Jersey, the air­lines, Congress, community groups concerned about losing service, and even the Canadian Embassy. Needless to say, this proposal would not fly. Fligh Density Rules, therefore, remained in effect either partially or completely for the HDR airports in spite of the provisions for lifting those allocations as required by AIR-21. This was done under the escape clause in the Act that implemen­tation of its provisions was subject to FAA discre­tion that placed safety in the National Air Space as a primary consideration under the Act.

In 2008, during the last year of the Bush administration, the FAA tried again to revise slot rules for the New York airports.8 As to LaGuardia, the FAA proposed to initiate a detailed non-mone­tary “leasing” arrangement for a majority of slots with “historic” operators for 10 years, coupled with an annual auction of additional slots. While too detailed for discussion here, the plan was a first step, to be reviewed over the 10-year period and discussed by all stakeholders over that term. The proposal made two uncontestable points: (1) LGA required a cap on operations and (2) the allocation of available slots needed to be more efficiently and fairly applied. But it also contained changes that the airlines were not ready to con­cede, including (1) that the FAA has authority to allocate slots in connection with its authority to determine the best use of the national airspace and (2) that the reallocation of slots by the FAA do not constitute a “taking” of property from the airlines in violation of the 5th Amendment.

This effort was met not only by objections, but also by lawsuits. In December 2008, a United States Court of Appeals entered a temporary stay order to the proposed rule pending further hearings on the effects of the rule. After the Obama Administration took over in 2009, Sec­retary of Transportation Ray LaHood unilater­ally rescinded the entire congestion management plan incorporated in the proposed rule. At LGA, slot authorizations established in 2006 remain in effect. Temporary slot extensions continue to be made at JFK and EWR.

It is clear that the airlines are asserting own­ership rights to slots in spite of the expressed reservation by the FAA at the time of their issu­ance that the FAA retained full authority over the allocation of all slots. This slot “property right” carries not only inherent value, but the right to make operating decisions incident to its use, like the size of aircraft the carrier wishes to use when filling the slot, where the airplane comes from when landing, and where it goes after takeoff. While the FAA has obviously not acquiesced in the airlines’ position, it does appear that the FAA is not, at this point, will­ing to completely contest the issue—witness the withdrawal of the proposed rule to modify the HDR regimen on at least the two occasions in 2006 and 2009.

As this contest plays out new developments continue, and in the process maybe some insight is being offered on the question of ownership and control of slots. In 2011, Delta Airlines wanted to expand its presence and create a hub at LGA. At the same time, US Airways wanted to grow at DCA. The solution was a swap of slots between

the two airlines; this was a deal that required DOT approval. Here is what happened: The DOT agreed to approve the Delta-US Airways pro­posal as long as the airlines agreed to give up and sell off, at auction, 8 daily slot pairs at DCA and 16 daily slot pairs at LGA, with the additional condition that bidders would be limited to air­lines with less than 5 percent of the slots at either airport.

In November 2011, it was announced that JetBlue had submitted the winning bids for the eight LaGuardia slots (for $32 million) and for the eight Reagan National slots (for $40 million). The other eight LGA slots went to WestJet (for $17.6 million).

Several things are obvious here; Two new entrant airlines got bigger at two HDR airports; that is good for competition. The DOT forced two big airlines to divest slots to smaller airlines, asserting government control over slot allocation; that is good for competition. The two big airlines got a big payday for something (slots) that they did not pay for and the purchasing low-cost carri­ers had to pay that bill; assuming those costs are to be passed on to the traveling consumer, that is not good for competition.

While the FAA-supervised slot control issue affects only designated high-density airports,9 congestion and delays are increasing through­out the National Airspace System. Because of this combination of issues, DOT and FAA have coined a new approach to the problem: conges­tion management.

“Congestion management” is a concept that encompasses a number of different poli­cies designed to reduce congestion and delay. Among these policies are (1) the imposition of landing fees during peak hours; (2) the expan­sion of the airside (runway) environment of the airport; (3) reconfiguring runways and taxi – ways, especially to eliminate or minimize run­way crossings; (4) incentives to airlines to use larger aircraft; and (5) the use of secondary and reliever airports.

The implementation of such a system will necessarily have to be the result of a cooperative effort among the DOT, the airlines, and the air­ports. Each of these entities has its own priorities and its own primary responsibilities. Revamping of the air traffic control system through NextGen, airport privatization or modification, and a work­able revision of the slot allocation program will all be necessary.

AIP funds are federal monies (derived from taxes and fees specifically collected for that pur­pose) administered by the FAA. These include a domestic ticket tax and flight segment fees on domestic flights, an international arrival and departure tax, a domestic tax on air freight, and a per gallon fuel tax on aviation fuels. The FAA distributes more than $3.8 billion annually out of AIP funds to airports. Airport owners and spon­sors provide a minimum of 10 percent share in any project funded by AIP grants.

Airport User Charges

Airport user charges are either (1) aeronautical user charges or (2) nonaeronautical user charges.

1. Aeronautical user charges include landing fees, apron, gate-use or parking fees, fuel – flow fees, and terminal charges for rent or use of ticket counters, baggage claim areas, administrative support quarters, hangars, and cargo buildings.

2. Nonaeronautical user charges include rentals to terminal concessionaires, automobile park­ing, rental car fees, and rents and utilities for hotel, gas station, and related facilities.

Passenger Facility Charges (PFCs)

In 1990, Congress authorized airports to charge a per-passenger enplanement fee to be used for the financing of airport capital improvements and the expansion and repair of airport infrastruc­ture. These are called Passenger Facility Charges (PFCs) and they are collected by the airlines as a part of the ticket price for the benefit of air­ports. As of 2012, the PFC program allows the collection of $4.50 for every boarded passenger at commercial service airports.4 These funds may be used for three specific purposes: (1) to

Interest

payments on outstanding debt for eligible capital improvements

FIGURE 33-5 98% of airport revenue comes from airport users: U. S. Airport Sources of Revenue, 2001.

preserve or enhance safety, security, or capacity;

(2) to reduce noise or mitigate noise impacts; and

(3) to enhance air carrier competition.

Over $84 billion in airport capital improve­ments have been made using PFC monies through September 2012. This amounts to over 30 percent
of all airport capital investment in the United States. PFC funds are used for airside projects; terminal area projects; interest costs on airport bonds; access projects such as roadways, people movers, or transit projects; and noise mitigation projects. They have been used specifically for new runway construction and new gate construction, but they are not permitted to be used for parking garages, terminal concession areas, or areas leased by a specific airline for more than five years.

The recession of the early 1990s began to abate toward the middle of the decade. And just as deregulation had produced the greatest losses in the history of the airline business just a few years before, now profits began to rebound under deregulation.

• In 1994, American Airlines saw the highest quarterly profit in its history and in the history of any airline since the beginning of commercial aviation.

• TWA emerged from Chapter 11 and restructured—with a 45 percent employee ownership.

• Northwest avoided bankruptcy with an employee trade-off of stock for concessions.

Beginning in 1995, the financial picture for most airlines markedly improved, and contin­ued to improve through the end of the decade. Net income for many airlines reached its peak that year as traffic figures spiraled upward in a continuation of a good economy and a cli­mate of stable wages and fuel prices. Each year from 1995 through 1999 were profitable ones for the airlines, reaching $5.6 billion that last year. Labor contracts were renegotiated, fleets were expanded, and employment rose. But there was trouble just over the horizon.

: Into the New Millennium

The airlines entered the new millennium riding the crest of the same wave that generally took the stock indices and corporate profits to their his­torical high point. The so-called dot. com computer and technological sector, now seen in context, pro­pelled an economic “bubble” that burst in the year 2000. That year a downturn began in the economy that produced concerns of a “bear” market, then turned to fears of a recession. Although passenger enplanements reached a then all-time high in 2000 of 693 million, the airlines, like everyone else, were now on the backside of the wave.

The year 2000 saw the end of six years of relative prosperity in the air carrier industry. The downturn in air carrier profits actually began in 1998 but it was not until 2001 that adversity took hold. As the year progressed, it was forecast that the industry, as a whole, would experience a loss of perhaps $3 billion. This projected loss was of a magnitude somewhat comparable to the early years of the 1990s, but less than either 1990 or 1992. While this projected loss was substantial, it was still within the bounds of the cyclical nature of the industry since deregulation.

Market Entry and Exit: Legacy airlines have entered new markets at a reduced rate and have exited markets at an increased rate since 2004, just the opposite of LCCs.

Route structure: Route overlap between the two sets of carriers was 13 percent in 1997 but had risen to 31 percent in 2009, indicat­ing an increasing competitive challenge to the legacy airlines.

Fleets: Legacy airlines reduced their fleets from 1995 to 2009 while LCCs increased their fleets from 257 in 1995 to 911 in 2009. The legacy airlines’ fleet is still about three times larger than the LCC fleet.

Employees: LCC employee numbers have increased and legacy airlines’ have decreased. Fares: The fare differential between legacy carriers and LCCs is lessening, partly due to increased market pressure and competition from the LCCs. Fare premiums due to hub concentrations (hub premiums) by the legacy carriers was 24.9 percent in 1995 but had dropped to 6.6 percent in 2009 (greater N. Y. area) and respectively from 18.6 percent to 6.4 percent in Chicago and Dallas.

Customer Satisfaction: An objective criteria standard called the “Airline Quality Rat­ing” was created in 1991 by Wichita State University (now in cooperation with Purdue University), to report passenger satisfaction levels. It is based on 15 criteria, including on-time performance, denied boardings, mis­handled baggage, and customer complaints. See Figures 35-24, 35-25, and 35-26.

■ Regional Airlines

Regionals are a mixed bag. Regionals can be large or small; they can be independently owned or owned by larger carriers; they can operate jets (30-108 seats) or turboprops (9-78 seats). Most operate under contract to mainline carriers called “pro-rate agreements” or “capacity agreements” and they all serve the function of feeding pas­sengers from smaller airports to larger ones and back. At 498 airports in 2010, regional airlines provided the only service. Stated differently, 72

percent of U. S. communities rely exclusively on regional airlines for all scheduled air service.

In 2012, the FAA said that the U. S. com­mercial aviation industry at the end of FY 2011 consisted of 16 scheduled mainline air carriers that used large passenger jets (over 90 seats) and 68 regional carriers that used smaller piston, tur­boprop, and regional jet aircraft (up to 90 seats). Regional carrier international service is con­fined to the border markets in Canada, Mexico, and the Caribbean.17

Under a pro-rate or revenue-sharing agree­ment, ticket revenues are shared according to a proration formula. All costs incurred in the
regional airline portion are borne by the regional airline, and it is responsible for pricing, scheduling, and ticketing. The regional airline assumes the risk of its operation, but also presumes to benefit from declines in fuel prices and increased passenger counts and ticket prices. While the risks are greater under these agreements, so can be the profits.

Under a capacity purchase or fixed-fee agreement, part or all of a regional’s seat capacity is purchased by a mainline partner. The regional carrier is paid a fixed fee for each block hour of aircraft operation. The mainline carrier assumes the cost of ground support and gate access, as well as operating expenses. The regional airline

is responsible for labor costs, aircraft mainte­nance, and ownership or lease expense. Under this arrangement, the regional carrier is protected from fluctuations in load factors, cost of fuel, and ticket prices.

Under either contractual arrangement, the regional airline is an independent contractor and the mainline carrier assumes no third-party liabil­ity for the regional’s acts, including liability for aircraft accidents.

As the larger new legacy carriers have cut back on route mileage and networks, regionals have increased their percentage of total miles flown. While the number of regionals has diminished from 247 carriers in 1980 to 61 carriers in 2010, they have flown increasing numbers of passengers, longer distances, and in larger aircraft over that period. In 2010, regionals carried over 163 million passengers and operated almost half of all sched­uled airline flights in the United States, a 40 percent increase since 2003 at a time when traffic volumes have remained static. Code sharing with larger air­lines accounts for 99 percent of all regional traffic, and the regional aircraft may fly the livery of its larger contracting carrier or it may fly its own.

1. United/Continental has contractual rela­tionships with Atlantic Southeast Airlines, Chautauqua Airlines, Colgan Airlines, CommutAir Airlines, ExpressJet Airlines, GoJet Airlines, Mesa Airlines, Shuttle American, SkyWest Airlines, and Trans States Airlines.

2. Delta has contractual arrangements with nine regional carriers: Comair is wholly owned. The others are Atlantic Southeast Airlines, SkyWest Airlines, Chautauqua Air­lines, Shuttle American, Compass Airlines, Pinnacle Airlines, Mesaba Aviation, and American Eagle.

3. American has capacity agreements with two wholly owned subsidiaries of AMR: American Eagle Airlines and Executive Air­lines, and also has a capacity agreement with Chautauqua Airlines.

4. Alaska Airlines has a capacity agreement with its wholly owned subsidiary Horizon Air.

5. US Airways has capacity agreements with two wholly owned subsidiaries: PSA and Piedmont. It also has agreements with Air Wisconsin Airlines, Mesa Airlines, Chautau­qua Airlines, and Republic Airways.

Some of the largest regionals are combined in corporate ownership groups.

There has been a succession of treaties and agreements between nations, beginning in 1929, dealing with the issue of liability of airlines to their passengers and shippers. The reason for this progression of agreements concerns the way in which airlines themselves were viewed during the early years of their existence. We have pre­viously seen how the attempt to establish and maintain a viable airline business was as risky as, and often directly proportional to, the dangers of flying itself. Flying was dangerous and aircraft were relatively primitive and unreliable. Since commercial aviation was considered by most governments to be a national resource and its promotion to be a government responsibility, the laws governing the liability of such companies reflected their inherent financial frailty.

As air travel became progressively safer and more reliable over the years, the concern of government shifted from promoting aviation for its own sake to concerns over the way and man­ner that the airline business was conducted, and to the protection of the people who used the air­lines for personal travel or shipping cargo.

Below we will consider each of these agree­ments, culminating in the Montreal Conven­tion. All of these agreements were important during the time that they were in effect, but all except the last, the Montreal Convention, are now relegated to historical significance only. The Montreal Convention, like all other international treaties, had to go through a ratification process to become binding upon those countries that subscribe to it. This process began in 1999 and has now about run its course as most civilized countries on earth have signed on. It is to be con­sidered the law for all purposes in this course.

The Warsaw Convention-1929

At the same time that the hemispherical confer­ences were going on in the West, conferences were held in Europe, first in Paris in 1925 and then in Warsaw in 1929. Commercial air trans­portation between far-flung nations, including Europe and the United States, was being rec­ognized as a probability since the significant aerial accomplishments of 1919. In that year the first transatlantic flight had been completed by the United States Navy in a Curtiss flying boat,

NC-4, from North America to Lisbon via the Azores (requiring 57 hours of actual flying time). Englishmen Captain John Alcock and Lieutenant Arthur W. Brown made the first nonstop cross­ing from Newfoundland to Ireland (completed in just over 16 hours flying time). The English dirigible R-34 made a round trip from Scotland to Roosevelt Field, Long Island (between July 2 and July 8), and the first scheduled airplane pas­senger service was inaugurated between London and Paris. The primary concerns at the Paris and Warsaw conferences related to the lack of uni­formity in commercial and legal transactions in international civil aviation. In 1929, the signatory nations established through the Warsaw Conven­tion, effective on February 13, 1933, the first rules relating to carrier liability for passenger and cargo interests in international air transportation. The Warsaw Convention (Warsaw) provides the legal framework for the payment of claims for personal injury and death of passengers, claims for damaged goods, cargo and baggage, and claims for delay. Simply put, airlines must pay regardless of fault (strict liability) up to the limits of liability prescribed, subject to certain defenses set out therein. Warsaw also prescribed form and content for tickets, air waybills, and other lading documents.

I • he sudden abrogation by the United States 1 Congress of economic regulation of Ameri­can airlines in 1978 caught the world by sur­prise. The air carrier industry worldwide, for practically its entire existence, had been oper­ating under the benevolent supervision of national governments. But in the United States, although air carriers were subject to the eco­nomic control of the Civil Aeronautics Board, they operated within a greater free enterprise system that reflected the philosophy of the national government and American heritage. In Europe, governments after World War II largely embraced socialist economic philosophy and policies. Conceptually, the complete removal of all government economic control of the air carrier industry was a more difficult hurdle for Europeans than for Americans.

Airline management in the United States after deregulation was quick to embrace the competition of the free market. The competitive spirit had been there all along, as demonstrated by the rivalry between American Airlines and United Airlines during the 1970s, as they fought for market share even under CAB constraints. After deregulation, U. S. airlines simply joined the ranks of most other American businesses and operated under the same national laws that

governed everybody else. Competition, after all, ‘ was what the American economy was all about.

In Europe, on the other hand, national governments were quite less ready to accept full free market principles in most economic endeav­ors. Philosophical concerns of government typi­cally ran to issues of citizen welfare, access to medical treatment, worker benefits, and other social entitlements, not to the state of competi­tion in routine business affairs. With the prospect of privatization of air transport, all of these social concerns were present. Added to these concerns was anxiety over the loss of government control in directing the future of their airlines as organs of national influence.

Moreover, the demonstrated economic tur­moil, bankruptcy, and labor strife that American deregulation had unleashed in the United States presented a foreboding view of the future under deregulation, and constituted another justification for European pause. The countries of Europe and the institutions of the EC debated the pros and cons of deregulation and its effect on the greater economy. Their approach was one of caution. The consensus generally formed was that air transport should be more the object of a policy of “liberalization” of regulation than an “abroga­tion” of regulation.

Then there was the matter of national diver­sity. The history of Europe through the first half of the 20th century is a history of conflict based largely on nationality or allegiances. European wars were the historical rule, not the exception. But after World War II, Europeans began to believe that things could be different. The coun­tries that made up the EEC had agreed in the Treaty of Rome to embark on a more enlightened path for the future of Europe; cooperation and free competition, without national constraints, was the course set to be followed. But when it came to implementing the vision, old habits proved hard to break. National interests were dif­ficult to ignore, particularly given the history of the continent. Progress was slow.

In short, the United States was far more pre­pared to deal with the radical idea of economic deregulation of the airlines (free competition) than were the states of Europe. Still, the Treaty of Rome had been signed and ratified; it was the law. It had been the law, in fact, for over 20 years when American deregulation came along in 1978. The institutions of the European Commu­nity had been set up, and they were staffed and operating. Many of those who had been charged with making the EC a reality were serious about their charge, and none more so than those within the European Commission.

The Space Age arrived during the International Geophysical Year (IGY), which was actually an 18-month period that extended from July 1, 1957 to December 31, 1958. The IGY was an interna­tional effort to coordinate worldwide measure­ments and data collection of geophysical (earth, oceans, atmosphere) properties, as well as to investigate an expected peak of sunspot activity and a number of solar eclipses. It was apolitical and non-nationalistic, coordinated by the Inter­national Council of Scientific Unions, and 67 nations participated.

The American participation was done under the auspices of the National Academy of Sci­ences, with the stated goal: “. . . to observe geo­physical phenomena and to secure data from all parts of the world. . . .” The IGY sought to capitalize on the many innovative technologies that were appearing after the Second World War, including computers, rocketry, and radar.

The International Geophysical Year was patterned on two previous international scien­tific undertakings. The first was the Interna­tional Polar Year (IPY), which took place from 1881 to 1884, now known as the 1882 IPY. It was the first series of coordinated interna­tional expeditions ever undertaken to the Polar Regions. The project was inspired by the Aus­trian explorer, Carl Weyprecht, who believed that nations should put aside their competition for geographical dominion and, instead, fund a series of coordinated expeditions dedicated to scien­tific research. Eleven nations participated in the effort, and 12 stations were established and main­tained in the Arctic for the three-year period.

A second expedition was conducted on the 50th anniversary of the first, and it became known as the 1932 Polar Year, or the Second

International Polar Year. The Second IPY was promoted by the International Meteorological Organization to take advantage of several new technologies, such as precision cameras and high frequency radio, and to investigate the newly discovered “jet stream.” Forty countries partici­pated and 40 permanent observation stations were established in the Arctic. The contribution of the United States was the establishment in Antarctica of the meteorological station on the Ross Ice Shelf during the second Byrd expedition. The Second IPY was primarily concerned with the investiga­tion of meteorology, magnetism, atmospheric sci­ence, and the mapping of ionospheric phenomena that advanced radio science and radio technology.

Many scientific accomplishments have been recorded through these three international cooperative endeavors. Because of the IGY, for example, scientists defined the mid-ocean ridges (furthering the understanding of the effects of plate tectonics and verifying the formation of continental shapes), discovered the Van Allen radiation belts, charted ocean depths and cur­rents, studied earth’s magnetic field, measured upper atmospheric winds, and studied Antarctica in great detail.

The first licensed commercial space launch occurred in the United States in March 1989 when a Starfire suborbital vehicle carried aloft the Consort 1 payload from White Sands Mis­sile Range in New Mexico. By the end of 2011, the DOT/FAA had licensed 205 orbital and suborbital commercial launches. From 1989, the number of annual launches increased each year through 1997 with a high that year of 24 launches. Beginning in 1998, launch activity lev­eled off, and even began to decline on an annual basis. Launches peaked again during the 2007­2008 period. For historical and forecast launch and satellite data, see Table 41-1 and Figures 41-4, 41-5, and 41-6.

Until the 1990s, most commercial satellites were telecommunications orbiters that were placed in geostationary orbit (GSO). Since 1997,

satellites have also been placed in low earth orbit (LEO) or nongeosynchronous orbit (NGEO)31 in order to serve new markets in commercial mobile telephones, data messaging, and remote sensing.

Launch forecasts consider five payload cat­egories, defined by the type of service the space­craft are designed to offer:

1. Commercial telecommunications;

2. Commercial remote sensing;

3. Science and engineering;

4. Commercial cargo and crew transportation services;

5. Other payloads launched commercially.

Commercial launch demand is driven by activity in the global satellite market, ranging from customer needs and the introduction of new applications to satellite lifespan and regional eco­nomic conditions. The GSO market is served by both medium and heavy lift launch vehicles, for which there is a constant commercial customer demand for telecommunications satellites. The NGSO market is served by small, medium, and heavy lift launch vehicles and has a wider variety of satellite and payload missions, but also has more demand fluctuation.

Globally, the United States lags both Europe and Russia in commercial launches. In 2010, for instance, there were 23 launches worldwide: 13 in Russia (57%), 6 by Europe (26%), and 4 for the United States (17%).

The Professional Air Traffic Controllers Organi­zation (PATCO) walked off their jobs on August 3, 1981, in violation of the Civil Service Reform Act of 1978 (CSRA), which forbids strikes among civil service workers. That same day, President Reagan went on radio and television to announce that any striker who did not return to the job within 48 hours would be fired, and would also be permanently prohibited from being reemployed at any federal agency in the future.

Of those controllers who went on strike (some 4,199 did not), 875 returned to work before the expiration of the deadline set by the president. The remainder of the strikers, over 11,000 con­trollers, were fired.

The FAA had made preparations to meet the strike. Controller positions were staffed by those who had refused to strike, supplemented by supervisors, military personnel, and retirees who were called back. Within 10 days the АТС system was operating at about 70 percent effec­tiveness. The FAA recruited new trainees and ran them through its Air Traffic Service Academy to fill the remaining vacancies. When the air traffic system regained full operational capacity less than two years later, a head count showed that there were 20 percent fewer controllers required to run the system safely and efficiently, implicit proof that АТС was over-staffed when the strike began.

PATCO was decertified as the bargaining agent for FAA controllers. The FAA and the Airline Transport Association filed civil lawsuits seeking damages and injunctive relief, and the PATCO strike fund, which in August 1981 held over $3 million, was impounded to pay dam­ages and fines. Criminal proceedings were com­menced and federal court contempt orders were entered.

The controllers hired after the PATCO strike subsequently formed their own union, the National Air Traffic Controllers Union (NATCO), which represents controllers today.

Response from other union groups in sup­port of the strike was muted. ALPA, in fact, pub­licly countered PATCO assertions that the АТС system was unsafe. Any tepid support voiced for the strike was seen as merely symbolic. Still, union leadership countrywide was apprehensive over the effect of such a devastating defeat suf­fered by any labor organization. They could not help but notice the overwhelming support that the administration’s response to the strike had engendered.

The strike caused large airline losses at a time when the airlines were having a difficult time due to deregulation and the economic down­turn then ongoing. It inconvenienced millions of air travelers, and reinforced the wisdom of the anti-strike provisions applicable to federal employees. Unions also took note of the pub­lic resentment generated by the strike and by the disruptions that it caused. It might even be concluded that the PATCO strike and its after­math had a chilling effect on militant union activity—during the ensuing three-year period there were only two strikes in the airline industry, an IAM strike against Northwest in May 1982 and another IAM strike in August 1983, this time against Lorenzo’s Continental. Each of the IAM strikes deserves further comment.

The strike against Northwest was called by the mechanics after negotiations had produced agreements with all of the other crafts. It was also generally conceded that the company’s offer to IAM was substantial. Union solidarity, most visibly expressed by a refusal by one union’s members to cross picket lines set up by different unions, has been a traditional and effective tool in job actions. When IAM struck Northwest, the pilots crossed the picket lines and continued to fly, as did the flight attendants represented by the Teamsters, thereby greatly reducing the effec­tiveness of the strike.

The Continental strike is technically still in progress given that Continental’s entry into Chapter 11, and the subsequent firing of its employees under the Bildisco decision, caused the loss of all of those employees’ jobs.

When economic deregulation of the airlines was suddenly decreed by the federal government in 1978, America’s commercial airports were poorly equipped or organized to service the new air transportation system. The relationship between the airlines and the airports they served was basically oriented toward airline control; airports were mostly junior partners that more or less accepted whatever the airlines dictated.

The decision to serve any particular airport, as well as the identity of the airline(s) to serve the airport, was in the first instance dictated by the CAB. When a community and its airport found itself fortunate enough to be designated by the CAB, it usually went out of its way to accommodate the airlines designated to serve it. This included the nature of contractual relation­ships between airports and airlines that governed gates, baggage areas, ticket counters, and ground support facilities. Both the airlines and the own­ers of the airports preferred reliable, long-term arrangements.

Exclusive, long-term gate leases restrict entry by new airlines at airports. A GAO survey in 1990,10 12 years after deregulation, revealed that at the 66 largest airports in the United States, 85 percent of their gates were leased to estab­lished airlines under long-term and exclusive – use arrangements. Most seriously affected were Charlotte-USAir, Cincinnati-Delta, Detroit – Northwest, Minneapolis-Northwest, Newark- Continental, and Pittsburgh-USAir. This greatly contributed to the creation of fortress hubs, one characteristic of which is the limiting or exclusion of competition from the market. In 1995, at all of these airports, with the exception of Newark, one carrier accounted for over 75 percent of all passen­ger enplanements.

New startups were often denied access to these airports, although incumbent airlines would sometimes sublease gates to entrant air­lines. These arrangements often carried with them inequities to the new airline, such as being required to utilize the ground personnel of the lessor airline, usually at increased cost and diminished efficiency to the leasing airline. Occasionally, such subleases require that the entrant airline’s aircraft be maintained by the les­sor airline. Oftentimes, the duration of the sub­lease was also quite short.

Congress, in the year 2000, set about to correct some of these inequities in the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21), to be further dis­cussed in Chapter 33.