STATEMENT OF

A. BRADLEY MIMS

ACTING ASSISTANT SECRETARY FOR AVIATION

AND INTERNATIONAL AFFAIRS

DEPARTMENT OF TRANSPORTATION

BEFORE THE

AVIATION SUBCOMMITTEE

OF THE

HOUSE TRANSPORTATION AND INFRASTRUCTURE COMMITTEE

OCTOBER 12, 1999

Thank you, Mr. Chairman, Members of the Subcommittee. I appreciate the opportunity to discuss the important subject of commercial international aviation with you. Today, I know that you are primarily interested in the current status of our aviation relationship with the United Kingdom, but I would also like to take the opportunity to bring you up to date on the substantial progress that we have been able to make working together.

As we approach the new millenium and the challenges that it will bring, we should take a look backward to the beginning of this decade to measure the progress that we have made. In the early 1990s, the aviation industry was in the midst of a serious crisis. U.S. airlines alone had lost $13 billion during that period. Traffic growth had either slowed or stopped in many of our international markets. In fact there were fewer people travelling in those markets in 1991 than in 1990, and traffic actually decreased in our largest international market -- the transatlantic--between 1990 and 1992.

We were also making little or no progress eliminating restrictions on airline operations in international markets. Most of our aviation relations were governed by restrictive bilateral accords. We were parties to no open-skies agreements and to only a handful of truly liberal aviation regimes. The heavy restrictions constraining the free flow of aviation commerce no doubt contributed to the stagnation and red ink that plagued the industry at that time.

But the price of restrictions was not paid by the airline industry alone. Consumers of air services -- passengers and shippers -- paid the price of poor service, high fares and cargo rates, and the waste of a potentially invaluable capital resource. For years, we lost billions of dollars in real wealth because international air service was not provided the opportunity to be the major catalyst for economic growth and development that it had the potential to be.

The good news is that responsible voices such as those on this Committee, progressive aviation industries like the U.S. industry, and governments like ours rebelled against the restrictions. They said loudly and clearly that we are fed up with intrusive government regulation of civil aviation, we can't afford it anymore, and we are going to do something about it.

The Clinton Administration responded to the need for aviation reform swiftly. Upon assuming office, this Administration conducted a comprehensive study of international aviation. It then used that study to produce a major international aviation policy statement. The statement reaffirmed our commitment to enhancing competition in the industry and adopted innovative approaches for achieving that important objective.

We have relied on that statement to guide our international aviation initiatives and, today, I am pleased to report that we are fortunate to be in a much improved situation:

These major changes to the structure of the aviation industry are already producing enormous public benefits:

To achieve these successes, the United States has worked with other countries to eliminate a multitude of restrictions that had been placed on airline operations by our bilateral aviation agreements. Since President Clinton assumed office, the United States has signed over 70 new aviation agreements. Each agreement removed limitations on airline activity in the markets covered by the agreement. Many of these agreements represented major liberalizing initiatives to remove outdated, protectionist restrictions. Thirty-six of the current U.S. agreements establish open skies immediately or on a phased basis.

Our successes have not been confined to a single region of the world. In our own hemisphere, we reached a landmark open trans-border aviation agreement with Canada in 1995 that, as the growing number of flights and passengers confirm, is continuing to confer economic benefits. We remain interested in eliminating the remaining restrictions in the U.S.-Canada aviation relationship so that services can be shaped more fully in response to market demands. Under Secretary Slater’s leadership, we have made substantial progress enhancing competition and service in markets to our south. A 1999 agreement with Mexico significantly opened up code-share opportunities in the U.S.-Mexico market. In addition, seven nations in Central America and the Caribbean have entered into open-skies relationships with us. We are continuing to work with our Caribbean partners to open up more markets.

In South America, Argentina has recently joined Chile and Peru in agreeing to an open-skies regime. Later this month, Secretary Slater will travel to South America and to sign the open-skies agreement with Chile. In addition, a priority on his agenda is to explore possibilities for open-skies with his counterparts in Brazil,

U.S. negotiators have also been active, and successful, in the Pacific. Singapore, Brunei, and Taiwan were early adherents to open skies and were quickly joined by New Zealand and Malaysia and last year by Korea. Significant liberalization was achieved with Japan. Just last year we signed a new aviation accord with that important partner which provides for greatly improved service and competition in that market. Most recently, U.S. and Chinese negotiators were able to agree on new rights of significant interest to U.S. carriers. Moving beyond the traditional world of bilateral exchanges of opportunities, the United States is an active participant in the Asia Pacific Economic Cooperation Group, which has identified certain aviation areas for priority consideration for liberalization. U.S. representatives will be seeking to move that liberalization process forward in the upcoming APEC meeting next month in Hong Kong.

Continuing westward, Pakistan, the United Arab Emirates, and Bahrain have also joined with us this year to establish agreements that allow airline service decisions to be made in response to market demands under open-skies aviation regimes.

The Clinton Administration is also involved in a broad-based economic initiative with Africa. Transportation is an important part of that initiative, and Secretary Slater’s African aviation policy has the dual focus of enhancing aviation safety in cooperation with our partners in Africa through the "Safe Skies" program, and of laying the groundwork to encourage economic aviation ties between the United States and African nations. We are engaged in economic negotiations with Ghana, Tanzania, Kenya, and Burkina Faso, and other countries have expressed interest in establishing a bilateral aviation relationship. The recent African ministerial conference in Atlanta provided a forum for broad-based discussions of the benefits of liberal aviation policies. We look forward to building on the momentum that the conference generated.

Our European aviation partners have, with some significant exceptions, been in the forefront of liberalizing aviation services. Among themselves, airlines of European Union states are completely free to respond to market demands in deciding which routes to enter, what prices to charges, and how many flights to operate. Many of these countries, as well as European countries outside the Union, have joined with us to liberalize transatlantic aviation services and to put in place the broad range of rights that has allowed the global partnerships between U.S. and European airlines to bring enhanced air services to thousands of markets beyond the traditional international gateways. We now have fourteen open-skies agreements in Europe alone, and these agreements provide market-oriented aviation environments for more than 20 million travelers annually.

Our open-skies initiative is continuing with our bilateral partners around the world. However, we are also focusing on the world beyond open skies and bilateralism. We recognize the inadequacy of the bilateral system to keep pace with the needs of an increasingly global aviation industry that is based on a network system rather than discrete point-to point routes. It is in this context that Secretary Slater has taken the unprecedented step of inviting aviation leaders from nations around the world to an international aviation conference for the purpose of addressing the future of civil aviation.

The Conference will be held in Chicago in December. It will bring together Ministers of Transportation for the first time in more than fifty years. It will give visibility and focus to the issues that are likely to affect aviation in the twenty-first century. It will provide all nations with the opportunity to exchange views on how to address these issues. It will also provide the opportunity for Ministers to discuss the results of aviation liberalization, and to explore methods for extending liberalization to people in aviation markets that do not yet enjoy its benefits.

In contrast to our open-skies successes and the growing world wide liberalization of airline services, the U.S.-U.K. aviation agreement, Bermuda 2, presents a stark contrast. The route aspirations of U.S. airlines, the requests for service from U.S. cities, and your interest, itself, all testify to the need to open up this crucial sector of the U.S.-U.K. economic relationship.

Bermuda 2 not only clashes with the generally pro-competition British economic philosophy, but is also inconsistent with the leadership role that the British played in internal European aviation liberalization. But this is not about economic theories; the real-world impact of the Bermuda 2 restrictions has meant that U.S. airlines cannot determine their capacity and price levels without government interference, U.S. cities are deprived of service, and the participation of U.S. airlines in the market is artificially constrained. For example, St. Louis and Dallas/Ft. Worth cannot receive Heathrow service; Continental‘s Newark service cannot operate to Heathrow although its competitors’ flights do; United cannot enter the Denver-London market; American cannot initiate a San Jose-London route; and now Pittsburgh is not eligible for replacement service to London, since the United States has used all its U.S. gateway selections.

Since the beginning of the Clinton Administration, one of the aviation priorities has been to liberalize our aviation relationship with the British. In 1995, we were able to open up service from all points in the United States to all points in the United Kingdom, except Heathrow and Gatwick Airports, and introduce expanded code-share opportunities. However, progress stalled until the 1996 announcement of the proposed alliance between American Airlines and British Airways. In the months that followed, it seemed that the pressures of an emerging global aviation industry and the proposed alliance would provide the British with the commercial incentives to work with us to make liberalization a reality. However, as we and the members of this Sub-Committee are fully aware, that result has not yet been achieved. In light of the British inability to develop a negotiating position earlier this year, we dismissed the American Airlines/British Airways request for antitrust immunity.

However, the Department recognizes the importance of the U.S.-U.K. market to our cities and our airlines. I know that today Pittsburgh is struggling to cope with the potential effects of a loss in service, which absent the restrictions in Bermuda 2 would not need to be faced. We are continuing our efforts to bring about the needed changes in the aviation regime so that no U.S. city is placed in Pittsburgh’s position.

Secretary Slater has met with Deputy Prime Minister John Prescott, who is also the U.K. Secretary of State for Environment, Transport and the Regions, to highlight both the benefits of a new aviation agreement and the costs to the economies of both countries of the current regime. Moreover, in dismissing the immunity application from American Airlines and British Airways, Secretary Slater called on the British to continue to work with us on liberalization despite the changed circumstances.

We are beginning to reengage with the British. In September, the British acted to open up opportunities for all-cargo operations from Scotland's Prestwick Airport to third countries. In addition, they indicated that they were also prepared to discuss opening up all-cargo opportunities generally for the airlines of both countries. These new opportunities are of significant interest to U.S. all-cargo operators, such as Federal Express, Polar Air Cargo, and UPS.

Next week representatives of this Department and the Department of State will be meeting with their U.K. counterparts. That meeting will focus primarily on the U.K. all-cargo proposals, but the British have agreed to review with us the prospects for moving forward on all aspects of the relationship.

While this meeting will "talk about talking," it is an essential next step for moving liberalization forward. The U.S. side will be focusing on the foregone service opportunities and the economic damage to U.S. and U.K. businesses, cities and airlines, of which Pittsburgh is a primary example, in urging the British to work with us in dismantling Bermuda 2.

At this early stage, I do not have even a tentative prediction for what might result; however, I can assure the Subcommittee that Secretary Slater and I are committed to the goal of liberalizing this relationship.

In conclusion, we are proud of the successes we have achieved. We have not, however, lost sight of what remains to be done -- in particular with the United Kingdom, our friend and ally in so many other economic spheres.

This concludes my prepared testimony, Mr. Chairman. I would be happy to respond to any questions you and other members of the Subcommittee may have.