Advent of the European Union

Although it had taken 30 years to accomplish, by 1987 the basis for broad European cooperation had finally been achieved. It had taken the sepa­rate efforts of all of the EC institutions to make it happen: the Commission, by its Memorandum No. 1 and Memorandum No. 2; the Parliament, by its civil action against the Council; the European Court of Justice, by its decision in the Nouvelles Frontieres case; and finally, the Single European Act. Henceforth, national autonomy would take a back seat to the unity of the European Union.

Competition Rules in Air Transport

Now it was the turn of the Council to take the leading role in implementing the goal of full economic integration by restructuring air trans­port policies. The Council, in 1987, adopted regulations (the Competition Rules) designed to apply the rules of competition, mandated by the Treaty of Rome, to scheduled air transport. These regulations applied only between Mem­ber States, not to internal domestic traffic nor to operations between a Member State and a non­Member State. Air transport operations to third – party states were, and had been, controlled by bilateral agreement beginning after the Chicago Convention in 1944.

The Council regulations came in three phases, or “packages” as they were called, between 1987 and 1993. The third set of regula­tions, effective on January 1, 1993, effectively satisfied the goal of air transport liberalization mandated by the Treaty of Rome. This group of regulations dealt with the important issues of fares, market factors (slot allocations, capacity, etc.), computer reservation systems, ground han­dling, cargo services, mergers, and subsidies.

In addition, by 1993 there had already begun a trend toward privatization of national airlines. British Airways was the first of the national air­lines to privatize, in 1987, followed by Icelandair, and others were well on the way to privatiza­tion, like KLM (39 percent government owned), Sabena (53 percent), SAS (50 percent), Lufthansa (48 percent). Still others, like Air France, Iberia, and Olympic remained wholly government owned, but the trend toward privatization had been started. By the end of 2002, KLM and Iberia were fully privatized. Privatization among other international airlines is shown in Figure 39-1.

Predation and Merger

The Council’s competition rules are mainly enforced by the Commission. Commission investigations of predation and mergers can be

compared to those of the United States Depart­ment of Justice. With respect to mergers, the EU and the United States agreed in 1991 to coordi­nate their activities so as to reduce the likelihood of significant discrepancies existing in their anti­competition rules and policies regarding transat­lantic mergers and acquisitions.3