IAC Luncheon Speech Texts


(As prepared for delivery)

Thank you, Will, for that introduction. As we move toward year’s end when Will is going to retire, I ask you all to join me in recognizing a long and storied career. Will has served this industry and his employers with a level of insight, even-handedness, commitment and humor to which most of us can only aspire.

Thank you all for coming. It is a pleasure to be back addressing the International Aviation Club.

Looking over my previous speeches – I may talk about a lot of the same things. Because many of the external challenges we face never seem to go away.

But today I thought I would introduce something new, so I want to talk about my early childhood in Ohio. As some of you know, I’m from the great state of Ohio, which has a special connection to air and space travel. It’s the state the Wright Brothers called home. And a state that is home to 24 astronauts, prompting someone on Twitter recently to ask: “What is it about your state that makes people want to flee the earth?”

I won’t try to answer that – but I can tell you my love of flying and fascination and appreciation of what goes into the miracle of flight every day is what drew me to this role nearly five years ago now. I imagine, given this audience, that many of you view air travel as the miracle that it is. As Louis CK says: “You’re in a chair…in the sky!”

We all know, however, not everyone shares this appreciation, or an understanding of the complexity and importance of delivering that miracle – and that is something that A4A has been actively working to change.

Since I joined then ATA (now A4A), and in the decade or so leading up to that, a lot has happened in our industry.

For years and for myriad reasons, which I needn’t recount to this audience, the industry struggled.And our lack of success, or in many cases, failure, harmed our customers, our employees and our shareholders.

Through an improving economy, lower oil prices and a lot of hard work and very difficult choices on the part of A4A’s members who made dramatic changes within their organizations, we are now, as an industry, in our fifth year of profitability.

We have gotten there by embracing change and doing a better job of meeting customer expectations.

All of us as airline customers expect a lot from the airlines. We expect to travel across the country or to an international destination, safely, on-time – with our luggage – and we’d like to do that at a fair price without waiting in line. We would like friendly, courteous service. We would like new planes. We would like cool airline apps. We would like more in-flight options and more destinations.

And, we all know, none of us expects bad weather – or any other type of external factors – to disrupt our particular flight.

Although airlines fall short on controlling the weather, our members are focused on meeting the rest of our customers’ expectations.
SAFETY FIRST – literally. We are by far the safest mode of transportation. It’s statistically safer to get on a plane than walk out your front door.

VALUE – Airline ticket prices are incredibly affordable. They have not kept pace with inflation since either the outset of deregulation or the start of this century. Let me offer a concrete example – looking at one city pair – JFK/LAX – which is one of the most competitive domestic markets. In 2014, the average round-trip fare, including ancillaries was $696. If that fare had tracked inflation since 2000, it would cost $957. In the first half of 2015, the price to fly a mile on U.S. carriers declined year-over year in every major region – domestic, Atlantic, Latin and Pacific.

NEW PLANES – U.S. airlines are taking delivery of the equivalent of a new plane every day. 367 new airplanes in 2015 alone.

MORE DESTINATIONS – In the first half of 2015, U.S. carriers added 265 new destinations.

STATED SIMPLY: We are doing our job to be more competitive and meet customers’ expectations. And we are working to do better every day.

The reason we can do better delivering on our promise to our customers is because today we are profitable. Profitability also enables us to do better on our commitments to our employees, who have gone through dramatic changes dating back to 2001.

After years of cuts for the majority of our employees, we have seen our 21st consecutive month of employment gains and employees are receiving higher salaries, greater profit sharing and better funded retirement accounts.

Profitability encourages investment from our shareholders, which in turn impacts stability. Profitability enables us to make solid business decisions in support of the communities we serve.

That is ALL positive! Nonetheless, in Washington, D.C., and in a number of foreign capitals, commercial aviation is often confused with – and treated as – a utility.

It seems odd to say, but airline profitability seems to bother some people – some customers, some legislators and some regulators, while profitability is applauded in other industries.

U.S. airlines fully understand that we provide a unique and integral service, and that is being a critical element of our economy and the American way of life. That carries responsibility, and should have an appropriate amount of scrutiny.

But, because of the role airlines play connecting our country domestically and internationally we must be a successful industry. We must be able to invest, to innovate and to grow and meet our customers’ needs. And in order to do all of these things we must be profitable.

Because we enable other industries – by transporting their people and their high value goods – plus we enable tourism – we are an economic engine driving the overall U.S. economy.

Financial viability and sustainability is good for consumers, employees, investors, and economic development – we create jobs and aggressively reinvest back into our products and people.

For the first six months of 2015, the 10 publicly traded U.S. passenger airlines collectively made $8.5 billion in capital expenditures. That translated to just shy of $23 per enplaned passenger.

When A4A announces third quarter results tomorrow, we expect to see another solid performance.

As A4A lobbies for a strong, vibrant US airline industry, I’m often asked: what is it you want the government to do?

Which is great because I have a list.

Actually, I’ve been in D.C. long enough to know that THAT list is never going to happen.

So, more simply, my answer is:

We want Congress and the Administration to allow us to do our job. We want Congress and the Administration to do their jobs. And in some cases, in many cases, it means we need Congress and the Administration to do nothing.

Do not actively work to harm us in the form of higher taxes and needless regulation. Let us operate, responsibly, as the publicly traded businesses we are. Take their version of the doctor’s oath: first, do no harm.

Many Members of Congress say it’s too easy to misuse our industry and our customers.

We are too good at doing their job as a tax collector for the federal government.

It is unconscionable that taxes on passengers and airlines have SKYROCKETED BY 400 PERCENT since 1990. The amount of aviation taxes paid by passengers and airlines went from $3.7billion in 1990 to over $20 billion in 2014. Currently, travelers pay $63 in federal taxes, or 21 percent of a $300 one-stop, round-trip domestic ticket.

Yet, Congress and the Administration keep coming back to airlines and their customers simply because this country has to fly to function. They are strangling the golden goose, using revenues from airline passengers to pay for everything from the highway bill to funding a municipal police budget.

Take the Highway Bill, which can’t be funded through its nearly bankrupt Trust Fund. So, airline passengers might be on the hook.

A provision in the Senate-approved highway bill diverts funds that airline passengers paid under the assumption it was for their security and protection! Using TSA and Customs and Border Protection fees to replenish the Highway Trust Fund is a disgrace.

In total, the highway bill takes $9.2 billion air travelers and others pay – and diverts it to roads and other surface transportation projects.

How is it possibly ok for our own government to pull the ultimate bait and switch?

How about people in cars, on roads, crossing bridges to get into the country?

AND IT GETS WORSE!

Local communities take the Senate’s action as carte blanche to try the same.

Take Chicago, for example. There, an alderman wants to charge a $1 “security fee” to the 100 million people who pass through O’Hare and Midway every year to pay for hiring… more Chicago police officers.

The alderman proposing the resolution was quoted as saying: “We need to think outside the box. If the federal government can take airline revenue to pave highways, the city of Chicago should be able to take airline revenue to save lives (in Chicago).”

Let me be clear: we support highways and police officers. But certainly the flying public should not have to foot the bill.

I want to close out on a positive note – Congress does have a unique opportunity with the FAA reauthorization bill to do something really meaningful. Starting with a bill that does not require 23 extensions, and hopefully ending with a reformed Air Traffic Control system.

We have the safest aviation operations in the world. The U.S. should be leading the world not only in safety, but also with the most modern and efficient ATC system.

This year’s FAA reauthorization effort offers an opportunity to write a truly transformational bill that must include a path to a more modern, efficient ATC system for the U.S.

Frankly, we need an ATC system that separates safety operations from other air traffic functions and will allow the FAA to focus just on its most important mission, ensuring the safety of our airspace.

Research and modeling on other countries that have modernized their ATC systems – like the UK, Germany and Canada – run by John Crichton – demonstrate that we can both consolidate facilities and achieve efficiencies and improve safety.

Funding and governance of the FAA will make it impossible for it to achieve the progress necessary.

Anyone who tells you it is operating as well as it should is kidding themselves or kidding you. Daily, the facts do not bear out that conclusion. And anyone who has ever sat on the tarmac or circled in the airspace because of congestion understands that.

In September, A4A hosted our third annual Commercial Aviation Industry Summit, and we talked about the need for ATC reform. While we have yet to see what’s proposed, making it difficult for stakeholders to say what they could endorse, we had unanimity among those speaking on the topic at our Summit. That is: we can do better, and the status quo is not good enough.

A4A has a recommendation that we believe will continue to put safety first. It’s always our highest priority. That is to create a federally chartered, non-profit corporation, operating independently outside the government.

We are committed to working with Congress and the Administration to reach an FAA bill that accomplishes this end.

We are committed to continuing to focus on doing our job do better.

And we would ask the same of the government.

INTRODUCTION
Thank you, Ken, and all of the Board of the International Aviation Club for the opportunity to address you today. It’s great to see so many familiar faces from across our industry and to be in Washington. I’ve been spending a tremendous amount of time here in recent months with so many pressing issues – whether it’s ATC reform, excessive taxation, PFCs, Open Skies…the list goes on and on.

Before I dive into some of these areas, let me first share a bit about JetBlue—how we started, where we are today, and what we wish to accomplish in the future. The JetBlue story is all about people. And before I start, let me recognize, with great pride, the JetBlue Crew members in the audience who make our airline the success it is today.

JETBLUE TODAY – A CHANGED INDUSTRY

This year marks a special milestone for JetBlue. It’s the 15th anniversary of our first low-fare flight— Flight 1 from Kennedy Airport to Fort Lauderdale. Over these 15 years here in the US, JetBlue has grown up and made a place for itself in a fiercely competitive industry, against a backdrop of incredible change both domestically and abroad.

Here in the US, countless airline brands have disappeared through bankruptcy, shutdown, or consolidation – icons like TWA, Continental and Northwest, upstarts like America West and AirTran, and before that, Eastern, Pan Am and Braniff. It’s been almost Darwinian – survival of the fittest – and JetBlue emerged not only a survivor but a winner. In just 15 years, we’ve gone from start-up known as ‘JetWho?’ to a Fortune 500 company with a brand recognized globally and hundreds of customer service accolades under our belt.

The airline shakeout of the past decade has had a profound effect on the structure of the US industry. We now only have three hub-and-spoke mega-carriers; Southwest following its acquisition of AirTran; and a handful of other low cost competitors like JetBlue and Alaska.

The three big legacy airlines combine to control about 60% of the US market nationwide – which results in even higher concentration in some cities. Add in Southwest and that figure jumps to 80%. JetBlue, by contrast, is just a 5% player. Yet as an innovator and a market disruptor, JetBlue plays a critical role in ensuring the US airline industry remains competitive despite the consolidation of market share and market power in the hands of just four big players.

Since 2000, JetBlue has created more than 18,000 jobs across our network. This year alone, we’ll add more than 2,000 new jobs. This past spring, we were recognized by Forbes as one of the Top 20 Best Places to Work in America. Our crew members’ engagement, passion, and focus on our customers sets JetBlue apart from competitors and explains the success of our unique model.

While I’m here, I do want to clear up a bit of a misconception about JetBlue that I often hear. Many people still think of JetBlue as the airline you take from the Northeast to Florida. While that remains an important part of our network, JetBlue has rapidly evolved over the past decade and is today a leading international airline. Our model has always been about entering markets where the incumbents charge high fares, offer poor service, or both, and then stimulating traffic with affordable prices and best-in-class service. We discovered that a lot of international markets fit this bill perfectly.

In fact, we now fly to 20 nations across North, South and Central America. Last week we announced plans to add our 21st country, Ecuador, and we also launched service to Mexico City. Caribbean and Latin American flying now represents about one-third of our route system. So, as you can see, we’ve come a long way since Flight #1 to Fort Lauderdale.

OPEN SKIES

JetBlue’s successful international growth has been enabled in large part by Open Skies, the aviation policy pioneered by the United States. The access Open Skies affords JetBlue to international markets – both directly and through our 44 codeshare and interline agreements – has been a boon to our ability to expand and create those 18,000 jobs both here and abroad. It’s also been a critical tool for us to be able to compete against the mega-carriers I mentioned earlier.

Like other small airlines who have a big stake in preserving America’s Open Skies policy, we’ve spent an awful lot of time this year countering the barrage of rhetoric and misinformation our legacy competitors have been trying to advance as they take aim at the Middle East airlines.

We don’t speak for the Gulf carriers who have responded in great detail to these allegations, but nations around the world have long taken steps to support their industry in different ways. For example, here in the US, the airline industry has received tens of billions of dollars in assistance through things like the Fly America Act, Chapter 11 protection, the Air Transportation Safety and Stabilization Act, tax credits, incentives for flights to cities and to move jobs, and also to open maintenance hangars, to name just a few. If you pore through the legacy carriers’ filings with a critical eye, it’s clear many of their arguments against the Gulf carriers don’t pass the straight face test.

What is indisputable is that legacies have failed to prove that they’ve suffered harm, much less that there’s been any breach of our Open Skies agreements with the UAE and Qatar. That’s why you hear so many people, so many travel and consumer organizations, and so many US passenger and cargo airlines and their employees challenging the legacy opinion, saying ‘this just doesn’t add up!’

Open Skies works because countries abide by their commitments and refrain from restricting airline traffic. Open Skies creates a balance of opportunities and encourages competition; it does not guarantee each side a set cut of the benefits.

What the legacy airlines are asking for would give other countries the green light to come here, open consultations with us, and seek to throttle the growth of US airlines to protect the market share of their flag carriers. It could also have a profound effect on the ability of US cargo carriers to compete as countries would seek to amend agreements to favor their national airlines.

I am convinced that the risk is significant – many of the US Open Skies agreements could start to unravel.

For younger, pro-customer airlines like JetBlue who are still growing and rely on these treaties to expand, that sort of risk is unacceptable.

Part of me wonders when the Big Three says they favor Open Skies whether it’s really true. Surely now they have all they need, their interests are best served in rolling up the drawbridge and going back to a more protectionist era of high fares and limited choice.

The administration now faces a choice: it can choose to go back on its Open Skies commitments and protect the legacy airlines from the competition of the Gulf carriers; or it can stand with US consumers, businesses and cities across the country, as well as the passenger and cargo airlines in our coalition that depend on our network of Open Skies agreements to help them grow. Our airlines rely on these Open Skies agreements to grow US jobs, despite assertions to the contrary that Open Skies flying kills US jobs.

JOINT VENTURES

We believe the real motive for the legacy carriers’ assault is about maintaining their significant share of the US market, together with their European joint venture partners, by limiting new entrants and new competition.

US airlines have almost completely ignored the fast growing regions of the world that the Gulf carriers serve. The only overlap with the US carriers consists of precisely two nonstop city-pairs: Washington to Dubai and New York to Milan, both of which are JetBlue codeshare routes, by the way.

That Milan service, a so-called fifth freedom route, sometimes seems to be the biggest bone of contention among the legacies, and it’s rather odd when you consider that fifth freedom flying is commonplace across the globe. The legacy carriers conveniently ignore the fact that US airlines have long operated fifth-freedom hubs at Tokyo Narita. It really boggles the mind how a single route from Milan to New York – which has grown the market and stimulated traffic on US carriers flying the route, as well – is being mischaracterized as the downfall of an entire industry. As envisioned by Open Skies, fifth-freedom service has expanded the number of flights, improved the quality of service, and lowered fares.
Long before this JFK-Milan route was in the spotlight, you could fly:

– A US airline from either Tokyo to Seoul or from Amsterdam to Bombay,
– A Hong Kong airline from New York to Vancouver,
– A Canadian airline from Santiago to Buenos Aires,
– An Egyptian carrier from Bangkok to Kuala Lumpur,
– A Kuwaiti airline from New York to London,
– An Indian airline from New York to Paris,
– A German airline from Singapore to Jakarta

The point is, this is not something as sneaky as it has been made out to be.

And of course let’s not forget how critical fifth-freedom rights are for our cargo airlines to ply their global
trade.

What’s clear is that grants of antitrust immunity, coupled with metal-neutrality, have created a perverse incentive for the legacies to prop up flying by their European partners. If, for example, Lufthansa and Air France lose revenue on their flights due to competition from the Gulf carriers, their US legacy partners will suffer financial consequences under their metal-neutral JVs. Those Lufthansa and Air France flights, of course, are not employing US pilots and flight attendants.

Still, defending the market share of European alliance partners appears to be driving the legacies’ campaign against the Gulf airlines. One must ask, however, whether it should be the goal of US aviation policy to prop up the revenues of foreign airlines and especially if this is done at the cost of denying American consumers a competitive choice. Surely, the answer is a resounding “no.”

So – since the US carriers and Gulf carriers compete directly on only two routes and since we really can’t believe that Milan to New York is really the principal concern – we believe the campaign against the Gulf carriers is ultimately about the legacies’ concern regarding their European joint venture partners.

The three largest US airlines each have multiple grants of antitrust immunity with overseas partners. It’s a tremendous benefit for them that’s predicated on the existence of Open Skies agreements between the US and the other airlines’ home nations.

People who in the past might have flown American or Delta to Europe and onward with British Airways or Air France to Africa or Asia might now fly JetBlue and Emirates instead. Why shouldn’t consumers have that choice?

Joint ventures have given three already dominant US airlines even greater scale and control in some of the most lucrative international markets, such as New York to Paris or LA to London. If you take a quick look at the North Atlantic market, it may look as if a dozen airlines provide service. But when you go under the surface, it’s really just three big mega-alliances controlling 87% of the traffic. Of top 30 US – Europe routes, over half have 100% of its seats operated by joint venture carriers.

Consumers effectively have very little choice in markets where JVs have a stranglehold – and they also face higher fares. That runs afoul of everything JetBlue has stood for during the past 15 years. We’re talking about European airlines, but don’t be fooled. There is not a consensus on this debate in Europe, either. To quote our counterparts at British Airways and Iberia, “It is a matter of grave concern to see protectionism raising its ugly head at the first sign of effective competition from the Gulf countries.”

We don’t object to joint ventures or antitrust immunity grants, provided they are producing the consumer benefits the airlines claimed they would. The problem is that today there are no checks and balances to ensure promises made are promises kept. When DOT grants immunity for carriers, it does not revisit the matter – that really needs to change.

We’ve asked DOT to begin conducting periodic reviews of immunized joint ventures every 3 to 5 years.

We think this is a fair and reasonable request, one that is consistent with the statutory framework for antitrust immunity and clearly in the public interest. Airlines tout the benefits of their joint ventures in their applications for antitrust immunity, so we’re simply asking that the government hold them to those promises. This already happens in places like Australia where regular reviews are mandated by the government – and airlines have found a way to operate under this regime.

ACCESS TO OPPORTUNITIES

Whether it’s Open Skies or joint ventures, the big issue we’re talking about here is competition. The challenge for our industry and the government is how we create the kind of environment where all airlines – and, in particular, smaller carriers and new entrants – can thrive.

With the concentration of power I talked about earlier, both domestically through the past decade’s consolidation and internationally through the growth of immunized joint ventures, it makes it awfully hard for smaller carriers like JetBlue to compete.

As we’ve acquired slots in congested airports over the years through divestitures and investments – which has not been easy – we’ve been able to expand markets and lower fares. That’s very good news for airports and consumers. Younger airlines like JetBlue need this kind of access to slot-controlled airports in order to gain a foothold and compete effectively in an industry now so heavily concentrated in the hands of deep-pocketed mega-carriers. We have fought for access, paid for it when we’ve had to, and always delivered proven results in the way of low fares and public benefit.

We see this playing out on the domestic front but also internationally in places where alliance carriers have a grip on airport slots and facilities. For instance, just last week we began service to Mexico City, an important destination we’ve wanted to serve for many years.

We encountered significant barriers to entry both in securing commercially viable takeoff and landing slots and the real estate needed to support our operation. Meanwhile, Aeromexico and Delta have asked authorities to approve and immunize a trans-border joint venture that would only increase their already dominant presence in Mexico City. We’ve objected to this proposal and asked the DOT to address these barriers to entry before any grant of immunity. As we shared with the DOT, the process for securing slots at Mexico City is opaque, confusing, politicized and extremely difficult for new entrants.

We believe that when the government considers any application for an immunized alliance, like the Aeromexico-Delta deal, it should focus on the ability of new entrant and low cost carriers to access slots and gates at constrained airports. The barriers for new entrants have long been too high, and many of these airlines have been rebuffed in their efforts.

One other note on the point of access:

As the US aviation landscape has evolved and consolidated through mergers and bankruptcies, the government must also evolve in how it interacts and views the industry. For instance, when limited foreign route authorities are being allocated, smaller carriers like JetBlue need to have a fair and equal shot at gaining access to new markets.

Historically, route authorities have been directed toward airlines that offer big network connectivity. In places where Open Skies doesn’t exist, we’d like to see a bias toward helping more consumer-friendly airlines offering lower fares and great customer service, so the international marketplace can be developed and opened to genuine competition instead of merely making the few big carriers even bigger.

WASHINGTON

As you can see, there is no shortage of issues we’re tracking on the international front. Here in Washington, the story is much the same. When you think about commercial aviation, it’s truly an economic engine of the United States, with more
than 8% of all jobs attributable to the sector. If there was ever an industry that deserves bipartisan support, this is it.

Investment in infrastructure is a big theme for JetBlue. We’re not just thinking about the airlines – we’re thinking about high speed rail to reduce congestion in places like the Northeast Corridor; roadway access improvements to help people get to airports more easily; and a focus on intermodal connections. On this point, I would like to commend the leadership of Orlando International Airport who have demonstrated a great vision for their region in their South Terminal development project.

Of all the issues on the Hill, the one we think deserves the most focus is the modernization of our air traffic control system and ATC reform in general. As a country, we have not done a very good job of prioritizing investment in ATC, which although very safe, is still a World War II-era ground-based system. Our air traffic controllers do a terrific job safely
managing the volume of traffic in our skies, but the reality is our country’s aviation infrastructure is
outdated and in dire need of modernization.

And our FAA leadership has done as much as they can within the current system, as they face unpredictable funding. JetBlue has been a supporter of the FAA’s NextGen program from the get-go. We have not only provided people and expertise to advancing the issue but we’ve also made significant investments in our fleet to be able to reap the benefits of NextGen.

We’ve seen real benefits from NextGen, but we need more alignment in this important transformation. We also need to direct infrastructure improvements into the regions of the country where they’ll produce the most benefits, like the Northeast Corridor. The pace of change really needs to accelerate, especially in New York, which is the busiest air travel market in the country and has the most to gain from NextGen improvements.

Aside from modernization, our industry is almost unanimously aligned in supporting efforts to separate the FAA’s air traffic control function into a self-funded, government-chartered non-profit entity. We already have the safest skies in the world but this model, which has proven to work very well in places like

Canada, could help us be more efficient and enhance safety even further through longer-term investments in technology. These projects are much easier to fund in the capital markets than on Capitol Hill.

The United States is essentially the only advanced nation where you find the same agency regulating safety and operating the ATC function. At JetBlue, we’re concerned that if we don’t take the opportunity now to invest and align our efforts in supporting air traffic control, it could be another decade – or more – before we have another chance. And by then, we could be in real ATC crisis mode.

We think our first-rate air traffic controllers – who are America’s aviation safety professionals – deserve the security of consistent funding, so they’re not subject to congressional budget cycles. I really want to thank the NATCA leadership for their willingness to listen to new ideas.

We plan to continue to meet with members of Congress to advance this effort during the coming weeks and months so that we get a truly transformational FAA bill. Hats off to Chairman Shuster for bravely looking ahead, across party lines, to benefit the air traffic control professionals and air travelers alike with a means to secure the long-term investment, stability and increased safety that we all strive for.

CLOSE

JetBlue has always been a contrarian airline – a disruptor, if you will – and we’ve often taken a different view than other airlines. After the past decade of consolidation, there are some fundamental questions we need to address as an industry and a nation, and I’ve touched on just a few of those today. For JetBlue, it comes down to ensuring that smaller airlines have the opportunity to continue to be force for good in this industry – whether that’s Open Skies, airport access, joint ventures, foreign route authorities, or a truly competitive landscape. We think this is ultimately going to require a different approach here in Washington to ensure a policy framework that reflects the overwhelming consolidation
of power in our industry that now exists with the US mega-carriers.

Thank you again for having me here today. It was a pleasure speaking with you and sharing a bit about JetBlue and how we’re thinking about the landscape.

As Prepared for Delivery
As ALPA’s 10th president, I feel deeply honored to have been democratically elected by our members to lead our union on their behalf. Thank you for inviting me here today.

It’s a real pleasure.

It is tempting to make assumptions; to leave accepted truths untested. Orville Wright said that “If we worked on the assumption that what is accepted as true really is true, then there would be little hope for advance.”  

Let me give you an example of what I mean. Some of you may know that I am a former Navy Reserve F/A‐18 Strike Fighter Squadron commanding officer. Pilots like to talk with their hands. There’s a story about a Navy pilot telling his skipper about a dogfight.

Personal Story

On this day in 1927, Charles Lindbergh took off from Roosevelt Field on Long Island to make the world’s first solo nonstop transatlantic flight. On this date in 1932, Amelia Earhart took off from Newfoundland to begin the world’s first solo nonstop transatlantic flight by a female pilot.  

These intrepid pilots did not make assumptions or rest on accepted truths. They asked questions, assessed the facts, and pushed the boundaries of what was thought possible to take action.  

ALPA was founded in this same pioneering era. We are dedicated to the advancement of safety in our industry. In fact, we are the world’s largest nongovernmental aviation safety organization. ALPA has played a role in nearly every significant safety improvement in the airline industry. In every aspect of safety, pilot assistance, and security, ALPA’s expertise and experience has helped move our industry forward for more than 80 years. 
 
The safety record in the North American airline industry is a direct reflection of the intensive education, exhaustive training, and proven experience that are part and parcel of the airline piloting profession, regardless of whether a pilot flies passengers or freight.  

While some assume it is easy, airline pilots show their mettle every day with spirit and resilience. But our success, and that of our industry, hinges on putting safety first. In the upcoming Federal Aviation Administration reauthorization, the focus needs to fall without distraction on maintaining and enhancing safety.  

Some are calling for shorter timelines, reduced oversight, and rolling back safety standards for first officer qualifications and preventing pilot fatigue.  

Let me be clear. And this is your captain speaking. If our industry is to safeguard passengers, air cargo shippers, and flight crews, we cannot tolerate anything less than the highest possible safety standards.

To this end, ALPA is calling for a clean, on‐time FAA reauthorization bill. It must not contain the kinds of extraneous measures that have delayed the bill’s passage in the past.  

By passing a clean bill, Congress will provide the FAA with the dedicated, stable funding necessary to both fulfill its mandate and also move ahead with its vital work to enhance safety and system efficiency as well as modernization programs such as NextGen.  

ALPA believes that a safe, efficient, and effective air traffic control system is essential to meeting our nation’s future air transportation needs. With that in mind, ALPA’s leaders recently updated our policy with regard to the U.S. air traffic control system, making it clear that it should be not‐for‐profit and funded to ensure that reliable, predictable, and sufficient long‐term funding sets the stage for continued modernization. The governance of the air traffic control system should be structured to ensure that key stakeholders––and the ultimate users of the system––such as ALPA and NATCA have a role in setting strategic direction and oversight.  

In addition, any change in how the air traffic control system is managed must safeguard the employer‐employee relationship that has been instrumental to advancing the highest standards of safety in air transportation. At ALPA, we work to keep America flying safely, but we also want to keep it flying fairly.

While it is true that ALPA is looking for ways to neutralize competition among airlines in the areas of safety, training, and security, let me put to rest, once and for all, the wrong assumption, that ALPA is anti‐competitive. Because the pilots’ seniority system determines so much about our work life and career, we are often linked with our companies for the long haul.  

Accordingly, pilots are the ultimate long‐term investors in our companies, and we have a vested interest in ensuring that our airlines are strong competitors on the world stage. We want our companies to compete and succeed because we want to compete and succeed. But the competition must be fair. In the past, unions have been subject to stereotype. Today, I challenge each of you to look to ALPA’s work on behalf of this industry. Our discipline of following the facts and resisting rhetoric is our hallmark as advocates for our industry and our profession as well as for aviation safety and security.  

Last year, the JetBlue pilots recognized the value of ALPA membership. We are proud to have them aboard. Virgin America pilots began voting a week ago. The election results will be final on June 4. The Virgin America pilots are driving this effort themselves, and I am hopeful that they will join ALPA next month.

Those of us in this room are among the architects of the future of the U.S. and global airline industry. At ALPA, we take seriously our responsibility to look to the future on behalf of our members. We look for opportunities to inoculate against potential threats, to advance positive change that may not yield results now, but will pay off in the long
run, creating a stronger industry.

To this end, we are a member of the Partnership for Open & Fair Skies. Partnership members American Airlines, Delta Air Lines, and United Airlines undertook an extensive search for information about subsidies that Emirates Airline, Qatar Airways, and Etihad Airways receive from their governments.   These U.S. airlines obtained hundreds of pages of financial statements and other records from corporate registries in various countries where the Gulf carriers have local operations. These documents—although not included in their annual reports—were completed by the companies’ own auditors and filed with authorities around the world. The facts were conclusive and credible: since 2004 these airlines have received $42 billion in quantifiable subsidies and other unfair benefits from their respective governments. These subsidies, as defined by international standards accepted by 160 countries, are ongoing, while these same airlines are expanding service to the United States. 

The documents leave no doubt that Qatar and the United Arab Emirates are unfairly subsidizing their state‐owned airlines in breach of their air service agreements with the United States. As a result, our U.S. airlines are not competing with these foreign airlines—we are competing with the treasuries of very wealthy nations. In a competitive global marketplace, these subsidies mean business—literally. An economic study released last week shows that these subsidized airlines are diverting passengers from U.S. airlines, not stimulating new passenger demand. As a result, these subsidies cause immediate and foreseeable harm to U.S. airlines and threaten U.S. pilots’ and other airline workers’ jobs.  
It is time that these three Gulf carriers commit to doing business transparently and explain these numbers.  

ALPA isn’t anti‐Open Skies, but the agreements with UAE and Qatar require that the parties provide their airlines with a fair and equal opportunity to compete. The United States should support this provision.

A deal is a deal.  

The administration should respond quickly and open consultations with these two governments to get the facts about their airlines’ finances. We also request that the U.S. government seek a freeze on current passenger service by these carriers while consultations are under way.

The partnership is just one example of how ALPA members are working with their employers. U.S. airlines and their workers need our government alongside them in the fight for a strong U.S. airline industry—and in the fight to ensure fair competition in the global marketplace.

On a similar subject, we share the growing concern in Europe about what they call “atypical employment models” and the serious consequences they hold for fair competition and for workers who count on doing business in a free market. The European Commission recently sponsored a study by the University of Ghent on atypical employment models. Its independent findings show that, among recently hired pilots, the standard business model of direct employment with an airline is frequently being replaced.  

The report shows the increasing use of new employment models, such as hiring workers through employment agencies or requiring pilots to create their own companies that then rent themselves out to the airline.   These atypical business models dramatically undermine pilots’ ability to organize and to negotiate terms and conditions of employment. In addition, they raise serious safety questions when the pilot can no longer go directly to his or her employer with safety concerns. If allowed to cross the Atlantic, they would ultimately erode the labor standards that have contributed to the success of the North American airline industry.

In addition, the study found that European airlines are increasingly participating in so‐ called “forum shopping,” a practice in which companies seek to do business in countries other than their own in the pursuit of advantageous laws and regulations. The practice exposes and raises questions about safety, social security, and taxes, in addition to labor standards.

One reason it is a concern is that we know what can happen—consider how the “flag of convenience” business practice has affected the U.S. maritime industry. The practice allows a company to register merchant ships in a foreign state to avoid its own country’s regulations, taxes, and labor costs.   

Because of this harmful practice, roughly 80 percent of the world fleet is operating under a flag of convenience, and the number of jobs for seafarers in the United States plummeted from more than 100,000 in 1960 to just 2,500 in 2012. If flag‐of‐convenience practices or atypical business models were allowed to spread to the airline industry, the outcome would drastically change the competitive landscape on which U.S. airlines do business. U.S. airlines would be under pressure to do business in the same way, risking our industry and our workers’ jobs.

As I mentioned earlier, ALPA has been a vital part of the global airline industry for more than 80 years. That includes our participation through the International Federation of Air Line Pilots’ Associations, or IFALPA, in the International Civil Aviation Organization, or ICAO. Founded in 1947, ICAO’s mission covers two major activity areas. The first involves rules and regulations on aviation matters such as training and licensing, airworthiness, weather, and maps—in short, safety and security procedures that require coordination on a worldwide scale. The second activity centers on the practical application of these rules and regulations.

Recently, ICAO has embarked on an ambitious new sphere of influence: attempting to play a substantial role in economic regulation of the world’s airlines. It is developing a multilateral air services agreement and a multilateral investment convention. Clearly, these issues are not within the past scope of ICAO’s mission. It is important that ICAO remain focused on the core subjects of safety, security, and the environment—treading very carefully, if at all, in this new arena. 

Since the beginning of the airline industry, countries have maintained ownership andcontrol of their airlines and expected other countries to do the same.  In this new territory, ICAO has been proposing that the designation standard would be merely where the airline has its principle place of business. What is a “principle place of business?” Its definition is not clear, and it raises serious concerns because our past experience and seeing what is happening in Europe make us more committed than evermto preventing forum shopping. Any agreement in the future would need to include a robust and enforceable labor provision. It would also need a strong equal‐opportunity‐to‐compete clause to ensure that U.S. airlines and their workers have a fair opportunity internationally.

On another international air services agreement subject, we believe that the U.S.‐China air services arrangement has been beneficial to the U.S. airline industry, to consumers, and to employees. Historically, the two sides have added frequencies and additional opportunities for service based on market development. The new visa rules have helped
attract visitors. We encourage the two sides—who are meeting here in Washington this week (and who have joined us here today)—to continue to provide route and frequency opportunities so that airlines can respond to commercial developments.

The Export‐Import Bank’s reauthorization effort currently under way in Congress creates another opportunity to ensure that U.S. airlines and their employees have a fair opportunity to compete internationally. It is truly outrageous that the U.S. government continues to give lending assistance to state‐owned, state‐supported, and creditworthy foreign airlines that then use their U.S. taxpayer‐financed airplanes to compete against U.S. airlines and their employees on international routes. The bank’s mission makes it clear that its purpose is to serve as a lender of last resort. ALPA supports this mission. And Congress must reinforce it in no uncertain terms.

On this date in 1570, the first modern atlas was published. Its cartographer—Abraham Ortelius—was believed to be the first person to have considered that the continents were once joined together. Centuries before Lindbergh and Earhart, he rejected the assumption that what was accepted as true, really was true. While the atlas was an achievement, history tells us that he also united other cartographers around a common approach to charting the world. He argued that, by working from a common understanding, they would be more effective. That principle is embodied in ALPA’s approach to our industry’s challenges.

In closing, it is tempting to make assumptions, to leave accepted truths untested. But the commitment to work in collaboration and to delve deeper into the facts defines ALPA’s every action when it comes to making our industry safer, more secure, and more competitive.

Thank you.

Ladies and Gentlemen,

I am honored to be here today at the invitation of this prestigious club to share with you my views on the relevance of airline alliances and how they fit into the greater scheme of global economic relationships.

Without a doubt, the civil aviation industry plays an instrumental role in how we live together as nations, how we learn from each other and how we communicate and trade with each other across the globe.

While airline alliances are a relatively new concept, they have repeatedly and consistently proven their worth in supporting and enhancing this role of aviation in the world economy.

Star Alliance, created a little more than 16 years ago as the world’s first global airline alliance, has always been at the forefront of this development. We lead the pack – as we have from the beginning – and our strategy is to maintain this position.

I am well aware that a couple of your previous speakers have aired a different opinion on this: so let me take this opportunity to set a few records straight.

I would like to spend the next few minutes reporting on what customers expect from alliances, looking at the way competitors see us and reflecting a little on the role of governments and regulators.

Or, to put it another way, I want to explain why alliances have been good for the industry for the last 16 years – and why they will be good for our industry for many years to come.

I would like to begin by touching on the unfortunate and tragic incident which occurred just a few weeks ago in San Francisco. As an audience close to our business, you will understand that I am not going to make any comments on the event itself. This complex and difficult situation, however, was a real-life demonstration of one of the many hidden values that are in the very DNA of our alliance.

Without a moment’s hesitation, our member airline United shifted into high gear and activated its own crisis and humanitarian relief procedures to help another Star Alliance member carrier. Trained and well prepared volunteers from several member airlines worked around the clock, together with the team dispatched from Seoul, to look after those who had been affected directly or indirectly.

This close and immediate cooperation in San Francisco demonstrated quite prominently that our airlines can rely on each other, especially in times of crisis. The alliance framework allows us all to make best use of globally spread resources and gives access to a wealth of expertise. In moments such as these, everyone can understand why we so often refer to our alliance as “the Star Alliance family”.

This same spirit of cooperation underpins our Alliance in less publicly visible ways. We have created a unique set of standards for quality and consistency among the members, not only for the quick and professional response to unforeseen situations, but also in many areas such as passenger service, data exchange, IT standardization and back-office functionality. In our day-to-day business, these standards are instrumental in ensuring that our passengers continue to rate our alliance service offerings better than those of our competitors.

When I took on this role one and a half years ago, I wanted to get a fresh and unbiased understanding of what our customers really expect from airline alliances. While we regularly engage in customer satisfaction surveys, we had not run a comprehensive study for a couple of years.

In our definition, the “alliance customer” travels relatively often to several different destinations – and flies regularly with more than one member airline, not just his or her own “home carrier”.

The results of the study were quite interesting and, even running the risk that it might save our competitors some money (!), I would like to share them with you. In summary, we found that:

1. Alliance customers know exactly what alliances can do for them. Possibly even more importantly, they also know very well what alliances cannot solve.

2. Despite the changes in our industry, more competition from outside alliances and from low-cost competitors, the basic requirements of today’s alliance customers have not dramatically changed from the founding days, in 1997.
In short, they want: Global reach, worldwide recognition and seamless service. Let’s look at each of the three for a moment:

“Global reach”:

Overall, the Star Alliance network offers more than 21,900 daily flights. In other words: Every two seconds one of our airplanes is taking off or landing at one of the 1,328 airports we serve in 195 countries.

This represents the most comprehensive network that airlines can offer you. No matter where you want to go, be it Kobe in Japan or Lugano in Switzerland, Hamilton in New Zealand or Bakersfield, California, our Alliance will take you there.

Put more simply: As Jeff Smisek once said, “If we do not fly there, you probably don’t want to go there anyway.”

Every single day 43 thousand passengers are connecting between our member airlines. To fly these passengers alone you would need almost 300 medium haul jets. These are powerful numbers, which in themselves explain the strength of global aviation networks and the business benefits they create for the participating airlines.

When my colleague, former Star Alliance CEO and now Austrian Airlines chief, Jaan Albrecht, spoke to this esteemed club almost exactly 10 years ago, Star Alliance comprised only half as many airlines, flew to half as many destinations and operated only half as many flights.

10 years later, we have doubled our size and reach.

And, let’s not forget, our competitors grew their businesses as well.

The developments illustrate that there was definitely something in that idea generated by Star Alliance’s founding fathers, namely that no airline alone will ever have the economic power to develop a truly global presence.

Alliances were created to contribute to the economic success of its members beyond their individual capabilities.

That concept has not changed at all.

Indeed today, two thirds of world aviation is organized within alliances.

What has changed is the competitive environment. Alliances need to be conscious of these developments and must be willing and able to adapt their strategies accordingly.

The industry situation is far more fluid than it was 10 years ago. Consolidation makes members shift from one alliance to another, and new competitors are creating, and serving, changing market demands.

In this context, allow me to comment on members switching alliances.

Without preempting any decision by the regulatory authorities on both sides of the Atlantic, we truly regret that US Airways as a consequence of its highly likely merger will leave our alliance and will, as part of the new, larger entity, be a member of a competing alliance.

US Airways has been a strong and loyal alliance player and has contributed tremendously to the leadership that our alliance has been able to play in this part of the world. My respect goes to the US Airways management team; there is a lot of work ahead of them and assuming that the merger gets approved, we wish them well.

As much as we regret the departure, realistically, at the same time we acknowledge, it is good for competition and it is good for the industry as a whole.

In fact, the same is true for the merger of our Brazilian member TAM and the Chilean airline LAN in South America.

We strongly believe that fair competition among alliances of strong, high quality airlines, running sustainable businesses, is in the best interest of both global and national economies. It is good for jobs, it is good for investors and it is good for our passengers as well.

It may be useful to note at this point that, a year from now, even after these changes in Alliance composition, Star Alliance will maintain its leadership position in the industry with a 23% global market share. That compares with the roughly 19% share that each of the two competing alliances will secure in the future.

And these market shares far exceed any figure that those airlines that publicly pride themselves on being “Global Airlines” will likely be able to achieve on their own.

I will come back to that point a little later. Point number two on the customer wish list:

Worldwide recognition

Or as I see this, from my own experience: the power of this little piece of plastic.

Being a valued customer in one of our alliance’s frequent flyer programs brings you highly convenient advantages when you spend as many days on the road each year as I do.

Advantages, like getting priority treatment at airports around the world, using dedicated Check-in counters for premium customers, being first on the stand-by list, spending time at the airport in the frequent flyer lounge, being first to board the airplane and finally seeing my bag arrive first on the belt after the flight.

Making this happen on a global scale, right the way across our networks, may sound easy. But I can assure you it is not.

All these product elements require considerable investment and process co-ordination across our 28 member airlines. Star

Alliance has learned a lot over the years to make these solutions work!

From my conversations with consumer advocates and frequent international travelers, I know that these benefits, introduced on a global scale, are seen as the most attractive invention that alliances have contributed to modern air travel.

The third customer priority is also one of the largest fields of engagement for my team:
Seamless service

Managing the connection points between separate systems and processes that airlines have developed over many decades is a fascinating challenge. Increasingly we are investing into state-of-the-art hub technology to make the information flow among our members failsafe and easier to administer.

Passengers recognize these behind the scenes enhancements, because they get their boarding passes for all legs of their journey and receive their miles for every portion of their trip.

You all know how annoying it can be if, once in a while, we fail to immediately deliver the alliance service which we promised you – namely that you will connect smoothly and uninterruptedly across our network. In reality, this can only be done through fast and accurate transfer of millions of bits of data between our airline systems.

In another important stream of activities we focus on consistent passenger service on the ground and on the creation and the operation of modern, passenger pleasing airport facilities.

Let me mention two of them:

The new London Heathrow Terminal 2, or to give it its proper name the “Queen’s Terminal”, will become the home of Star
Alliance at Heathrow in 2014. Designed as an alliance terminal, it will accommodate all 23 of our member airlines operating to this important hub. You will find many new features in the airport experience, such as common check-in across many carriers, automated baggage acceptance and boarding facilities. It will be a very welcoming terminal. And for us, it will be a tremendous improvement over what we have today in Heathrow.

A little closer to Washington, another project is worth noting,, namely our new Alliance lounge in the Tom Bradley terminal in Los Angeles, due to open in a matter of months. I hope that you take a look at it when you pass through L.A. next time.

I mention these projects here, not just because of the opportunity to do a little advertising to this high caliber audience, but because I want to make sure that you realize that alliances are not just marketing vehicles allowing airlines to fill more of their seats.

Our alliance has over time learned to create cost efficiencies for its members, not only by operating joint services and joint facilities, but also by buying jet fuel or aircraft seats together or even trading spare parts among themselves.
Already today these activities return over 100 million dollars every year for our members collectively. And driven by economic realities, we will – in my opinion- be seeing more and more of these types of value-adding initiatives within the global alliances.

Ladies and Gentlemen,

In preparing for today’s meeting I used the opportunity to glance through the club’s website in order to get a good understanding of what has been said here in recent months.

And I was happy to see that Alliances have frequently played a prominent role in remarks delivered by your previous speakers.

Some of them, being part of Alliances themselves, praised them as an integral part of their company’s strategies. Others painted a picture as if the days of alliances were over.
I can tell you: the days of alliances are not over. OK, what else would you expect me to say?

But in addition to what I have said earlier about the global strength and role of our alliance, it must also be recognized that over the past 18 months a fair part of the remaining industry has finally woken up to the fact that global aviation development only works in partnerships.

Some of those, who have stood here in front of you, claiming to be able to expand through organic growth, have meanwhile entered into – quote “strategic partnerships in relevant markets” unquote.

Those, who have told you that they plan to significantly grow their networks by taking onboard hundreds of airplanes in just a few years have meanwhile found out that buying cash- seeking airlines around the globe is actually a cheaper way to gain market share.

And those who for many years have claimed to be better off alone, have finally announced their plans to join an alliance in the not too distant future.

Well, to all of these Gentlemen, welcome to the club! Good partners are hard to find.

Fair and mutually beneficial partnerships are hard to maintain. Talking about “fairness”:

I need to echo the concerns that A4A, ALPA and TTD recently voiced with regard to a potential customs preclearance facility on the other side of the world.

Creating competitive advantages for individual foreign entities, just because they are able to pay for it, should not be a top priority for any national government. And being an American, I personally cannot understand why we think about the extension of such services.

On the other hand, the new self-service kiosks we see being deployed at U.S. gateways have the potential to significantly reduce the discouragingly long waiting times, which visitors to our country have been experiencing.

And we need to invest here,because in my frequent contacts with economic leaders around the world I am feeling the impact. Faced with the prospect of losing hours of their precious time standing in line, people tell me that they think twice before planning short trips to meet business partners in our country and that they are definitely avoiding transiting through our hubs on their way to other destinations.

Back to the Gulf:
I can also pre-empt one of your potential questions regarding these carriers and the likelihood of a future Star Alliance membership.

Our members base their decisions on the inclusion of additional airlines on many factors. Safety and Quality play a prime role in each of these decisions, as do the economic benefits that each new member would be able to bring to the family, for instance by contributing an own strong home market.

And here is the point:

We all know quite well what these airlines would gain from a membership in any of the alliances. But what they would bring to the table, we have yet to understand.

I guess that gives you an insight into my personal answer to this question. But over the decades of working in this constantly moving industry I have learned never to say never.

Yes, it is a constantly moving industry and the pace of change seems ever increasing.
Nonetheless, it is the traditional role of the speaker to make his or her predictions as to what the future holds. So here is my vision for the future of our industry:

Firstly, I hope I was able to convince you that strong and flexible airline alliances will have their role to play for the foreseeable future.

Secondly, Airline consolidation will continue, or perhaps I should say, must continue. Our low-margin, capital-intensive business does not leave us any other option than to continue looking for efficiencies through working together as closely as possible. While so far this has happened solely on a regional scale, I am convinced that the development will not stop here. One day, airline consolidation will happen across continents. And let’s be honest, why, for example, shouldn’t Chinese carriers be allowed to team up with European ones or vice-versa?

Why should our industry be treated any differently than the car industry or telecoms? The reasons I hear in favor of different treatment sound less and less convincing, when you put them into a global economic context.
And finally I will not give up hope, that one day Governments will finally stop micromanaging aviation.

Just one example:

The same governments which suggest that we should all standardize baggage rules for interline journeys would reproach us for anti-competitive behavior if we talked about aligning baggage charges.

Don’t get me wrong: Star Alliance will never suggest doing away with strict anti-trust rules. They have served consumers and our industry well.

But we respectfully request that regulators give us a manageable and affordable framework to comply with consumer protection requirements.

By all means, hold us accountable for true self-inflicted quality and service deficiencies. But do not make us pay for the lack of public investment into modern and efficient infrastructure, the short comings of others in the complex service chain or the continued disregard for the urgent need to create a future-oriented aviation policy framework.

Ladies and Gentlemen,
My current office is in Frankfurt. So, please take these remarks as being targeted at the European policy maker in Brussels. Any resemblance to conversations happening in this part of the world is purely coincidental.
And since I will be in Brussels soon, well, you can already guess how I will package my concerns over there.

As an Alliance we normally concentrate on creating value for our over 730 million customers and our 28 member airlines. We normally leave it to others to comment on the greater industry issues.

But, Dave, thanks for the invitation, I enjoy being here. So, let me summarize:
Alliances have proven to be the incubators for close and successful global cooperation in aviation.

We have gained a tremendous wealth of experience in the different corners of our world when it comes to understanding how ideas are created, how decisions are made, how businesses are run.
Alliances are in the meantime strong global brands, appreciated by consumers, helpful to the global economy and as such, worth being fostered.

It is for these reasons, that we have chosen the tag line for our brand: Star Alliance – “The way, the Earth connects”

1
U.S. Department of Transportation
Susan L. Kurland
Assistant Secretary for Aviation and International Affairs International Aviation Club Luncheon
June 26, 2013
Remarks as Prepared for Delivery
Good afternoon, everyone.
I would like to thank Dave and the International Aviation Club for inviting me to speak today. It is always an honor to speak to an audience of my distinguished peers in the international aviation community.
What I would like to do today is to give you an overview of where we have been and where we are today, as we await a new Secretary.
I think we can all agree that we find ourselves in the midst of an exciting time in the global aviation industry. The importance of aviation to the global economy grows more evident every day.
A recent Air Transport Action Group report found that 3.5 percent of the world’s GDP is now attributable to aviation. According to the report, aviation’s global impact is 2.2 trillion dollars in annual output. The industry now supports 56.5 million jobs worldwide, and is forecast to support 82 million jobs by the year 2030.
And as we acknowledge aviation’s economic importance, we are also witnessing significant changes to the industry’s operating environment.
After years of losses, U.S. legacy carriers have implemented structural changes that have returned much of the industry to profitability despite challenging economic times. In the years since the steep rise in oil prices during the summer of 2008 and the global economic recession that followed, the U.S. airline industry has taken steps that have allowed it to operate at a profit in a higher-cost environment. Both legacy carriers and new entrants have adapted to meet changing market realities.
International alliance structures are also undergoing dramatic shifts.
Within the branded global alliances, core groups of airlines have emerged to form integrated joint ventures in large traffic corridors such as the transatlantic market and the U.S.-Japan market. At the same time, some carriers, both in the United States and elsewhere, are taking a different approach by concluding partnerships and joint ventures outside of the strategic alliance structures to position themselves in key markets.

The examples are many, such as:

— Delta’s equity investments in Aeromexico, Gol, and Virgin Atlantic
— JetBlue’s increased focus on foreign partnerships; — the new joint venture between Qantas and Emirates;
— and significant realignments in the alliance structure in Latin America;

These changes reflect evolving approaches in carriers’ strategies as they work to expand their global reach. We, as regulators, will continue to strive for a competitive and thriving global marketplace that benefits all stakeholders. I think we have a solid track record and we should continue to build on what we have already achieved.

Past Accomplishments

Over the past 4 years, the Obama Administration has achieved much success, working together with the aviation industry, in removing barriers to market access and creating the kinds of opportunities that benefit the aviation industry, our economy, and the traveling and shipping public alike.

Our ongoing Open-Skies program, on which DOT and State collaborate closely, for instance, has greatly expanded market access – for the international airline community and consumers – to both mature and developing business markets. Such market access is critical to ensuring the global competitiveness of our industry and to supporting the American economy by facilitating trade and creating jobs.
In 2010, we concluded the second phase of our Open Skies Plus agreement with the European Union.

This Agreement not only secured the benefits of the landmark 2007 Agreement by removing the potentially destabilizing “suspension of rights” provision, but it also provided for greater transparency and strengthened commitments to the ICAO “balanced approach” to noise management at airports in the EU. It also expanded U.S.-EU cooperation in a broad spectrum of other areas.

That same year, we established an Open Skies relationship with Japan, the largest transpacific market for U.S. origin travel. In the years preceding this agreement, the U.S.-Japan passenger market had seen three years of steady decline in volume.

Since implementation of the Agreement, and in spite of the tsunami and economic conditions, we have seen a nearly 4 percent increase in passenger traffic. And new U.S. markets have gained nonstop access to Japan, including Denver, Boston, San Diego, and San Jose.

In 2010, we also achieved Open Skies with our 100th Open Skies partner….Colombia. The U.S.- Colombia Agreement has already helped to bring new services to Fort Lauderdale, Orlando, New York, Atlanta and other cities.

The following year, in 2011, we reached another landmark agreement…this time with the largest Latin American aviation market, Brazil.
Brazil is a success story that is close to home. The U.S.-Brazil Open-Skies agreement, signed during President Obama’s visit to Brazil in March 2011, has allowed for growth in passenger service and new linkages between our countries.

Delta introduced Atlanta – Brasilia service, US Airways added new services between Charlotte and both Rio de Janeiro and Sao Paulo, TAM has introduced new service to Orlando, and several U.S. airlines have added frequencies on existing routes. Although the gradual phase-in of additional capacity began less than two years ago, the new opportunities for U.S. and Brazilian carriers have facilitated a greater-than-10% growth in the passenger market over the last year.

We now stand at 110 Open Skies partners spanning the globe.

The Present

Much of what we are seeing in the marketplace today is the realization of the opportunities provided for in these Agreements.
U.S. carrier networks, as well as those of their foreign counterparts, have become increasingly focused on the global marketplace. For example, in 2000, U.S. legacy carriers earned an average of 25 percent of their revenue from international service. By 2012, this figure had grown to just under 40 percent.

Also, airports that previously served as regional or national hubs have gained access to the global air transportation network through new international services by legacy carriers and low-cost carriers alike. From 2000 to 2012, the number of small and medium airports in the United States with scheduled international service more than doubled – going from 17 to 35.

From the Department’s point of view, these developments directly influence the prism through which we analyze the health and competitiveness of the aviation industry and, in turn, policies to enable its further development. We are continuing to pursue market-opening initiatives to support a comprehensive and efficient air transportation system – particularly with some of our significant aviation partners including China, Russia, South Africa, Vietnam and Mexico.

In Mexico, for instance, we have seized the opportunity of a new Mexican Administration to reengage on the liberalization of our air transportation relations. The market potential is remarkable and would contribute considerably to both American and Mexican economic competitiveness. We have begun government-to-government discussions to determine where we see mutually beneficial areas to advance our common interests.

Meanwhile, as many of you in this room are aware on an individual level, we work on a day-to- day basis to address doing business issues. The success of our efforts is reflected in the fact that few of these issues make it onto the industry radar screen. However, this work is an important and essential part of the DOT mission since the rights we negotiate in our aviation agreements are only as valuable as the ability to exercise them as intended.

Sometimes we cannot resolve problems informally and when that occurs, the Department has tools to seek to redress the issue. Recently, the Department issued a show-cause order tentatively finding that Italy’s airport landing and take-off fees, which are higher for non-EU originating flights – violate the U.S.-EU Air Transport Agreement and warrant remedial action under the International Aviation Fair Competitive Practices Act.

To prompt a resolution of the issue, the Department proposed sanctions against Alitalia. We welcome the news from our Italian counterparts that the issue will be resolved before the end of the year. We are actively monitoring the situation to ensure this occurs.
Looking Ahead

But new challenges remain ahead.

At ICAO, we continue to work with our foreign partners to address the issue of greenhouse gas emissions from international aviation.
The United States Government played a pivotal role in bringing this matter back to ICAO. From the outset we made it clear that the U.S. strongly objected on legal and policy grounds to the EU’s application of the ETS to airlines of non-EU countries. At the same time we were clear that the Administration is fully committed to reducing greenhouse gas emissions, including those from aviation.
As we move closer to the ICAO meetings in September, the US government supports progress on the entire “basket of measures”, including technology, operations, alternative fuels and market-based measures. We also welcome the recent IATA proposal for a single, mandatory market-based measure regime. We appreciate industry’s input and believe this will help us make further progress in the ICAO context.
In APEC, the Department is leading an initiative to develop best practices in the economic treatment of international business aviation operations. The growth of business aviation in the APEC region is significant.

Many Economies in the region are just beginning to consider regulatory approaches to the sector, and so the work we are undertaking, in close cooperation with private industry, will provide for a much-needed foundation of principles on which to build. Our objective is to reach agreement on these best practices in time for the next APEC Transportation Ministerial meeting in Tokyo this September.

Our work in ICAO and APEC are important examples of collaboration between industry and government in identifying challenges and cooperating to find solutions that benefit all stakeholders.

Our efforts in support of aviation are wide ranging and include several areas that you may not have heard about or known about the Department’s involvement.

On the tourism front, the Department has been active in the Tourism Policy Council, which is led by the Department of Commerce and coordinates Administration agency activities together to enhance the United States as a tourist destination. The goal is to attract 100 million international visitors, who will spend 250 billion dollars annually, to the United States by 2021.

The work being done by the State Department to reduce visa issuance bottlenecks abroad goes a long way toward making this goal achievable.

On the trade side, the Department is involved in President Obama’s National Export Initiative, which has a goal of doubling U.S. exports by 2015, and we are already seeing results. U.S. exports of civilian aircraft were up by more than one-third in 2012 from 2011.
Also, seats on airplanes and cargo space on combination and cargo aircraft are exportable commodities. In 2012, the United States exported 39.5 billion dollars in air travel services. These services, in turn, bring in foreign tourists and business travelers that spend money and carry U.S. products to foreign markets.

As part of another initiative, President Obama has directed his Cabinet to strengthen the Administration’s efforts to stop the scourge of human trafficking. Earlier this month, the Department – working with DHS – announced a new partnership with Delta Airlines, Allegiant Airlines, jetBlue, and North American Airlines to train airline personnel on human trafficking indicators and how to report it. This is an important issue for airlines throughout the world, and we are talking with other U.S. airlines to encourage them to join this new partnership.

We at DOT, have trained nearly all 55,000DOT employees at home and abroad to help them identify and report these crimes,
Another Administration-wide initiative in which we at DOT are engaged is the issue of women’s participation in the economy.
Recognizing the potential for significant economic growth through enhanced opportunities for women in the transportation sector, Secretary LaHood convened APEC Transportation Ministers in a special session on Women in Transportation at the 2011 APEC Transportation Ministerial.

Since that time, we have held several forums/meetings in the U.S. – at which many of you or your organizations have participated.
We are now preparing for a special summit in Tokyo on September at the upcoming APEC Transportation Ministerial.
So where are we headed next? As I mentioned at the beginning of my remarks, the changes we have witnessed in the aviation industry over the past several years will inevitably have large implications.

I think one thing we know for certain is that increasing the global reach of airline networks will continue to be a driving force in the aviation industry for the foreseeable future. As we confront the opportunities and challenges to come, I believe that an ongoing dialogue among us as a community is essential.

I welcome this exchange of ideas with all stakeholders. In the meantime, I can assure you that we will continue to press forward in opening markets and ensuring that the opportunities we have already negotiated can be exercised effectively.

Thank you. ——–

In mid-May, the ICAO Council is rounding the final turn and heading down the home stretch to complete its work in preparation for the Sept.2013 ICAO Assembly.

And indeed, preparing for these global events of ICAO’s highest governing body — – that only convenes once every three years— is a monumental undertaking to say the least.

Three years of work and decisions by the Council along with the hundreds of recommendations from special conferences like the 12th Global Navigation Conference, the High-Level Security Conference, and most recently, the 6 Transport Conference, need to be consolidated and presented to the Assembly of 191 members’ states, for its approval.

By any reasonable standard by which to judge a United Nations, multi-lateral, specialized agency like ICAO, I believe a significant and measurable amount of progress has been made on all of the major components that comprise ICAO’s Strategic Objectives. Those objectives are: Safety, Security, and Environmental Protection and Sustainable Development of Air Transport.

In my remarks today, I would like to pay special attention to the global conferences and their importance in influencing the ultimate Assembly results.

So let’s begin by reviewing ICAO’s 12 Global Air Navigation Conference held
late last year.

An extremely significant outcome of this conference was an agreement in principle to support the Global Air Navigation Plan and the Aviation System Block Upgrade concept.

Why is this important?

First of all, and perhaps most importantly, because this is a critical path milestone that’s vital to get the necessary global “buy in” that will enable ICAO to develop the global standards and recommended practices that states need to fully implement Next Gen systems world-wide.

Let’s be clear—states are the implementers—not ICAO—but states are depending on ICAO to nail down essential standards and recommended practices before fully committing their resources.

To be sure, this agreement in principle by the conference on the Global Navigation Plan and the Aviation System Block Upgrade concept is in itself important, but there remain common misconceptions among States, and some Regional Groups, regarding this plan—especially surrounding timeframes and implementation of the Block Upgrades.

I can assure this audience, that the United States is working tirelessly in many forums to build support and understanding to garner the 38 Assembly’s full endorsement of this vital and transformational program.

In many ways, this could be the most important agenda at this assembly because of the fact that it has the most direct effect on the majority of ICAO’s strategic objectives of Safety and Environmental Protection and Sustainable Development of Air Transport.

Make no mistake my friends. The across the board benefits of Next Gen—on safety, efficiency—reducing both delays and carbon emissions—are all ready “baked in” to our collective planned technological and operational improvement models that we are all committed to achieving—especially in the post 2025 time frame. Therefore, I believe this agenda falls into the “must do” category.

Last year, ICAO also held a High Level Security Conference that was very much another ICAO success story.

Homeland Security Secretary Napolitano, as well as TSA Administrator Pistole, and their staffs, made enormous contributions to this conference and its results.

ICAO policies to improve security audits and move to a Continuous Monitoring approach as well as a major re-focusing on air cargo security, and indeed the challenging interrelated security issues of the entire Global Supply Chain, are at last, now being addressed.

Let’s be clear, we have a very long way to go before there is the necessary funding and capacity building capabilities in a significant number of states to enable the same state’s level of compliance with ICAO security standards that we have come to enjoy and depend upon with ICAO safety standards.

However, that said, it is equally true, that within this last triennium, the new momentum for international aviation security that arose from the 2010 assembly was successfully expanded upon and accelerated in ICAO.

On environmental protection, perhaps the most significant accomplishment was the remarkable progress on establishing a new CO2 standard through ICAO’s Committee on Aviation Environmental Protection—also known as CAEP.

In addition to the exceptionally fine work on this important project by the many experts provided by many government agencies, I think it is also important to recognize the enormously constructive contributions of the engine and airframe manufacturers as well. Their input was critical indeed.

Also, on the environmental protection agenda, the voluntary State action plans that the last assembly requested have exceeded most expectations with states representing nearly 80 per cent of international aviation emissions voluntarily submitting their plans.

More importantly, there is little doubt that this first effort on State action plans will be expanded and improved upon over the coming years as this first effort provided a tremendous learning opportunity on best practices.

And finally, despite what you may hear or read from various pundits from time to time, I can assure you that the ICAO Council is still very confident it will produce a progressive resolution for the coming assembly’s consideration, covering the complete basket of measures available to mitigate international aviation emissions.

Let’s move on to the subject of sustainable development of Air Transport. ICAO hosted theWorld Wide Air Transport Conference in March of this year.

A Conference of this type can be described as slightly out of the ordinary for a couple of reasons

The first reason can be attributed to its rarity.

In the nearly 70 year history of ICAO, this is only the 6 time an Air Transport
Conference has been held by ICAO.

The first one was in 1977—just prior to the United States airline deregulation act— with the second following quickly in 1979.

The third occurred in 1985

The fourth was held in 1994 following the dawn of open skies agreements and during the formative years of international airline alliances

The fifth was held in 2003, and now of course, the 6th just a couple of months ago.

And frankly, the reason for its rarity can also be attributed to some extent to the fact that much of its subject matter—involving economic issues—does not always fit comfortably within the ICAO’s traditional stewardship of international aviation standards and recommended practices for safety, air navigation services, security or environmental emissions.

Economic policy issues almost always strike much closer to the all important “sovereign” nerve for most states –as history can clearly attest.

Nevertheless, 131 member states participated as well as 39 international organizations. Over 100 working papers were submitted that were ultimately distilled down to 28 recommendations for states and 36 recommendations to ICAO.

You can relax—I’m not going to go through all of them— I’m quite sure that to do so would be in violation of multiple articles of the Geneva Convention.

However, I should touch on some of the highlights.

It must be acknowledged, that at the very least, a conference of this magnitude does provide a unique opportunity to “take the temperature” of various state’s views on economic policies and to “test drive” some ideas and perhaps discover if there is a true appetite for changing the principle dynamics surrounding some of the industry’s favorite issues —such as (1) Market access (2) Fair competition (3) Air carrier ownership and control and of course (4) Taxes, charges and fees.

This audience will not be surprised to learn that there were often sharp areas of disagreement clothed in the most polite diplomatic discourse possible.

For example, some had suggested that a logical way forward on all these difficult economic issues was to develop a whole new Annex to the Chicago Convention, that would ultimately establish global standards and recommend practices for member states economic regulatory policies on aviation.

The United States did not agree with this notion, nor did the majority of the member states present and therefore this proposal did not make it to the recommendations list of the conference report.

Other proposals that were rejected involved suggestions to dilute the core principle of adhering to a “cost recovery” basis on user charges and fees for airport, security, and air navigation services. This principle is often still regarded as a foundational cornerstone of the Chicago Convention. The conference therefore chose not to dilute this core principle.

The conference recommendation to states was to “incorporate the four key charging principles, (1) non-discrimination (2) cost relatedness (3) transparency and (4) consultation with users in their national legislation, regulation policies, as well as air service agreements in order to insure compliance by airport operators and air navigation service providers.

The conference also expressed its concern about the increased proliferation of various taxes and levies on international aviation.

Most of this audience may be aware that the word “taxes” does not appear in the Chicago convention. Charges and fees are addressed in a couple of Articles—but not taxes.

Eventually of course, ICAO did develop policy on taxation which can be found in an appendix to Assembly resolutions.

And, at this conference, the final recommendation was a strong statement reinforcing current ICAO tax policies and clearly urging restraint by states on taxing international aviation.

Our good friends from the United Kingdom apparently felt that some of the negative comments on taxation were at least indirectly referring to the UK’s Air Passenger Duty.

In any event, the UK’s delegation spokesman rose to give a stirring defense of the British sovereign right to tax.

No one rose to argue the point of course—the sovereign nerve is the most sensitive after all—but nonetheless, the conference recommendation stood as drafted.

On the subject matters of Fair Competition and Market Access, there was also lively debate.

In fact it was lively enough to require multiple off-line, small group sessions over four days to negotiate an acceptable agreement on the conference report covering these topics.

In the end, an extremely delicate compromise was achieved that advocated for both liberalization and fair competition –but avoided explicitly linking the two.

Which brings us to a time honored International Aviation Club favorite topic of “Liberalizing air carrier ownership and control”.

The conference made two recommendations. One to member states and one to ICAO. The recommendation to ICAO reads:

“ICAO should initiate work on the development of an international agreement to liberalize air carrier ownership and control, taking into consideration safety and security concerns, the principle of reciprocity, the need to allow a gradual and progressive adaptation with safeguards, the need to take account of regional experiences, the requirements of various States domestic laws, and effects on all stakeholders, including labor.”

For the record, the United States did not support this recommendation.

And candidly, with all those conditions and caveats to satisfy, it is not obvious to the current ICAO council members on how to even begin to approach this recommendation with any hope of producing a document acceptable to the majority of 191 member states of ICAO.

In any event, and in closing, as I mentioned in my opening remarks, the 38 Assembly is only a four months away.

By the end of June, the ICAO Council will have largely concluded its responsibility to consolidate a very large package of Assembly resolutions covering all of ICAO’s Strategic Objectives for member states consideration.

As is normal in an assembly year, the Council will likely need an additional special session early in September to wrap up a few issues that eluded full and complete agreement in June.

But not to worry, because as one of my dear friends from India always said, “In the end, everything will be all right, if it is not yet all right, it is not yet the end”.

Thank you, Natalie, for that gracious introduction and thank you all for inviting me to join you here today. As Administrator for the Transportation Security Administration, I appreciate the opportunity to meet with industry members and stakeholders to discuss TSA’s mission.

I would like to use my time with you today to discuss some of the day-to- day, operational initiatives that we are developing and implementing to strengthen security and improve the travel experience for everyone. Working with a broad range of public and private partners these efforts are helping us ensure the freedom of movement for people and goods from coast to coast.

As members of the global aviation community, you know better than most that the men and women of TSA proudly serve on the front lines of transportation security. Our mandate requires an uncommon level of commitment, a constant focus, and a dedication to the work that can only be sustained with pride in a job well done and a firm belief in the importance of our mission.

One point eight million passengers and more than four million checked and carry-on bags. That’s the scope of who and what our workforce screened yesterday, and it represents an average day for our screening workforce.

When you consider the significance of transportation, and in particular aviation, to the strength and vitality of the global economy, the importance of securing every passenger, every bag and every piece of cargo cannot be overstated.
With more than a decade of experience, we understand that a one-size-fits- all approach to transportation security is not the best way to reach our goal of providing the most effective security in the most efficient way.

It’s important to remember how rapidly TSA was stood-up in the weeks and months following the 9/11 attacks. It was a massive undertaking, representing the largest mobilization of federal employees since World War II. On average, our Transportation Security Officers, or TSOs, carry with them an average of five years’ experience, and throughout the organization nearly 25 percent of our workforce are veterans, still proudly serving their country.

Throughout our first decade of service we focused on building and strengthening a layered approach to transportation security. We trained pilots and flight crews in self-defense, hardened all cockpit doors against unauthorized entry, and now screen 100 percent of domestic air cargo.

With respect to global aviation, President Obama signed the “No-Hassle Flying Act” into law last month. For those who may not know, this legislation gives TSA the authority to waive the rescreening requirement for checked baggage arriving in the United States from a number of pre-clearance LPDs, including airports in Canada, Ireland and the Caribbean.

Measures such as this demonstrate our commitment to finding common- sense solutions to security challenges. Checked baggage that has already been screened at a level commensurate to our own procedures domestically, should not require additional screening upon arrival. We believe passengers connecting on to other destinations will welcome this enhancement most of all.

Across the country, in airports, mass transit stations, at seaports and on the highways, we use layers of security to ensure the safety of the traveling public and the nation’s transportation system. Because of their visibility to the public, we are most often associated with the airport checkpoints that are operated by our Transportation Security Officers.

These checkpoints, however, constitute only one security layer of the many TSA has put in place to protect aviation. Others include intelligence gathering and analysis, checking passenger manifests against watch lists, random canine team searches at airports, federal air marshals, federal flight deck officers and more security measures both visible and invisible to the public.

Each one of these layers is capable of stopping a terrorist attack. In combination their security value is multiplied, creating a much stronger, formidable system. A terrorist who must overcome multiple security layers to successfully carry out an attack is more likely to be pre-empted, discovered, or to fail during the attempt.

From day one we have continuously been refining and evolving our security approach by examining the procedures and technologies we use, as well as evaluating how specific security procedures are carried out, and how individual passenger screening is conducted.

Throughout the transportation system our officers, working in collaboration with our airline and airport partners, have multiple opportunities to effectively prevent any would-be terrorist’s attempt to carry out another attack. Intelligence continues to suggest that aviation remains a favored target for terror networks around the world.

In terms of measurable results, we reached several key goals in our first 10 years, including screening 100 percent of all passengers flying into, out of, and within the United States for terrorism through the Secure Flight program.

This is a behind-the-scenes program that enhances the security of domestic and international commercial air travel through improved watch-list matching. Collecting additional passenger data improves the travel experience for all airline passengers, including those who have been misidentified in the past.

When passengers travel, they are required to provide the following information to the airline; their name, as it appears on the government-issued ID; their date of birth; and their gender.

The airline submits this information to the TSA Secure Flight team, which uses it to perform watch-list matching. This serves to prevent individuals on the No Fly List from boarding an aircraft and to identify other individuals who may present a greater risk for enhanced screening. After matching passenger information against government watch lists, Secure Flight transmits the matching results back to airlines so they can issue passenger boarding passes.

Going forward, we will continue employing risk-based, intelligence-driven operations to prevent terrorist attacks and to reduce the vulnerability of the nation’s transportation system to terrorism.

Risk-Based Security, or RBS, in the passenger screening context allows our dedicated Transportation Security Officers to focus attention on travelers we believe are more likely to pose a risk to our transportation network, while providing expedited screening, and perhaps a better travel experience, to those we consider to pose less risk.

One of the most visible components of the RBS initiative is TSA Pre✓TM. This innovative and efficient passenger prescreening effort is currently in dozens of our busiest airports, with plans to continue expanding as both airports and airlines become operationally ready. To date, more than 5 million passengers have gone through the TSA Pre✓TM process.

Feedback from passengers who have opted into TSA Pre✓TM and experienced the associated expedited security screening has been positive, and we expect participation in this trusted-traveler initiative will continue to grow as more and more people become aware of the opportunity.

In addition, we currently provide active-duty members of the United States military with expedited security screening at the airport by allowing those in uniform to keep their boots on unless they alarm the technology. We are also working with the Department of Defense to improve their experience by including military personnel into TSA Pre✓TM.

We are also partnering more closely than ever with the airline industry, supporting a Known Crew Member initiative that offers expedited security screening for airline pilots and flight attendants. With each departing flight, these men and women are trusted with the lives of everyone onboard. We believe it makes sense to screen them accordingly.

Ongoing efforts to integrate the latest advances in security technologies into our layered approach are also strengthening our ability to remain at least one step ahead of our adversaries.

Advanced Imaging Technology, or AIT, is one example of our commitment to deploying the best available equipment to do the job. AIT safely screens passengers for metallic and nonmetallic threats including weapons, explosives and other objects concealed under layers of clothing without physical contact to help us keep the traveling public safe.

Since making the commitment to AIT, this technology has led to the detection of hundreds of prohibited, illegal or dangerous items at checkpoints nationwide – items that would not be detected by a traditional walk-through metal detector.

In September 2012, we announced a limited procurement for next generation AIT units for the purposes of testing in a laboratory environment. The outcome of that testing will determine if the new technology will be tested in an airport environment. TSA anticipates that next generation AIT units will have enhanced detection capabilities, faster passenger throughput and a smaller footprint.

TSA also makes every effort to protect passenger privacy when deploying new technology, including Advanced Imaging Technology. Between July and September 2011, we installed software upgrades designed to enhance privacy by eliminating passenger-specific images. This Automated Target Recognition, or ATR, software is in place on all millimeter wave units. In addition to strengthening passenger privacy, the new software is a more efficient solution as it eliminates the need for an image operator and remotely located viewing room.

We are looking at other ways to screen smarter and use our resources in a fiscally responsible way to provide the most effective security as efficiently as possible, to strengthen security and measurably improve the travel experience for everyone.

Being an effective partner in the communities we serve requires not only an efficient use of taxpayer resources, but also that we conduct ourselves, every day, according to the highest professional standards.

One of our latest customer service efforts is the presence of passenger support specialists at every airport where TSA provides security screening. These are specially trained employees dedicated to providing on-the-spot assistance to travelers on a wide range of issues.

In addition to the national TSA Cares helpline, these passenger support specialists will be available to help travelers with special needs. In addition, we are hopeful they will demonstrate the ability to ease distressed travelers’ concerns by being experts in screening protocols and able to communicate effectively with all of our customers.

Earning the respect of the traveling public through our actions at the checkpoint is critical to our success. As we have seen in recent years, there’s no question that alert, aware, and informed passengers add great value to our ability to continue strengthening transportation security not only in aviation, but across all modes.

Thank you again for allowing me to speak with you today. At this time, I am happy to open the floor to any of your questions, or if there’s a topic you would like to discuss a little further.

Dear Guests,
Ladies and gentlemen,
buonasera!

I am truly delighted to welcome to the Embassy of Italy you, the members of the International Aviation Club of Washington.
It’s a great pleasure for Laura Denise and me to be here with you today.
Let me start with a personal note, which is to say that you may have chosen yourself the right Ambassador to host your event tonight. 

I may seem to you like the proverbial pin-striped-suit diplomat who likes to have his feet firmly on the ground.
But, as it was mentioned, let me admit that my passion for flight goes back over 25 years. 
I have a very exciting job, but I must admit that occasionally, actually whenever I can, I dash to the closest airport, to “slip the surly bonds of earth” and “dance the skies”. 

And I say this in all modesty, as I have the deepest respect for those highly-skilled men and women who do this professionally, day and night, in all kinds of weather and conditions. As many of you, present here tonight, do.
But besides the passion and the personal experiences, let us acknowledge that, in difficult times for world economy, the role of aviation – with more that 2,2 billion passengers every year, 32 million jobs, 8% of the global economy – remains paramount in improving living standards on a global scale.

It is also a key driver of tourism.

Thanks to air transport, the US is the second country of origin of tourists visiting Italy.
With more than 4.5 million arrivals from the US each year, Italy is one of the most visited countries by US tourists, thanks to an important international hub and a wide network of other airports.

Aviation also plays a very important role in Italy’s relations with the US, not only from a historical point of view, but also because of our extraordinary bilateral cooperation in civil and defense industry.

The special friendship that binds the Italian and American peoples together is strongly founded also on this area.
In 1927 pilot Clarence Chamberlain accomplished the first transatlantic flight to carry a passenger. He was the pilot of a Wright-Bellanca WB-2, an aircraft designed for Wright Aeronautical by an Italian engineer, Giuseppe Bellanca (a name which
I am sure is familiar to many of you).

But I am sure you’ll also recognize other familiar Italian American names of protagonists in US aviation, such as Fiorello La Guardia, or Dominic Gentile (the “Ace of Aces”).

Italy has a great tradition in aviation industry and relations with the U.S.
Caproni first comes to mind, as the production of CA5 aircraft was licensed to the US in 1917, during World War I, to be used by the US Army.

Or Savoia Marchetti SM-55s, which crossed the Atlantic in large formation flights to reach New York and Chicago in the Thirties.

Or again the competition, but also mutual respect, between Curtiss, Supermarine and Macchi, the main protagonists in the Schneider Trophy.
Today, US and Italian corporations cooperate on important programs.

Alenia Aermacchi, part of Finmeccanica, partnered with Boeing for the 787 Dreamliner and with Lockheed Martin for the F35 Joint Strike Fighter.

Agusta Westland, also a unit Finmeccanica Group, as you know, has a large helicopter assembly plant in Pennsylvania.
Finmeccanica Group, a true global player, represents the cutting edge of what Italian industry has to offer in terms of technology, innovation and genuine competitiveness.

But it is also the spearhead of a very large number of smaller Italian high-tech aeronautical companies that are very widely present in the US market.

Technology is an integral part of Italian culture, which we will celebrate throughout “2013 – The Year of Italian Culture in the United States”, with over 150 events across the whole Country.

Among them, we will proudly bring to the U.S. the “Code for Flight” by Leonardo da Vinci.

So let me conclude by quoting the great Leonardo, the inventor of the first flying machine who wrote, with uncanny prescience 500 years ago,

“When once you have tasted flight, you will forever walk the earth with your eyes turned skyward. For there you will have been, and there you will always long to return.”

Thank you for your attention, and I hope you enjoy a wonderful evening here at the Italian Embassy.

Think about this number – $100 billion. That’s the estimated sales this year of new aircraft worldwide. It’s a big number.

When I became Chairman of the Export-Import Bank three years ago, annual commercial aircraft sales were $75 billion. Three years from now, sales are projected to be over $120 billion worldwide.

When I think about the $100 billion in aircraft sales and the jobs they support – the jobs that are stake – I think about how we at Ex-Im Bank can help ensure that those jobs are located right here in the United States.

There is a worldwide air transportation boom underway. More people are taking more aircraft on more trips – and more goods are moving by air – than ever before.

This underscores the importance of aviation for moving passengers and cargo as the critical link in global commerce and infrastructure.

When you put aside wheat, soybeans and other commodities we sell overseas, aerospace goods and services are America’s leading export – large commercial aircraft, business jets, general aviation planes and helicopters, communications satellites and much more.

They require the highest level of innovation and engineering – which we have in abundance. These exports keep us a world leader and provide millions of good jobs from coast to coast.

Boeing alone directly employs 161,000 workers in every state and 1.3 million supplier-related U. S. workers, many of them in small businesses. Overall, almost 10 million Americans work in some aspect of this remarkable industry – producing over five percent of our GDP.

They’re at work building the world’s best equipment, operating passenger and cargo services, staffing some of the world’s largest airports, providing needed support activities and skills training, and a host of other enterprises that keep the industry flying.

This is all the more remarkable given the intense competition from other countries eager to build their own aircraft and increase their share of this growing export market.

In recent years Boeing and Airbus have dominated the large aircraft market – with Bombardier and Embraer edging their way into it – and newcomers in Japan, China and Russia are working hard to develop and manufacture their own commercial aircrafts.

But America continues to win in the global aviation market because of what you do so well – and for what the Export-Import Bank helps you achieve by financing exports that are hard to secure conventional bank financing for – or exports to countries that are hard to finance – and sometimes both.

We often finance products that require 10 year, 12 year, 14 year, 18 year terms – too long for commercial banks now reluctant to go beyond five or, at most, seven year terms. These longer terms are crucial to finance aircraft, nuclear power plants, communication satellites, and complex infrastructure projects – sales that are vital to our export industries.

When lack of financing would stymie a good, solid export transaction – with hurdles like the pullback by banks slammed by the world financial crisis and more stringent regulations like Basel III – we will work with you to overcome these hurdles.

That’s why we added new financing options to include the capital market facilities to expand the sources of capital we can provide for exports. For example, this week we issued our 50th Ex-Im guaranteed bond – for a three-year total of over $8 billion sold to investors.

As a result, Ex-Im Bank today has a more vital role than ever to ensure that capital goods keep flowing to help move the global economy forward.

With the decline in what was the global economic engine – consumer spending, primarily by Americans – the demand for infrastructure worldwide can become a more reliable and sustainable engine for global economic growth.

That’s one reason I am confident about the U.S. and the global economy.

We’ve been doing our part since FDR and Congress created the Export-Import Bank in 1934. In our early years, we financed highways in Latin America and Burma, railroads in China and India, and airlines and airports worldwide. Our first aviation transaction was for Pan-Am in Latin America in 1940.

Eight decades later, we’re still responding to our nation’s economic needs.

As we reported just two weeks ago, all transactions by the Ex-Im Bank in fiscal year 2012 topped $35.8 billion – two and a half times higher than the $14.4 billion annual total just four years earlier.

Our total outstanding exposure topped $106 billion last month. With the reauthorization by Congress now behind us, our exposure ceiling has increased to up to $140 billion – giving us greater capacity to meet vital financing needs.

In terms of jobs supported by our financing, we went from 115,000 in 2008 to 255,000 last year. Added up, we supported 950,000 million export-related jobs over the past four years – nearly one million jobs.

We did all this at no cost to the taxpayers. What we earn from our customers pays all operating costs of the Ex-Im Bank – and what’s left over goes to the U.S. Treasury.

Just last month, after closing the books on our fiscal year 2012, we sent $803 million back to the Treasury – our CFO did it with one keystroke – on top of the $1.9 billion we sent back in the previous five years.

Our financing last year helped move forward President Obama’s National Export Initiative – a comprehensive effort to double U.S. exports by 2015 – and create and sustain two million U.S. jobs. With almost three years under our belt, we’re making solid progress toward that goal.

And President Obama is directly involved in this initiative. Just a year ago this month in Indonesia, he helped close the deal with Lion Air – Boeing’s largest commercial aircraft order ever – $21 billion to buy 230 Boeing aircraft over the next several years.

Not only will one of Asia’s leading low-cost carriers modernize and expand its fleet, this will support over 100,000 U.S. aerospace-industry jobs over the next decade in the United States. 

America is not only exporting the aircraft, we are exporting how business is done. Low-cost carriers, first championed by Southwest, are a business model that has changed the face of modern air transportation.

Jobs.

That’s why the Ex-Im Bank is deeply involved in the aviation industry. In fiscal 2012, Ex-Im provided about $12 billion in new financing to aviation-related businesses – sustaining and creating about 85,000 of the 255,000 jobs we supported. In two years, that could be $2 billion higher.

A word here about the Aircraft Sector Understanding – the ASU – which President Obama and I fully support.

The ASU is a framework for aircraft export financing by OECD nations to rein in below-market rates and other subsidies that distort markets, and ultimately raise costs. Left alone, these distortions would foster a race to the bottom and depress sustainable economic growth. We want competition to be on the basis of product quality and value, not on which government can offer the lowest rates and fees.

Begun as an OECD initiative in the 1980s, the ASU evolved over years of negotiations, and emerged in its present form last year. As a result, new higher fees levied by Ex-Im and other nations’ export credit agencies take effect on January 1 – just 50 days from today.

These ASU fees will roughly double what we’re required to charge. For example, an upfront fee of 6.25 percent today for a B-rated customer will become 15.1 percent on January 1. On top of that, we will adjust the fees quarterly to keep them in line with commercial rates.

Our fees are already in line with commercial rates. So the new ASU fees will encourage more business for commercial lenders – and less reliance on Ex-Im Bank.

Our goal, and the ASU’s goal, is to limit financing only to those credit-worthy aircraft deals – where the private sector is unable or unwilling to support them.

Our position is simple: We want to be a financer of last resort – and not the go-to guys for every transaction. We don’t subsidize anybody. We don’t compete with banks for customers. We want only the customers the banks don’t want because of perceived risks or capacity constraints.

We financed less than two percent of America’s $2 trillion of exports this year – but it’s a crucial two percent that includes a lot of commercial aircraft sales – and a lot of sales to sub-Saharan Africa where we can get a solid U.S. foothold in that challenging, but potentially lucrative, continent.

End of message about our rates.

Of our 2012 aviation transactions, most went for new commercial aircraft, our traditional strength. But we also financed general aviation sales, after-market support, engineering and related services, and even airport facilities. Eighty-five percent of these transactions benefit small businesses.

That brings me to something else important – that our financing supports U.S. jobs and the world economy in ways you have to see firsthand to understand.

Last week, I was stranded in Miami because of Hurricane Sandy – probably the first time in a century that Miami was a safe haven during a major east coast hurricane. While there, I visited Fernando Poitevin, the COO of LAN Cargo at the Miami International Airport. We’ve financed over two dozen aircraft and spare engines for LAN.

His company not only flies Ex-Im-financed Boeing planes – supporting tens of thousands of direct and indirect jobs. LAN also employs about 1,400 U.S. workers for passenger and cargo operations in Miami.

LAN Cargo has the largest warehouse facility at the Miami airport – it invested $80 million to build it – and the largest refrigerated facility at any U.S. airport. We had to wear Arctic-grade coats just to walk through it.

In my brief visit, I saw them unload flowers from Colombia, asparagus from Peru, and fish from Chile from a brand-new Boeing 777 cargo plane, then transfer them to trucks headed for other cities – reaching American shelves less than 36 hours after leaving Latin America.

Over 4,000 tons of air cargo flow through Miami every week – in both directions.

After ground crews empty the incoming planes of the mostly perishable imports, they load the same planes with U.S. exports like electronics, medical equipment, farm machinery, spare parts and aircraft equipment.

What I saw was a dazzling logistical operation carried out by U.S. workers – making sure that not a minute is wasted.

In other words, Ex-Im Bank’s financing for LAN Cargo sustains a virtuous circle of job-creating trade activity whose whole is greater than the sum of its parts and grows the economies and strengthens relations within our hemisphere.

Another company I’ve gotten to know is Ethiopian Airlines. We negotiated a $1 billion loan guarantee so they could buy a fleet of new Boeing 787 Dreamliners and GE spare engines.

Our Ethiopian Airlines transaction not only finances a lot of new planes, it expands African markets for our commercial aircraft in a continent where demand for air travel is exploding.

That not only drives exports, it expands trade and travel relationships in Africa in ways we have yet to imagine. This is important, really important, for America’s future.

While large transactions like these get the headlines, there are plenty of smaller aviation transactions that add up to tens of thousands of jobs now and in the future.

For example, last year I toured the Delta Airlines maintenance operation in Atlanta, with Richard Anderson as my guide. Ex-Im provided financing so that Delta can perform overhauls for Gol Airlines of Brazil and Aeromexico.

That not only provides more work for skilled machinists – an important export of services – it enables Delta to expand that important income stream.

We worked with the Air Tractor Company in Olney, Texas – its 270 workers own the company – to sell new specialty crop-dusters to farmers in Brazil and Argentina. We worked with helicopter manufacturers to approach customers in China – there are only a few hundred civilian helicopters in the whole country today – and the potential exists for many thousands more.

When Ex-Im financing can make a difference, we’re interested in expanding U.S. exports in the growing market for aviation infrastructure on every continent.

The Bank in recent years financed U.S. sales to foreign airports for ground equipment, warehouse facilities, safety and security improvements, cargo handling systems and other products – even legal services to help a Middle Eastern country write its national aviation regulations.

Airports in Monterrey and six other Mexican airports now have high-tech security equipment made in the U.S. because of our financing. We facilitated foreign purchases of the Oshkosh Corporation’s airport rescue and fire fighting vehicles and their advanced foam systems.

This is facilitating the company’s transition to civilian sales from defense production – where its armored trucks and troop carriers have helped save countless lives in Iraq and Afghanistan. Oshkosh has over 11,000 workers in eight states.

I could go on and on, but I think you get the point – aviation infrastructure is rich with potential for U.S. exporters, and I’m determined that we take full advantage of that potential.

In every country I’ve visited in recent years, each airport has been a major construction site – and there hasn’t been nearly enough U.S. involvement.
This is a historic opportunity we can’t miss.
Two final thoughts I want to leave with you.

First, we’d like to take credit for successes like these I mentioned, but the real reasons are the terrific new and innovative products designed and built in America – large and glamorous ones like the Boeing 787 Dreamliner – to more routine engine overhauls in Delta’s Atlanta maintenance complex.

Businesses like these are sustaining U.S. leadership in technology, innovation, management and reliability – keeping the “Made in USA” label valuable and trusted throughout the world.

Second, and most important, the Export-Import Bank wants to work with you. Let’s get together and brainstorm new ideas for both of us. I know there’s tremendous potential for U.S. aviation exports.

I am bullish on you. I am bullish on America. The Export-Import Bank is ready to work with you to create jobs and uplift your communities – and to build our nation’s economic foundation for the rest of the 21st century.

Thank you.

Good afternoon and thank you for the kind words of introduction. Having had the pleasure of attending a number of previous meetings of the International Aviation Club here in Washington, it is indeed an honour to be invited here today, to share with you some thoughts on the aviation industry from a particular international perspective. Whilst I was born and educated in the UK, I have spent my entire working life based in Asia. When I first went to Asia 35 years ago, Japan was the new economic powerhouse, and the so-called Tiger economies were already making great strides. China, the sleeping giant, was a closed country, with an economy one twentieth the size of the US economy at that time. Fast forward to today, several Asian countries now have per capita incomes approaching developed Western levels, fundamentally changing consumer buying behaviour and the patterns of international trade. The Chinese economy is about half the size of the US economy, and steadily narrowing that gap.

Asia is home to two thirds of the world’s population, but generates only about one third of
global economic output. Asia is geographically, and culturally, diverse. Income levels are steadily rising throughout the region, but we still see wide variations, from levels similar to those of Western developed countries at the high end, but, at the other extreme, many millions of people still lack access to clean water, and electricity.

Aviation plays a key role in economic and social development, particularly in the Asia Pacific region given the geographic breadth and make-up of the region, linking continental land masses with sprawling archipelagos.

Air travel delivers global mobility, with close to three billion passengers travelling by air, that’s eight million passengers a day. So air travel is now part of everyday modern life and a
realistic aspiration for billions more people in the decades that lie ahead. Aviation globally supports $2.2 trillion in economic activity and 57 million jobs.

Our collective mission as an industry is to make sure that air travel remains safe, secure and convenient, whilst meeting this anticipated future growth in demand.

Air cargo plays another critically important role in facilitating international trade, flying 48 million tonnes of cargo with a value of $5.3 trillion, that accounts for 35% by value of all international trade, underpinning global supply chains.

State of the Industry:

Airlines based in the Asia Pacific region have established a reputation for customer service excellence, and have been steadily growing their regional and global networks. Nevertheless, it is not always widely understood just how successful these airlines have been in terms of business size and economic impact. In 2011, airlines based in the Asia Pacific region carried 655 million passengers, and 17 million tonnes of cargo, generating aggregate revenues of $159 billion, operating a combined fleet of almost 5,000 aircraft. In terms of overall market share, Asian airlines accounted for 25% of global passenger traffic (RPK) and 40% of global air cargo traffic (FTK). As a group, therefore, Asian carriers are commensurate with the US carriers or EU carriers in terms of passenger traffic, and clear leaders in the world of air cargo.

You don’t need me to tell you just how tough it is to make money in the airline business. In
2010, a relatively good year, our industry reported profits of $16 billion, but on half a trillion dollars of revenues, that was an industry profit margin of just 3%. Asian airlines did slightly better, earning margins of around 6% of revenue, and accounted for roughly half of the industry’s global profits. In 2011, airlines saw slower growth in passenger traffic, a weak cargo market, and sharply higher oil prices, squeezing margins to the extent that overall industry profitability halved to around $8 billion, but Asian airlines again accounted for roughly half of that total. This year has seen a continuation of that downward trend, with continued passenger growth, but air cargo markets remain depressed, whilst oil prices have stayed stubbornly high, placing further pressure on already thin margins. IATA is forecasting industry profits of just $4 billion for 2012, which for an industry generating revenues of $630 billion represents a net margin of less than 1% and a profit of just $1 per passenger.

The irony is that the aviation industry actually generates huge added value to the global economy, but most of the surplus is captured by our customers, and business partners in the value chain, not to mention governments benefitting through myriad taxes and charges levied on our industry.

Despite the challenges facing airline management, staff and shareholders, there is still some significant value creation. The fact that Asian airlines are seen as enjoying positive future growth prospects is reflected in the market valuations of individual airlines. Even after the significant mergers and consolidation that has taken place in the US airline industry, and similarly in Europe, the fact remains that leading Asian airlines feature prominently in the rankings of international airlines by enterprise value, matching those of the already consolidated majors in the US and EU. Asian airlines collectively account for roughly half the total enterprise valuation of the industry.

As you all know, the fragmented structure of the aviation industry reflects historic regulatory structures revolving around national ownership and control restrictions, and bilateral international air traffic rights, which have served to prevent our industry from following the path taken by most other globally competitive industry sectors. Nevertheless, progressive liberalisation of air service agreements, easier market access, alliances, multinational ventures operating under a unified brand, and quasi cross-border mergers all reflect pressures to move towards a more commercially driven industry structure. Despite the difficulties of reaching international consensus, fresh thinking on these and other multilateral policy issues will again be the focus of discussion at the next ICAO Air Transport Conference in 2013.

Future Growth

Looking to the future, air travel demand is forecast to continue growing at around 5% per annum, more or less doubling in size every fifteen years. That growth is underpinned by rising incomes, urbanisation and social development. Rapidly developing economies in Asia and other regions are lifting people out of poverty, and adding significantly to the number of middle income consumers. The global middle class currently includes around 2 billion
people, or 30% of the world’s total population, but that figure is projected to grow significantly, to over 3 billion in 2020, and 5 billion in 2030. China, India and other Asian markets are driving that trend, with the region’s middle class set to grow six-fold over the next two decades.

In faster growth markets, including many developing markets in Asia, the doubling period can be even more dramatic. At 10% growth rates, as we’re seeing in China, India and several
other Asian markets, you need to double fleet capacity and supporting aviation infrastructure, including airports and air navigation services, every seven years. A related challenge is in ensuring that the industry continues to attract, and train the necessary skilled manpower needed to support this projected growth. Governments should recognise this challenge as an opportunity to drive job creation and economic growth. That message is already well understood in Asia, but I am afraid that governments in the major developed markets too often seem to take aviation for granted, and fail to implement policies to facilitate the future growth of aviation, to the detriment of their own economies. Under-investment in airport infrastructure, and failure to press ahead with modernizing air traffic management systems, leads to bottlenecks, congestion, delays and serious inconvenience to the travelling public.

Half of the world’s future traffic growth over the next two decades will be to, from or within
the Asia Pacific. As a result of faster growth rates, Asian airlines share of the overall aviation market is projected to increase to 32% of a much larger (today x 2.5) global market by 2030, compared to European airlines 24% and US carriers 20%.

Asian airlines are also at the forefront of both business and customer service innovation. Leading Asian carriers are still investing heavily in further upgrading of premium products and services, particularly on long haul inter-continental routes. Notwithstanding the great success of the no-frills business model in serving short haul routes, it is worth noting that globally this segment of the business only accounts for around 15% of total industry revenues. Full service network carriers are expected to continue to play a key role in the international arena, and projected to still capture as much as 75% of global traffic in 2030.

At the same time, several major Asian carriers have launched subsidiaries or associate airlines focusing on serving short haul regional routes using the no-frills budget carrier model. Low cost carriers have also been very aggressive in extending their reach across the Asia Pacific region through the establishment of localized joint ventures, whilst operating under a common brand and sales platform. We have also seen the emergence of legacy carriers entering into innovative new joint ventures, such as Air Asia Japan with ANA and Jetstar Japan with JAL in Japan.

Evolving Regulatory Framework

The commercial success of Asian and other airlines from developing regions of the world has fundamentally changed the competitive business landscape. However, when it comes to making the rules that govern this industry, the US and EU still exert a very strong influence, given your strong political unity, and long experience of legislative and regulatory oversight. Nevertheless, there is a growing feeling amongst the developing countries, that the influence of the US and EU is becoming somewhat disproportionate to the economic and political realities of the modern world. Such views are not confined to the world of aviation, but are also evident, for example, in the questions that have been raised with regard to the governance structures of institutions like the IMF and World Bank. In a multi-polar world, governance and regulatory frameworks must adapt with the times. In terms of aviation, this suggests some rebalancing, and further emphasis on the important role played by ICAO in developing and promulgating global policy guidelines and standards.

Let me turn now to say a few words about some specific regulatory issues.

Safety

Safety, it goes without saying, is always the industry’s first priority. Working together we
have made flying the safest form of travel. Ten years ago the industry experienced one major accident for every million flights, last year the figure was one major accident for every four million flights. The key to achieving this extraordinarily good safety record has been the development of global standards set by governments through ICAO, and the sharing of industry best practices based on exchanges of safety data and learned from safety incidents. It also worth emphasising that major decisions on new safety measures are generally taken only after much dialogue and careful reflection on the projected costs and benefits of such changes. This is in marked contrast to the way in which new aviation security policies are crafted, a point I will revisit shortly.

Notwithstanding the excellent coordination work carried out by ICAO, some governments, including, I am sorry to say, the US Government and EU, have taken it upon themselves to enforce stricter regulations on selected foreign carriers and their governments through category downgrades in the case of the US, and the EU Safety List which imposes an operating ban on selected airlines. In both cases, the target is perceived shortcomings of regulatory oversight by foreign governments not meeting established ICAO standards. Our concern is that such actions may be well intentioned, but are fundamentally misguided, lacking transparency, with no clarity as to what is required to get off the list. From an airline perspective, it appears unjust to be punished simply in order to put pressure on another foreign government. It is hard to imagine how not being allowed to operate new aircraft on a route because of such restrictions can provide any safety benefit. Whilst I would be the first to encourage all governments to comply fully with applicable ICAO standards, we have strong reservations about the use of unilateral measures to extra-territorially enforce such rules.

Security

Air travel is not only extraordinarily safe, but also extremely secure, thanks to close cooperation between governments and industry. We need proper risk assessments, and should focus on deploying intelligence-led, outcome based, security measures. Most importantly, effective security procedures must balance risks against costs and inconvenience to the travelling public. For many passengers, security procedures are cited as the least satisfactory part of the air travel experience. Harsher critics have characterised current passenger
screening procedures as ritualistic “security theatre”. A recent RAND study estimated the cost
of US aviation security measures at $14 billion in 2011, including TSA costs as well as the costs borne by airlines, airports and the travelling public, and reasonably questioned whether the costs were justified by any measurable security benefit.

What we have is a Mistrusted Traveller Programme, with 100% enrolment.

We need to break free of the current mindset that by default treats every passenger as a potential terrorist, leading to overwhelmingly false positives in the screening process. Efforts to streamline the current approach to passenger screening, including IATA’s

Checkpoint of the Future concept study, and various trusted traveller programmes, are a step in the right direction, but arguably do not go far enough. Together with governments, we already know a lot about our passengers long before they turn up at the airport. We need to focus on ways to use that information to carry out more effective risk assessments, and streamline the security screening process for the benefit of all passengers. Improving the overall security experience should be our shared objective.

Governments must recognise the benefits of closer international cooperation, and mutual recognition of respective security regimes. The international aviation system is an integrated global network. The overall robustness of the system depends on a web of relationships amongst the many stakeholders involved.

Turning to the issue of cargo security, we also need to apply a risk-based approach, but one that looks at the overall supply chain: with shippers, freight forwarders, airports, airlines and regulators working together on a multi-layered approach combining advanced electronic information and physical screening. ICAO is already working to develop common global standards and guidance. As a global network, air cargo security needs multilateral cooperation. Attempting to replace the long established web of trusted relationships with new individual national requirements supplemented by selective bilateral agreements is unlikely to be an effective strategy to make the overall aviation network more secure.

Whilst we are on the subject of making air travel more convenient, we also need to focus on passenger facilitation. In this regard, I am pleased to note that the efforts of the US State Department have yielded some very positive results in terms of making it easier to apply for and obtain tourist visas to visit the US. Inbound tourist arrivals and spending are expected to set new records this year. There is tremendous potential to do even more. Countries keen to promote tourism also need to focus on the experience of the passenger at the point of entry. Too often, passengers arrive at their destination only to be confronted by long lines for immigration and customs clearance. Given the fact that most passengers’ details have already been provided in advance to the governments involved, one might expect smoother processing of arriving visitors. This is another opportunity for governments and industry to work together to streamline this aspect of the passenger experience.

Environment

I talked earlier about the prospects for future growth. Aviation takes its environmental responsibilities seriously, and is strongly committed to delivering continuous improvements in fuel efficiency, reducing emissions. The industry currently accounts for 2% of global manmade CO2 emissions. As I am sure you are all aware, airlines, airports, air navigation service providers and manufacturers have committed to three targets:
 To improve fuel efficiency by 1.5% annually to 2020
 To cap net emissions from 2020
 And to cut net emissions in half by 2050 compared to 2005

We are working together with governments to achieve this with a four-pillar strategy of investment in new technology, better operations, more efficient infrastructure, and economic measures.

The industry is pressing ahead, investing in new technology, but we need governments to also step up in terms of more efficient infrastructure, especially when it comes to modernising air navigation services through programmes like NextGen here in the US and Single European Sky in Europe. Similar efforts are underway in Asia under the Seamless Asian Skies initiative.

Sustainable biofuels are another exciting development, with the potential to deliver significantly lower lifecycle CO2 emissions. Good progress has been made in overcoming the technical challenges of proving and certifying the suitability of such fuels as drop-in equivalents for conventional jet fuel. The next big challenge is achieving meaningful scale, and commercialisation at costs that are competitive with conventional jetfuel. Governments have a key role to play in establishing policy frameworks that will facilitate this process, including helping to de-risk pioneering investments.

In addition to all of the above, given the fact that the industry’s overall growth rate will
almost certainly outpace the projected efficiency improvements, there is an important role for economic measures in the form of emissions trading or other forms of carbon pricing, including offsetting. Again, government involvement is absolutely essential in developing any such framework.

Unfortunately, Europe’s unilateral attempt to impose the EU ETS on foreign carriers, has led
to a firestorm of complaints and threats of retaliatory measures from other governments. The last thing this industry, or indeed Europe as a whole, needs is a trade war. Hopefully cooler heads will eventually prevail, and find a way to defuse the situation, perhaps by simply postponing the implementation of the scheme to allow more time to develop a comprehensive global solution.

A global industry like aviation needs a coherent global approach, and the place to develop such policies is through ICAO. The work currently being undertaken by the Ad Hoc Working Group and supporting experts on market based measures (MBM) is important, but we should not underestimate the difficulties involved in reaching an international consensus on the way forward. In line with the wider debate on climate policy, this is an inherently political process, and one in which the diverse interests of countries large and small, rich and poor, will need to be reconciled. For our part, as industry, we are committed to doing what we can to help facilitate that process. After all, we have most to lose if those efforts fail, given we would then be confronted by a myriad of overlapping and inconsistent national or regional
schemes. Reaching agreement on this issue is critical to maintaining our industry’s license to grow.

Taxes

Finally, despite our vital economic role, too many politicians seem to view aviation as a tempting target for arbitrary taxes. Government taxes and charges typically account for 15% or more of the average ticket price. But governments need to understand that higher taxes hinder mobility, dampening economic growth and job creation. At this time, more than ever, governments need to appreciate the role of aviation as an economic catalyst.

Conclusion

Ladies and gentlemen, amongst the enormous changes that have taken place in the world over the past three decades, I have highlighted the growth of aviation into a truly global network, bringing safe, secure and affordable air travel to billions of people around the world, driving both economic and social progress. Aviation is a force for good, fostering business, educational, social and cultural links. Working together, we can bring further benefits to the global community. Asia Pacific airlines and our many partners, are committed to playing an important role in shaping the future of this always exciting and dynamic industry.

Thank you. Andrew Herdman

Director General
Association of Asia Pacific Airlines

Natalie, thank you for that kind introduction…

I appreciate the opportunity to address this distinguished Club and audience

Yesterday just before 9.00am Emirates flight 231 landed at Washington Dulles, marking our seventh destination in these United States

The paid-up marketing for this inaugural service began three months ago, with splashy full page ads in local Washington papers:

An elegant US-made, GE powered Boeing 777-300ER pictured on finals, framed by your spring cherry blossoms

Brilliantly these ads were paid for by Delta, and we thank them for their investment in our launch

I can‟t fully recall the ad‟s exact message – it may have been about export finance – but given a picture speaks a thousand words, I distinctly recall a ‘Made in America’ aircraft approaching the Capitol in fine Emirates livery

That aircraft, the advertising and yesterday‟s inaugural flight are all confirmation that this country is now one of the most important on the Emirates global network of six continents…

At the heart of this US expansion is our fundamental bullishness on the US economy

As Emirates expands its network, we study and analyse economies obsessively

This research drives our optimism on the US. And as The Economist stated recently, the US economy is again reinventing itself

To quote, „America‟s economy is certainly in a tender state. But the pessimism of the presidential slanging-match misses something vital. Led by its inventive private sector, the economy is remaking itself. Old weaknesses are being remedied and new strengths discovered, with an agility that has much to teach stagnant Europe and dirigiste Asia‟

At the heart of our optimism is an unshakable belief in the prospects for globalisation and global trade

In 1774, Benjamin Franklin remarked „no nation was ever ruined by trade‟

…and 238 years later, even in the midst of these complex economic times, such wisdom and vision were never more apt

Today, the United States‟ leadership in international aviation policy is of vital importance to global aviation and global trade – and your economy

Your steadfast and unqualified Open Skies policy has transformed the global marketplace in ways that have left a global legacy

Carriers and economies from Dubai to West Africa, South East Asia to the Iberian Peninsula, have all benefited from US leadership on open skies – although arguably none have gained as much as US carriers themselves

Today American carriers operate more than 58% of the total number of flights to and from the US. That is a big market share, and reflects the underlying strength of the US airline industry The UAE has 115 Open Skies or fully liberalized air service agreements, and the 150 airlines we face at Dubai International Airport push us daily to be a better airline

Open Skies has been an indisputable benefit for consumers, competition, global trade and the airline industry worldwide…

…and something everyone in this room can be proud of as an example of American international leadership

Countries like your northerly neighbour, Canada, that, for whatever reason, have failed to embrace Open Skies, do so at a huge cost to their economy, trade and consumers

Sadly it can only be called protectionism, and what‟s being protected is a single airline

Witness the recent University of Maryland study which found over 4.7 million passengers a year cross the border to take flights from the United States rather than from Canadian airports

This speaks volumes about the contrasts that exist between the aviation policies of Canada and the US

Our launch this year of non-stop flights to Seattle from Dubai is another such example…

While the vast majority of passengers are travelling from or to Washington state and Dubai, or using the Dubai hub for its regional connectivity…

…we are also seeing over 15% of our Seattle passengers originating and crossing the border from Canada

We are here today in the Capital thanks to the Open Skies agreement between the US and the United Arab Emirates, which
has allowed Emirates to offer non-stop services from the Middle East to the seven points we serve so far across your country

Including our inaugural to Washington Dulles yesterday, we also fly to New York, Houston, Dallas-Fort Worth, San Francisco, Los Angeles and Seattle

As Virginia Governor Bob McDonnell said when he welcomed the announcement of our new Dulles flight, it will create countless new possibilities for people and businesses in the greater Washington metropolitan area

The core of my remarks today focuses on trade as it relates to aviation; its importance, the hurdles and handwringers – and the near-term future from an Emirates perspective

For those of you unfamiliar with Emirates, we take pride in being the world‟s most global airline, with our Dubai hub situated at the crossroads between Asia, Africa, Europe and Australasia

We serve 126 destinations in 74 countries, having steadily grown our operations since our founding in 1985
Our fleet currently consists of an all wide-body collection of 184 aircraft and counting; we will receive an average of one aircraft per month through the decade, to drive our growth and for replacements; we operate more Boeing 777s than any other airline and also, I should add, more Airbus A380s

Emirates‟ most recent route launches show our global approach to network growth – along with Washington we have recently added or announced plans for Adelaide, Erbil, Lyon, Warsaw, Phuket and Algiers. So between the first quarters of 2012 and 2013, Emirates will have opened 14 new destinations across the planet

Let me state unequivocally that the Dubai Government‟s progressive and unrelenting policy support for aviation is at the heart of this steady, long-term growth

A half-century ago, when oil was struck in prodigious quantities in places like Abu Dhabi and Saudi Arabia, Dubai‟s rulers had to contemplate – with its minimal oil reserves – a different business plan

It turned to transport and logistics and began exploiting the great economic opportunity just beyond its borders. Like Singapore, Dubai became a service-based trading hub, creating companies like Emirates and the ground handler and ticketing agency dnata, as well as offering foreign carriers unfettered access to Dubai International

Today, oil makes up just 5% of Dubai‟s GDP, while aviation makes up 28%, or $22 billion, as well as directly and indirectly supporting over 250,000 jobs

This is a direct result of Dubai‟s pro-aviation policy and vision of the leadership

We recognise that with our growing size comes enormous responsibility, and we stand ready to join the voices in our industry pursuing good aviation public policy worldwide

We support the UAE and the United States in their joint opposition to the EU emissions trading scheme – we don‟t like the ETS and believe there must be a better and global solution to the challenge of greenhouse gas emissions

We are also sympathetic to the concerns of our competitors in the US and other countries about excessive taxation, counterproductive regulation and insufficient aviation infrastructure to meet market growth and carrier needs

In July I asked the British Prime Minister this very question – namely how does the UK plan to respond to its infrastructure and economic challenges

We share these problems daily when we serve those countries…

…consider the challenge of securing slots at major European airports or convincing the UK Government to roll back its increasingly blunt and economically damaging air passenger duty – which has resulted in three consecutive years of falling passenger numbers at UK airports…

…and, bizarrely, a surge of travellers for UK ferry operators as they avoid APD by flying instead from Paris or Amsterdam

We believe the industry under Tony Tyler‟s leadership at IATA can help itself immensely by joining together in a unified global effort to address anti-aviation and protectionist policies

Aviation can only make a meaningful impact quelling this global trend of re-regulation, taxation, night curfew growth and infrastructure minimalism – if we make doing so a priority and speak with one global voice

By the same token, we also commend the work of A4A in its efforts to rally awareness in the US for a wider appreciation of air transport‟s economic role

One of the topics we tend to speak a lot about at Emirates, for better or worse, is protectionism, state aid, and subsidy generally. It is an issue unlikely to go away anytime soon

Let me state clearly and without qualification: Emirates is opposed to all forms of state aid

We believe in open markets and businesses based on rational commercial fundamentals, regardless of shareholding

Airlines which are artificially supported distort fair competition So let‟s examine a few of the myths about Emirates…

The most absurd allegation being the suggestions of cheap fuel

Lest anyone believe discounted oil is part of our equation – our global fuel suppliers are those philanthropic organisations Exxon, Chevron, Shell and BP

Nothing is ever cheap about their prices, which amounted to $6.6 billion in our last fiscal year

There may be some state-owned oil companies directly supplying state-owned airlines on non-commercial terms in the Middle East, but Emirates is certainly not one of them

The term “Gulf airlines” is also something you read regularly – and unfortunately much of it is misinformation supplied by some of our rivals who use the phrase to create a negative connotation

Competing with 150 airlines operating to Dubai, and against some younger, differently structured Middle East carriers aggressively growing their hubs, Emirates remains the most profitable, transparent and sustainable airline business in the region

Sustained profitability has allowed us to issue a yearly dividend to our main shareholder, a Dubai-government owned investment company named ICD – with returns totalling over $2.4 billion to date

As this illustrates, Emirates is a strong business with a successful model that delivers considerable benefits for the emirate of Dubai…

…and quite the opposite of an airline requiring state support, as some competitors seek to portray

We also believe state aid and, frankly, aspects of Chapter 11 reorganisation law do create competitive distortions

Other distortions come from some immunised global alliances, including at Dulles, where the Star Alliance is heavily represented

It is our view that the major alliances do not always operate in the interests of the travelling public, having found very cosy nests in their respective hubs

Were we a member of Star, I am confident there would be no Emirates flight to Dulles: Star leadership in Frankfurt and Chicago would have vetoed the plans

It is in the best interest of the Star alliance to route passengers between Washington and India, for example, through its hubs in Europe…

…and to also protect Star‟s non-stop service between Dulles and Dubai

The same would be true if we were part of SkyTeam, where the focus would be on feeding traffic through Delta‟s hubs in Atlanta, Detroit and New York and protecting its non-stop service to Dubai

This is not to say that Emirates believes that “every airline for itself” is the only acceptable approach. On the contrary, Emirates code shares with 11 airlines around the world, including the major partnership with Qantas that we announced last week

This was a major announcement for Emirates and Qantas and, we think, international aviation

While Emirates will continue with its philosophy of not joining one of the big three alliances, we do evaluate and embrace specific bilateral partnerships that add value to us and our customers

The Qantas partnership more than fulfils these criteria

Like the US, Australia is a large land mass with considerable domestic traffic – Sydney to Melbourne is the third thickest air route in the world – and a love of the frequent flyer point

Despite challenges, the Qantas Group is a remarkable brand with great loyalty, 65% domestic market share and premium values

They sought a partner with a true global network, a 24 hour hub that was geographically centric to the world‟s core population, with a strong footprint and growth mindset in Australia

Subject to regulatory approval, we feel this is a perfect match – and all without equity or takeovers

Here in the US we code share with JetBlue, a relationship that has quickly demonstrated value for consumers

From Florida, the Caribbean, the Carolinas and upstate New York, every day we carry hundreds of passengers on our code share partnership; we are optimistic it will grow further in the coming years. Emirates also has interline agreements with American Airlines and Alaska Airlines, with our Alaska partnership extending to a reciprocal agreement on each airline‟s frequent flier programmes

There is an important difference between Emirates‟ strategic bilateral arrangements and the strategies of the global mega- alliances

Our philosophy is focused on consumer interest, an ability to grow based on our own business plan without seeking permission from an alliance partner, and the economic value that strategic geographical partnerships can add to each airline partner

We do not think we are alone in this thinking

As we see with Qantas partnering with Emirates, or perhaps even Air France‟s discussions with Etihad, some of the largest members of the global alliances have taken the view that solutions to whatever challenges they face may not always be solved by the alliance model

Indeed, we see a trend and expect alliance members to continue making targeted, individual and often very important strategic decisions on their own, in line with their best interests

While we are pleased with the commercial arrangements with our US airline partners, there are a few matters where we disagree with some members of the US airline industry

Let me say a few words about the debate over Reauthorization of the Export Import Bank.

First, there was a great deal of misinformation about Emirates. The facts are simple… overall, just 12% of our fleet is financed through Ex-Im and 13% from European export credit agencies

The vast majority of our fleet is commercially financed from external sources relying on our strong balance sheet

Our robust financial profile rewards us with favourable risk-based credit prices

We were thus a tad dismayed when Delta sought to limit the role of the Ex-Im Bank in a way that would not only harm US exports but also stifle international airline competition

Their stance was particularly surprising in light of reports that Delta has purchased some $4 billion worth of planes from Embraer and Bombardier using export financing from Brazilian and Canadian export credit agencies

Delta will benefit further when it begins a lucrative Ex-Im financed deal with Gol of Brazil to repair US engines

What Emirates supports, as do some other US carriers, is an expansion of Ex-Im, not a roll-back of its activities
Given challenging commercial lending markets, greater access to export financing credit – including Ex-Im access for Delta and all US carriers – is in the best interest of the US airline and aerospace industries, and certainly US jobs

As you‟re aware, aerospace exports are critical to President Obama‟s initiative to double US exports, and they produced a $7.3 billion trade surplus last year alone

And when American products have financing that is comparable to that offered by Europe and other countries, their high quality,reliability, durability and value give US companies the ability to compete effectively

Our perspective on issues like export financing and competition reflects our origins and values, as well as our commitment to the future

The need to compete vigorously and effectively was instilled in Emirates management from the very beginning, when the airline received $10 million in start-up capital from the Government of Dubai and was told never to come back asking for more

We did not have the option of waiting for the traffic to come to us

We recognised the potential of Dubai as a hub – and set out to build an airline to make it work

With 75% of the world‟s population within eight hours of Dubai, we saw that new aircraft technology, particularly the 777‟s development in the mid-1990s and the fabulous A380s a decade later, would allow us to connect the globe

Emirates has proactively capitalised on Dubai‟s location along the New Silk Road to link both developed and developing nations together

Likewise, we looked beyond existing tourist markets to expand international leisure travel, tapping advances in information to drive the evolution – and revolution – in leisure markets

From the very start we also envisioned emerging trade routes for the 21st century

Many of our competitors had long relegated markets in the developed world such as Prague, Venice and Hamburg to the
status of secondary spokes, to be served only by short-haul flights to established hubs and leave passengers with no choice but multi- stop trips

Emirates reached a diametrically opposite conclusion

We launched non-stop, long-haul flights to these cities, and passengers responded by filling our wide-body aircraft to take advantage of the convenience and reduced journey times of one- stop flights via our Dubai hub

Emirates was also the first to launch long-haul flights to many secondary cities in the Middle East, Africa and the South Asian subcontinent

We opened non-stop services to places like Durban, Basra, Bangalore, Adelaide and Peshawar – cities that were not exactly considered by airlines as essential points on the international long- haul travel map, yet have fast become vital spokes in our network

Today, our network is our greatest asset

In India we operate an unparalleled 185 weekly flights to 10 cities

In Africa, Emirates serves 21 destinations across a continent that is burgeoning with economic growth

To the new economic drivers of the 21st century – the BRICS nations of Brazil, Russia, India, China and South Africa – Emirates offers 300 weekly flights – more than Lufthansa, United, Delta or any other airline

Emirates also recognised the potential of air cargo in the global economy, using both freighters and the bellyhold capacity in our wide-body passenger flights

In America, we provide critical uplift to a host of firms across many industries – totalling nearly 800 tonnes per week of capacity out of the US

We carry auto parts from JFK, apples and cherries from Seattle, and oil and gas equipment from Houston

Our new service to Dulles opens up vast new options for US passengers and exporters

Not only will we introduce competition into the non-stop market to Dubai, but we will be highly competitive for connections to points beyond

In India, for example, the diversity and frequency of flights there will offer Washington travellers travel times to destinations like Delhi, Mumbai and Bangalore that are one to six hours faster than what is available on airlines operating over European hubs

The economic benefits to the Washington Metropolitan area will be impressive

When we began flights to Southern California, the Los Angeles Economic Development Corporation found that a long haul flight such as ours generates $624 million in annual economic benefits, sustains 3,120 jobs and produces $156 million in annual wages

Houston Airport System and the University of Houston estimate Emirates services generate $257 million a year and will carry 98,000 new passengers a year travelling to or through Houston

But the economic benefits are not just about moving passengers and cargo. Emirates‟ history is closely aligned with Boeing aircraft

At Dulles we are using a Boeing 777, the backbone of our fleet. To date we have 116 777s, the most of any airline, powered largely by GE90 engines, and are set to eventually have 170 based on our current orders

We worked closely with Boeing to develop the B777-300ER and are now collaborating closely on future options for the 777 as we plan for fleet renewal

All told, Emirates has taken delivery of more than $26 billion worth of US aircraft – with another $30 billion worth of Boeing airplanes still on order

Equally Emirates engagement with Airbus has seen one of the largest orders in aviation history – 90 A380s, of which we have 23 in service today and seven more arriving by year end

Such investment decisions weren‟t taken easily – they require enormous commitment and hard-earned global financing secured from a balance sheet we sweat over daily

But the economic benefits shared by our airline and America‟s economy are enormous

Using the Department of Commerce estimate that each $1 billion of aerospace exports creates or sustains 6,800 direct and indirect US jobs, Emirates‟ US purchases to date have supported nearly 180,000 US jobs

And the same metrics must apply to the Europeans

These are quality jobs not only at large companies like Boeing, GE, Honeywell and Rockwell Collins, but also at countless medium and smaller suppliers. The 777, for example, has 11,000 small business suppliers on its program

While Emirates is proud of where we came from, what matters most is the future and our commitment to imagining what is ahead

The focus at Emirates has always been on discovering new markets and connecting previously unconnected passengers and shippers around the globe

Our challenge – and our commitment – is to apply that philosophy to the expanding middle classes in the developing world and to a world that is being remade by new information technology

By 2025 China‟s middle class will make up half of its population – that‟s 700 million people with expanding appetites for travel and leisure, more than the size of all of Europe today

In Brazil – the home of the next Olympics, the burgeoning middle class is already an unheralded force in international tourism, spending an average of $43 million per day, more per capita than any other nationality

More than 1.5 million Brazilians visited the US last year, injecting $8.5 billion into the American economy and becoming, you may be interested to learn, one of the fastest growing sources of new visitors to US ski resorts

The 10 fastest growing economies last year were evenly distributed across the emerging world, in particular to countries in the Middle East, Central Asia, Africa, Latin America, the South Asian subcontinent and Oceania

Connecting people and goods from these countries to each other and to the rest of the world is at the core of Emirates‟ vision for the future

Meanwhile consumer behaviour in all nations is being reshaped by technology

Think for a second what has emerged in the US and globally in the previous decade but now taken for granted – SMS, GPS, hybrid vehicles, social networking etc

It was five years ago that Apple introduced the iPhone – now there are more than one billion smartphones around the world

The value of the “App economy” is estimated at $17.5 billion, supporting more than 450,000 jobs

Every day Apple receives 50 million App downloads on its website – this innovation is an American story, and benefits the global economy

Just imagine where we will be in another 10 years, and the rewards for companies that can identify emerging needs and markets

The 360 degree visibility and convenience brought about by Apps and smartphones is destined to play a huge role in changing how we book, and indeed whole travel patterns

So while there may be pessimism about the state of Europe and the global economy, there is life beyond current worries

We have only scratched the surface for the Internet‟s true potential, yet the technology has already allowed small and medium sized businesses to stand toe-to-toe with the mega-corporations

This is what drives our optimism about the global economy

Emirates is both delighted and honoured to expand service to the United States, the country that brought the world Open Skies and aviation pioneers like Fred Smith and Herb Kelleher…

They recognised the importance of seeking out new markets with new concepts of how aviation can meet the needs of consumers, and they were committed to testing their ideas through open competition

Emirates welcomes the challenge of competing with US carriers in the marketplace

Unfortunately, there are indications that some US airlines favour protection over competition

Recently I met with the leading aviation official in one of the most important emerging markets in the world

He told me a US airline CEO had just left his office after spending nearly the entire time talking not about his own carrier and its plans, but about Emirates and the horrendous threat it posed to his country‟s airlines

I guess it‟s a compliment

In any event, I can assure you that I spent my time with this important official by focusing on how Emirates can better serve his country, its passengers, shippers and wider economy

Here in Washington, the good news is that the US remains a deeply open, vibrant and welcoming market

So let me conclude by again thanking the Club for the opportunity to speak today Emirates is committed to the US

We plan to continue expanding competitive choice for US air travellers and businesses

We remain committed to purchasing US aerospace products and creating US aerospace-related jobs

I hope we will have the chance to welcome you on-board one of our flights in the near future

Thank you

Good afternoon Ladies and Gentleman

I am delighted to be back again in Washington to address this distinguished audience and thank you Natalie for your kind invitation.

My last visit here was in October 2009 and quite a lot has happened since then. British Airways has merged with Iberia and I have a new job, we gained approval for our transatlantic joint business with American Airlines and a Brit nearly won the men’s singles title at Wimbledon for the first time in 76 years.

IAG:
International Airlines Group was born on January 24, 2011 when the merger between British Airways and Iberia was completed. We are listed on both the London and Spanish stock exchanges with our headquarters at Heathrow where about 50 per cent of our employees are Spanish, leading to a great cultural mix.

You may have noticed that our name is neither glamorous nor attention-seeking and our logo is grey. That’s deliberate. For us the independence of our airline brands and operations within the overall group structure is key. As you know, European airlines’ brands are closely associated with national identities and they have clearly defined markets and we did not want to do anything to undermine that. For us, the key customer facing brands are British Airways and Iberia – IAG is an investment brand.

We have already had some major achievements at IAG. We exceeded our first year targets to boost revenue and achieve economies of scale and completed our first acquisition with the purchase of bmi, the UK’s second largest airline.
One of the key benefits of any merger is that it provides the opportunity to generate additional revenue and cut costs. In our first year, we achieved net cost and revenue synergies of 74 million euros, some 64 million euros more than target and have already increased our annual synergy target from 2015 onwards from 400 million euros to 500 million euros.

bmi has long been a target for British Airways and IAG and the opportunity to buy the airline was created when Lufthansa decided to sell it last year. While bmi was chronically lossmaking, its position as the second largest slot holder at Heathrow made this deal a no-brainer. It was completed earlier this year and, despite what I said about IAG airlines maintaining their brands, bmi will be absorbed into British Airways. This is because it makes sense as the two airlines are based at Heathrow and bmi does not have a global brand – I’m sure many Americans have not heard of it. But trust me, this is a great deal for us.

While we are giving up some slots for regulatory approval, by having a wider slot portfolio at Heathrow, British Airways has the flexibility to use its slots more effectively. This means that they can launch routes to the new economic powerhouses – such as Seoul which starts in December – while maintaining key shorthaul services.

While we have started on our path to further consolidation close to home, we have much wider ambitions to be a leading global airline group. IAG has been created to play its full role in consolidation and we believe we are a game changer. We have developed a common platform of shared services so that new airlines joining IAG can plug into the group easily while retaining their own brand and identity. This was unique in consolidated airline groups – though others are now following where we have led.

CONSOLIDATION

So far, we have seen airline consolidation on a regional basis – in Europe, in Latin America and here in the United States. The aviation industry has taken a while to realise that in these tough economic times when the industry’s margins are wafer thin, airlines are stronger together.

Merging enables airlines to reduce their cost base and work together to increase revenues bringing benefits to their customers, shareholders and employees.

However, for us to move towards global consolidation, we need to remove the restrictive regulatory shackles that dominate our industry around the world. In aviation, liberalisation tends to be viewed as a threat not an opportunity. We are a global industry unable to compete effectively on a global stage.

I know these views are nothing new to this audience – and certainly nothing new coming out of my mouth. However, the United States has shown its ability in numerous sectors to compete effectively for market share and influence around the world. It is inventive. It is agile and it is hungry. Surely a liberalised aviation market would enable the US airlines to thrive and it is no surprise that some of your CEOs are now calling for a more liberal regime. However, this needs to be on a global not a national scale.

CHANGING FACE OF AVIATION

As has been said many times before, those who snooze, lose. The traditional powerhouses of aviation – the US and Europe – are under threat from those countries where the government provides the right environment to allow airlines to flourish. Countries like the Gulf States and China are becoming the new aviation giants and we ignore them at our peril. China is building 50 new airports in the next five years and many of the Gulf states have built new airports. They regard aviation as not just an important industry but a key driver in their economic strategy for growth and critical for their global standing.

Last week at the Farnborough Air Show, IAG signed a memorandum of understanding with COMAC, the Chinese airframe manufacturer. This means that we will hold discussions with them about the requirements that our airlines and their customers expect from new aircraft. It doesn’t automatically mean that we will order their aircraft but I am convinced that COMAC will become a major global player in the airframe market.

GOVERNMENT ACTION

Contrast the attitude of these governments with that of our own and the difference is stark. The British government increased UK Air Passenger Duty – which is already the world’s highest aviation tax – by double the inflation rate in April. It has increased by 360 per cent in the last seven years and is stifling growth in the UK economy and undermining aviation’s ability to contribute to economic regeneration. In 2011, UK passenger numbers were the same as in 2004 while numbers across other European airports continue to rise.

In Spain, the economy is in dire straits but one of its main industry sectors is tourism. So what does the government do to raise revenue – increase passenger taxes by up to 10 euros per passenger, encouraging tourists to take their holidays elsewhere.

Another key issue in the UK is the government’s complete lack of aviation policy. There is a planned consultation about the critical issue of increasing airport capacity but even last week this was delayed until the autumn. To be honest, we have nil expectations that the consultation will deliver anything more than some lukewarm words.

Maybe the British government doesn’t care about keeping Heathrow’s status as the world’s number one international airport, or that it is a globally recognised brand, or that Terminal 5 has been voted the best airport terminal in the world.

Maybe it is happy to give up this number one slot as it does not appear to value our industry and the contribution it makes to the British economy.

Maybe it doesn’t care that while it sits on its hands and does nothing, countries around the world are rubbing their hands with glee waiting to pounce and take advantage of Britain’s intransigence.

I care, my aviation counterparts care, our customers care and British business cares. The irony is that in the UK, the government does not pay for any aviation infrastructure. It is paid for by the industry but the government won’t enable us to develop the facilities we need.

EU ETS

Another governmental led initiative that is causing considerable concern in global aviation is the European Union’s emissions trading scheme. Aviation was included in the EU scheme from January this year with airlines making their first carbon payments next year.

The scheme applies to all airlines, regardless of nationality, that operate to and from or within the EU. Emissions created on the entire journey are included in the scheme.

This has led to huge concern with 30 non-EU countries opposing the scheme. There has already been retaliatory action with Airbus orders being cancelled by China – and the threat of more retaliation to come.

We understand your concerns in the US about sovereignty and charging for carbon emissions and we also have our own reservations.

There is a real threat that the imposition of this scheme will lead to a trade war. And it won’t be the EU that bears the brunt of any action. It will be EU airlines. In our fragile industry, the last thing that we want is to have our business undermined further by government action.

Do not get me wrong. We are fully supportive of carbon trading being the most effective way to reduce aviation emissions but it has to be done in a way that does not create friction and discord. The long term solution must be a global scheme led by ICAO.

In the interim, one possible way to resolve this current situation is to consider only charging for emissions in EU airspace as a first step.

I hope that this stand-off can be addressed and resolved as soon as possible however I won’t hold my breath. The EU’s environmental commission has its blinkers on and seem hell bent on seeing this through. It appears they have no concept of its impact on businesses within its member states at a time when the European economy is in a precarious state.

We need to work closely with ICAO to develop the framework for a global system – and that means all of us. For this issue to be resolved in the long term, we need countries including the United States to get involved and show their commitment for a global scheme.

JOINT BUSINESS

The last time that I spoke here, British Airways was in the middle of seeking regulatory approval for our transatlantic joint business with American and Iberia. They say that everything comes to those who wait and in summer 2010, after 14 years, we got the regulatory green light to go ahead.

We wasted no time in getting the joint business started in October that year. 21 months on, I am delighted to say that it is proving to be a resounding success with great customer benefits.

The joint business operates 53 routes and up to 99 round trips between North America and Europe every day and in May this year our 20 millionth customer flew across the Atlantic.

Our customers have access to a wider network with more choice, better schedules and the ability to book all joint business codeshare flights on each airline’s websites. You can even check-in and print off your boarding pass on any of the websites.

We’ve launched new routes that are more viable when supported by all three airlines’ sales team rather than just one and we’ve co-ordinated schedules on key routes. This included the introduction of the JFK-Heathrow shuttle with, for example, flights departing Heathrow every hour on the hour between 1pm and 8pm.

In five key hubs at JFK, Miami, Chicago, Heathrow and Madrid we have introduced oneworld transfer support centres. Here customers at risk of missing their connections are met at the arrival gate by staff who have already rebooked them onto the next flight and printed off their boarding pass. They are then fast tracked through the airport to get their flight.
In addition, customers whose flights are funded by the Fly America policy, and I know that there are many of them here in Washington, now have fantastic access to British Airways extensive network in Europe, Africa and Middle East.

AA

While discussing the joint business, it seems a good opportunity to discuss American Airlines’ current progress through Chapter 11.

AA is a key partner to British Airways, to Iberia and to IAG. This is a long standing relationship formed under the oneworld alliance.

We fully support their decision to go into the Chapter 11. It was the right decision and we believe that it will make them much stronger. A stronger AA not only benefits its customers, employees and shareholders but it also benefits its partners.

Last week AA said that it was looking at several future options including possible consolidation. We would be supportive of any option that strengthens AA, our partnership and the oneworld alliance.

I have said previously that I believe that there will be more consolidation in the US market – and my view remains the same.

BRITAIN 2012

2012 is a historic year for Britain. Despite torrential downpours, that were excessive even by our standards, we celebrated the Queen’s Diamond Jubilee in early June with great gusto.

We have barely caught our breathe but in 10 days – yes, I know 10 days – the 2012 Olympic games will start in London.

This is a great opportunity for us to showcase the United Kingdom to the world and we are ready to welcome the athletes, officials and supporters. We were delighted that a British Airways aircraft brought the Olympic flame from Greece to Cornwall to enable the Olympic torch to be carried across the UK before being taken to the stadium for the opening ceremony.

I know that we will all be watching the games on TV but if any of you fancy popping over to London, I am sure the BA folk here in the audience would like me to remind you that they currently have a fantastic offer available! BA is currently offering “London for Free” where you can get two nights’ free hotel accommodation in London between July 27 and September 30 if you book a round trip airfare. This period covers both the Olympic and Paralympic games – more details on ba.com!

While Britain is focused on creating a fantastic Olympics and beating the US in the medal table, our relationship is as strong as ever.

Our shared history as airlines and nations goes back a long way.

Aviation is a key economic driver in America, contributing $669 billion in Gross Value Added to the US economy, some 4.9 per cent of the total. It also supports 9.3 million direct and indirect jobs in the US.

British Airways has a strong presence here – it is far and away its largest and most significant market. Whenever I am here, I am always made to feel welcome as were previous BA chief executives. In particular, Lord Marshall – who many of you knew – who was key in developing British Airways brand and values in the US. Sadly, Lord Marshall passed away on July 5 and I am sure that you will join me in sending condolences to his family.

CONCLUSION

Since I last spoke here, there have been many changes in aviation. There have been more mergers and acquisitions, airlines have failed in tough economic times, some countries are developing their aviation industry at a rapid rate and global environmental issues have come to the fore.

The industry will continue to adapt, as it always has, to the predictable and the unexpected. What we need is to ensure that governments create the right environment to allow us to compete effectively on the global stage.

We are not looking for hand-outs, far from it. Just the ability to run our own business in a way that not only allows us to prosper but that doesn’t jeopardise the benefits that aviation brings in terms of growth and jobs

Thank you.

Thank you, Natalie (Hartman), for that gracious introduction. And, thank you, for inviting me to join this distinguished group.

We began today by remembering Andy Steinberg. Let me offer my condolences to you, his aviation family. In reading about him in The Washington Post, I was struck by his achievements. But, the last paragraph was really the measure of the man:

… a past president of the International Aviation Club . . . He also volunteered for a Boy Scout troop … and he was co-instructor for the aviation merit badge.

How you spend your time off the job speaks volumes. That Andy could lead delicate international negotiations, articulate the finer points of the law, and then come home to work with Boy Scouts on the rigorous requirements of an aviation merit badge. Well, as the mother of a Boy Scout, that is tremendous testimony to his character — and to his priorities.

Last week, we at NTSB also suffered a loss. The mid-air collision of two GA planes in Northern Virginia, hit close to home.

We investigate hundreds of GA accidents each year, but this one took the life of our chief medical officer, Dr. Mike Duncan. Before Mike joined the Board, he had an impressive career at NASA, which included working in Star City, Russia, with U.S. astronauts and Russian cosmonauts preparing for the sixth launch to the International Space Station as well as leading the team that went to Chile in 2010 to support the rescue of 33 trapped miners.

Andy and Mike — both lives well lived, lives characterized by looking after others — that captures exactly the point I want to make today: In accident investigation and in aviation safety, we are our brother’s — and, of course, our sister’s — keepers.

Today, as we work together across boundaries to learn what caused an accident to prevent future ones, we are doing even more world-wide to help those whose lives are affected by them.

This is why the growing move to provide family assistance after an accident is so important.

Congress passed the Foreign Air Carrier Family Support Act in 1997. The act requires all part 129 carriers to have detailed response plans for a fatal accident in the United States and it gave NTSB responsibility to coordinate family assistance with the carrier and other organizations, such as the Red Cross and local coroners.

We take these responsibilities seriously, as must the carriers. It is the law. It is also the right thing to do.

Several countries have enacted family assistance legislation. In 2010, the European Union included family assistance in its regulations harmonizing accident and incident investigation. These regulations directly affect the 27 member states, as well as all of the countries operating aircraft within the EU.

On a broader scale, ICAO is developing new initiatives to support families. We were honored to be asked to support these efforts along with Hans Ephraimson-Abt, who is here today.

The current focus — being supported by an international and interdisciplinary team — is to create a policy document on family assistance. The new policy document, which should be ready for the 2013 Assembly, will level the playing field for family assistance.

We applaud ICAO for its leadership in this area.

At the same time we are doing more to help those affected by accidents, we are working more effectively across boundaries to learn their causes … so we can prevent future accidents.

Yes, in safety, we are our brother’s keeper.

International relationships have brought major improvements in the U.S. safety record and have helped raise safety standards around the world for billions of air travelers.

As you know, ICAO Annex 13 authorizes the state of occurrence to lead the investigation and others to participate. In foreign investigations, an NTSB investigator is designated as the U.S.- accredited representative. That representative then leads a U.S. team of technical advisors.

It’s clear that multi-national interests lead to multi-national investigations. Accidents can occur anywhere in the world involving U.S. operators and U.S. equipment. Likewise, accidents may happen on U.S. soil, but involve foreign interests. The “Miracle on the Hudson” involved US Airways, Airbus, and engines produced by CFM, a joint venture between U.S. and French companies.

Our investigators have supported thousands of foreign investigations. The support can range from assistance in our lab to investigators assisting on scene and in the months that follow. Over the past year, we’ve examined more than 125 recorders in our lab — of those about 30 percent were from foreign investigations. The recorders from Sunday’s deadly Dana Air crash in Nigeria are on their way to our lab.

In fact, the majority of the fatal air carrier accident investigations the NTSB works on each year are non-U.S. events. One of our investigators — Dennis Jones — spends about half of his time supporting Safe Skies for Africa. Dennis is in Lagos right now.

Our investigators have been called to a wide range of accident sites — from an Afghanistan mountaintop, to the middle of the Amazon, and everywhere in between. Yes, first and foremost, they are aviation safety experts, but, in many ways our investigators serve as diplomats for the United States.

Take the 2005 accident that killed John Garang, newly appointed Vice President of the Sudan. His appointment came out of a peace agreement brokered by the U.S. government to end the decade-long war between North and South Sudan. Garang was traveling in the Ugandan presidential helicopter after a meeting with the Ugandan President. Everyone on board perished in the crash. Understandably, emotions ran high, fueling rumors of sabotage and terrorism.

Our investigators, sent as technical advisors, were soon asked to stay and help complete the investigation. Both governments ratified the accident report, which pointed to flying VFR in bad weather. So, while we initially launched to provide limited assistance, we may have helped prevent a war.

Yes, so many times there’s so much more to accident investigation than recorder readouts, reconstructing the wreckage, and radar returns.

Time after time, the safety benefit from the NTSB’s involvement is clear. It is immediate. This is because U.S. stakeholders, including the FAA and manufacturers, are able to see — firsthand — and identify a safety issue overseas before we see it here at home.

Take the 2007 accident in Japan — after taxiing in an engine fire erupted on a China Airlines 737. The fire quickly began to engulf the airplane and led to a fuel tank explosion. Fortunately, everyone got off safely.

The NTSB team helped identify the cause of the fuel leak that led to the fire. Within a week of the accident, the FAA and two other national authorities issued emergency Airworthiness
Directives.

That’s just one of many examples of the benefits of our participation in foreign accident investigations.

And, often, we are on the receiving end of international cooperation.

For example, three years ago, a Pilatus airplane, carrying three families headed for a ski vacation, crashed in Montana. All 14 onboard perished. Uncovering the accident’s cause was a major challenge for our investigators — no survivors, no recorders, no documented distress calls, and completely destroyed wreckage.

For months, our team doubted they could solve this puzzle. Yet, the answer was found with the help of our counterparts.

For months, our team doubted they could solve this puzzle. Yet, the answer was found with the help of our counterparts.

One of our investigators sifted through the wreckage to find a circuit board. He believed one of its tiny computer chips — so small it could rest on his fingertip — would provide much-needed information.

And it did — with the help of our Swiss and German counterparts. In their labs, they extracted crucial data that led to the probable cause. That, in turn, led to safety recommendations to prevent future accidents.

All of this is to say — and it is something that you, as members of the International Aviation Club know full well — aviation is a community. We may be global or regional, we may be large or small, we may be seasoned hands or just starting out, but we are safer and more successful when we work together.

Even taking into account varying judicial systems, levels of transparency and privacy protections, and acknowledging different cultural and political priorities between nation states, there are just too many benefits and safety improvements that can be gained from working across borders.

IATA predicts that in two years the world’s airlines will carry 3.3 billion passengers — that’s nearly one-half of the world’s population.

That’s just the airlines. Air travel is expanding to space. The Space X craft successfully splashed down last week and Virgin Galactic is on track for its first flight later this year. It’s our responsibility — across the community and around the world — to ensure the high standards of aviation safety — of aerospace safety — are not just maintained … but are improved.

In closing, I began my remarks talking about the mid-air collision that killed Mike Duncan. The other pilot, who survived the crash, is an FAA accident investigator. Because the airplanes were operated by NTSB and FAA employees, we were concerned about conducting a truly independent accident investigation.

After consulting with FAA Acting Administrator Huerta, I called Chair Tadros of Canada’s Transportation Safety Board. I asked TSB to take the lead in this investigation. As difficult as that call was, it was because of the international work of the Safety Board — because of our relationships — that the call was easier to make.

And, it was the right call.

As I look around the room today, I see so many members of aviation’s global family — regulators, airlines, manufacturers, labor, and more. You know as well as anyone that in safety we are our brother’s keeper.

Thank you for that very gracious introduction, Natalie [Hartman], but more importantly for the opportunity to say a few words tonight. I have been looking forward to this night a lot, because it’s not often that you get the chance to celebrate, before an audience of this quality, the accomplishments, and the specialness, of a dear friend and longtime colleague.

Thanks, too, to Aviation Week for understanding that, every now and then, work conducted wholly in the public sector is worthy of recognition. Everyone who works in any aspect of aviation is of course in awe of the miracles our colleagues in the aerospace industry have achieved. But it’s important that airlines have someplace to fly these wondrous machines, and ensuring the availability of those destinations and the maintenance of a competitive environment is the work of government. Thank you for acknowledging, through this award and others that you have bestowed, the vital importance of the public-private partnership through which air transport has become the global economic driver that it is.

You have already heard quite a lot about John Byerly, but with your permission I want to reflect on some of the highlights of his amazingly distinguished career.

You all know, I’m sure, that John was America’s chief aviation negotiator for nine years — longer than anyone else in history. You might not know this, but they actually retired his jersey upon his departure, and it hangs today in the atrium at the entrance to the State Department.

But if anyone thinks that the Pogue Award is being given to John to celebrate his longevity, let me quickly disabuse you of that mistake. It’s the “Pogue” award; not the “Job” award.

Before I offer you some further insights into what makes John’s career in aviation so special, however, you need to know a few things about his non-aviation career.

ohn graduated with highest honors from the University of North Carolina, studied German and European law on a Fulbright Scholarship at the Free University of Berlin; and then went to Yale for a law degree. He began his career at the State Department immediately after law school.

He was what they call at State a “fast tracker.” Consider the following:

Ronald Reagan paid his first visit to Berlin early in his presidency. It was a divided city – divided, of course, by the Berlin Wall. While there, President Reagan made special a point of visiting Checkpoint Charlie in as visible a way as possible. He was accompanied by a young control officer from the U.S. Mission in Berlin. It was John Byerly.

John remained in Berlin for a number of years helping to manage the U.S. role in that curious, tripartite post-war arrangement. Among his duties was overseeing Spandau Prison, where Rudolf Hess was still locked up.

Just a brief footnote: That that young control officer who accompanied President Reagan to Checkpoint Charlie was able to negotiate an Open Skies agreement with a unified Germany just fifteen years later is an interesting prism through which to view not only John’s career, but a very important chapter of recent history.

Upon returning to State Department headquarters, John joined the Legal Advisor’s Office and soon found himself legally advising the Bureau of African Affairs. In fact, he became advisor to one of the true giants in the history of U.S.-Africa relations, Assistant Secretary Chester Crocker. John worked on the removal of Cuban troops from Angola, getting the South Africans out of Namibia, and helping to end other conflicts in places like Mozambique, Ethiopia, and Rwanda.

Another quick footnote: If you have ever wondered why John never seemed particularly daunted at the challenge of negotiating over third, fourth, and fifth freedom rights, you are probably beginning to figure it out.

Along the way, John also served as Principal Deputy General Counsel at the CIA – I have no anecdotes to share about that chapter of his career — and as General Counsel to the Sinai Peacekeeping Force, based in Rome.

From 1985 to 1989, John was assigned responsibility for providing legal support to the State Department’s Office of Transportation Affairs. His client during all of that time, I am very pleased to tell you, was yours truly. I assumed that some psychological adjustment might be necessary – John was transitioning, after all, from the civil war in Namibia to a dispute over baggage-handling in Zurich – but he hit the ground running and never looked back.

After just one round of talks with John at my side, his talent as a lawyer was obvious. You’d spend an entire day wrangling with your counterparts over some gap between the positions of the two sides – a gap that, however inconsequential in the great scheme of things, had begun to look like a yawning chasm. You would march off in a huff, utterly frustrated, wondering whether there was any conceivable point to resuming the talks the following day. You’d wake up the next morning to discover that John had been up half the night crafting a sequence of words that ingeniously bridged the difference between the opposing positions. We’d give John’s draft to the other side; they’d ask for a recess to consider it; and then they’d come back and say, “We can accept this.” Done. Thank you, John!

It’s called “getting to yes.”

I didn’t realize until years later that the most important reason for my sojourn at State was to keep the chair warm for John. Based on my earlier work with him, I was thrilled when AlLarson – who wanted badly to be here tonight but couldn’t — announced John’s appointment as Deputy Assistant Secretary. I was now at DOT, but I knew that John’s appointment meant that the DOT-State relationship, so vitally important to the effective conduct of U.S. aviation relations, would remain on the smoothest possible track.

I also knew from my own experience that John’s new job wouldn’t be all peaches and cream. After all, it’s the Department of State – exalted bastion of global diplomacy – and you are running the Office of Transportation Affairs. Half the building thinks you’re the motor pool. Occasionally I’d pick up the phone and it would be a secretary telling me, in the most officious possible way, that Ambassador Schmertz needed a car to take him to the Palm Restaurant in 10 minutes. I’d say, “Yes ma’am, tell the Ambassador that we’ll have a Crown Victoria and driver waiting for him at the C Street entrance.” Then I’d hang up and go back to my work.

Every so often a call would come in from an airline representative complaining that some jerk from the State Department’s Bureau of Inter-Politico Strategic Hoo-Ha was at Dulles Airport trying to intimidate a gate agent into giving him a free upgrade to business class.

No, not every day was consumed with high-falutin’ stuff.

But, to be honest, a lot of days were. The defining thing about that job is that, regardless of the subject matter of the negotiations, you know you are personally representing the United States of America. It’s a very special feeling, and a special responsibility.

Nobody has ever discharged that role with greater class than John Byerly.

You already know of John’s long list of international aviation accomplishments – hugely important Open Skies agreements with France, Germany, Japan and others – and of course his crowning achievement — the game-changing Open Skies agreement with the European Union in 2007. Let me give you just a quick reprise of that last one, because you really need to know how difficult it was to pull off. Given the hour, I’ll give you the Cliff’s Notes version.

The European Court of Justice announced in 2002 that the Open Skies agreements many EU member states had signed with the U.S. violated the Treaty of Rome. Why? Because under those agreements, only UK airlines could fly from London, only French airlines from Paris, only German airlines from Frankfurt, and so forth. That’s the way bilateral aviation agreements had always been done, and so that’s how those Open Skies agreements were written.

Because those agreements were now deemed in violation of European law, the EU Commission was given the authority to negotiate with the U.S. to modify them. The EU was a single market for aviation now, and therefore they needed agreements that made it possible for any and all European airlines to fly from London, or from Paris, or from Frankfurt, or from wherever.

A change of that kind obviously meant, potentially at least, that U.S. airlines would face a lot more competition at every European city than under the existing arrangements. The U.S. believes in competition, however, and so we said: “If we can sign an Open Skies agreement with the EU as a whole, we’ll accept that new approach.”

That should have been the end of it – two like-minded partners embracing a common idea. But then the EU added one more “ask” to its list. For the EU to sign an Open Skies agreement, they said, the U.S. would have to relax its long-standing restrictions on the foreign ownership and control of U.S. airlines.

It was the aviation equivalent of If You Give a Moose a Muffin. The essence of that profoundly insightful work of literature is set forth right at the outset: “If you give a moose a muffin, he’ll want some jam to go with it.”

If you give all EU airlines the ability to fly to the U.S. from any city in Europe, they’ll want some liberalization of our foreign investment restrictions to go with it.

Yes, it was a bit audacious. It was the EU, after all, not the U.S., that needed this new agreement in order to comply with European law. And yes, it represented a non sequitur of galactic proportions. But we took it on.

Why? Because the Bush Administration actually wanted to liberalize the foreign investment restrictions. This appeared to be an opportunity we could turn to our own advantage.

Well, without getting into the weeds, let me just say that we tried. We knew Congress wouldn’t change the governing statute, so we tried to do it administratively. That made a lot of sense, actually, because the whole problem had been created administratively by the CAB years before. John and I were dragged up to Capitol Hill to testify about why we were end-running the Congress, and got pretty badly beaten up. For a while, that testimony became a staple on Lou Dobbs’ nightly xenophobic rant.

Then, with immaculate timing, the Bush Administration – true to its convictions – approved a proposal by Dubai Ports World to acquire the stevedoring operations at a number of U.S. ports. It’s not at all an overstatement to say that all hell broke loose.

In the end, threatened with an immediate, veto-proof repeal of our proposed administrative change, and with the threat that Congress would impose even more onerous restrictions, we abandoned the effort.

John had actually been making great progress in the talks, but he now had to inform the EU side that what they had defined as an absolutely essential, must-have part of the bargain would not and could not be delivered. Not surprisingly, the talks went into hibernation.

When they resumed a year later, John was ready. There could be no more fantasizing about changing U.S. domestic law as the price for an international agreement. Instead, John and Daniel Calleja, with consummate skill, brought the two sides together over time through a less dramatic package of smaller concessions and the creation of a joint U.S.-EU committee that would continue to seek ways of making progress on the unachieved objectives.

In 2007, having been to hell and back, and against all odds, John was able to initial a U.S.-EU Open Skies agreement that would change forever the transatlantic aviation marketplace, and that would have profound implications for the shape of air transport around the world.

The EU had been 15 countries when the talks began; by the time John concluded the agreement, it was 27.

It’s just not possible to overstate the magnitude of that achievement. If you want to understand it even better, I would encourage you to visit the website of DePaul University’s College of Law. You will find there, under a link to the International Aviation Law Institute, a three-hour interview with John, available in streaming video. The interviewer was aviation’s answer to the late Mike Wallace, the ever-provocative Ken Quinn, of Pillsbury Winthrop. Ken asked John all the questions you would want him to ask – notably about John’s assessment of the arguments against foreign investment liberalization coming from the likes of organized labor, from then- Chairman Jim Oberstar, and from others.

John’s answers were surprising even to me. He actually does a better job of articulating the concerns of his opponents than the opponents did themselves.

To be an effective negotiator, you really need to understand the positions of the other side, and to understand the underlying reasons for those positions. You need to test your own convictions repeatedly against that understanding. John always demonstrated that ability in spades. Because he understood the other side’s position so well, his advocacy on behalf of the U.S. position was always supremely effective.

There’s so much else I could talk about – driving ratification of the Montreal ’99 Agreement that finally replaced the utterly anachronistic Warsaw Convention; defending the FAA’s highly controversial, politically inconvenient, but critically important IASA inspections of foreign CAA’s; working with governments around the world on a seamless response to 9/11; working through ICAO and in other ways to address the EU’s troublesome Emissions Trading Scheme.

But it’s getting late.

ohn, we thank you for your service. We also thank your family – and particularly your wife Sabine who, despite the pressures of her own formidable professional career, made it possible for you to spend so much time on the road working on our behalf.

And now, Ed [Hazelwood], let’s get down to the business at hand.

Introduction:

Thank you, Natalie, for your kind introduction.

It is a pleasure to be here with so many esteemed colleagues, representatives of government, competitors and friends.

We come together today in the nation’s capital at a critically important time for the U.S., for the global economy and for our industry

The recent long-awaited passage of the Federal Aviation Administration reauthorization helps set the stage for real progress for our industry. Yet the challenges ahead are significant. They are not solved with the passage of one bill – much, much more needs to be tackled.

For much of the past half century, the United States had the extraordinary fortune of experiencing relatively steady economic expansion – a period of growth and shared prosperity extending from World War II through 2008.

While the nation did experience some downturns and recessions over that period, they tended to be relatively mild and short. The fundamental trend was always pointing in one direction: up. And the same was largely true for much of the developed world – and in past decades, the developing world, too.

But, as we all know too well, the economic crisis that began in 2008 – and which continues to this day despite some promising signs – has presented wrenching challenges.

Put simply, there are very few Americans who can remember a time when we couldn’t count on the U.S. economy to power the job creation we needed… to provide a rising standard of living … to build a stronger foundation for the future.

But that is exactly the situation we face today.

Robust economic growth is no longer something we can take for granted. It is now something we all need to think about with great care. And it’s something we need to act upon.

I’ll leave with others smarter and more expert than I the unenviable task of offering prescriptions for bringing the economy as a whole back to its feet. But I do have one idea that I think can help and which everyone in this room can rally around: the travel industry offers a major opportunity for business and government to partner in a smart, strategic way. And that in doing so, we can spark in one giant corner of the economy exactly the kind of sustainable growth that is so badly needed.

Specifically, I will talk about a few core areas where – if industry and government can truly work together – we can unleash billions of dollars in growth and tens of thousands of new jobs. We, in fact, can help fuel our nation’s economic recovery. And while my focus today will be on the U.S., it is important to note at the outset that the prescriptions I will discuss are relevant for countries around the world.

Of course, creating consensus and cooperation around these issues will be no easy task. Some are long-standing challenges that have been talked about and debated for years. But I strongly believe the travel industry and government can come together if we focus on our common ground: the consumer… what consumers want and need, and how we can best serve them. If we approach the issues from this vantage point – keeping consumers at center stage – then I believe we can develop meaningful solutions. We can drive progress.

And so as we think about consumers and what they want and expect from our industry, I think there are four big agendas that we can collectively pursue:

And so as we think about consumers and what they want and expect from our industry, I think there are four big agendas that we can collectively pursue:

Affordability – travel must remain within the budgets of families and businesses of all sizes and backgrounds

Convenience – while travel will always have some logistical challenges associated with it, the job of our industry – in partnership with government – must be to mitigate those hassles.

Safety – this one is obvious, but travel must remain as safe as possible, even as we work to put more planes in the skies and on the runways.

Finally, a Transparent Marketplace – consumers must feel confident that they are navigating marketplaces in which they can easily compare offerings from competing providers and choose the one that is best for them.

I’d like to take my time with you today to talk about this 4-point Agenda for Consumers – but first, it is worth taking a moment to simply remind ourselves of how the travel business impacts the U.S. economy – why it is such a crucial engine for economic growth, and such a vital lynchpin in our society.

The Positive impact

This is something I talk about all the time – and these facts and numbers are no stranger to any of you. But they bear repeating as we consider the road ahead. Again, I will focus here on U.S. data – but a similar story holds true globally.

Travel and tourism is the largest services export industry in the United States. In fact, international tourists spent more than $134 billion visiting here in 2010, according to the U.S.Travel Association.

• One out of every nine jobs in the U.S. depends on travel and tourism. Last year, travel, and tourism supported 14 million U.S. jobs.

Overall, the U.S. travel and tourism industry generated $1.8 trillion in economic output last year.

Nearly $800 billion of that was spent directly by domestic and international tourists –spurring an additional $1 trillion in other industries.

Here’s another way to say it: for every dollar spent on travel, an estimated $2.34 of additional spending cascades through the economy. With that sort of multiplier, the travel industry can not only provide a bump to the U.S. economy- it can provide a shot of Red Bull.

And, as compelling as those figures are, there still is an extraordinary amount of untapped potential in travel and tourism. How do we unlock that value, injecting it into our economy and into struggling communities across the country? That is the question we must all be asking ourselves.

And the good news is that more and more people in industry and government are embracing this question and getting down to the hard work of answering it. That starts at the very top with the White House. President Obama deserves credit for his recent efforts to make travel a focus of his administration’s efforts to spur near-term economic growth and job creation.
His executive order calling for a National Strategy on Travel and Tourism is a welcome step in the right direction – and indeed much of what I want to talk about today is part of the President’s vision.

And so it is with great confidence that we look forward in the hope that on even the toughest issues we can tackle the challenges head-on – no more delays and excuses – and we can do so in a manner that keeps the consumer top-of-mind.

The Need For Partnership Between Industry and Government on Energy Policy

So let’s start with affordability.

As I said at the outset – and as we all know to be the case – if the cost of travel goes up, it quickly prices millions of people out of the market, forces businesses to tighten their travel budgets and generally harms the health of the industry.

And nothing more directly impacts affordability than the cost of energy. Our country needs a comprehensive energy policy because airlines desperately need freedom from being at the mercy of dramatic oil price volatility. If we do not solve this problem, continued fuel price escalation will result in more and more capacity coming out of the sky – meaning less choice for consumers, more expensive airfares, and less overall economic activity. As Airlines For America has estimated, every $1 per gallon increase in the price of jet fuel costs the U.S. airline industry $17.5 billion.

That doesn’t simply mean a loss for the airlines’ bottom line – it means fewer families are able to afford the cost of flying within the U.S., fewer tourist dollars flowing into our economy, fewer businesses able to send their personnel on critical trips. In short, that hit to the airline industry translates to a body blow to our entire economy, stifling job creation and growth.

That is why our nation needs a robust, comprehensive approach to addressing our energy challenges

First, we need to make our nation’s transportation system more energy efficient. That includes reforming the federal transportation infrastructure funding process, using oil consumption metrics to prioritize projects. Congress took a wonderful and welcome step forward with its passage of FAA Reauthorization, including funding for Next Gen air traffic control systems. I’ll have more to say about this in a moment – but let me just note that a long, complicated road lies ahead from the funding of Next Gen through to its deployment – and we will all have to come together to push this process forward expeditiously. It is that important to the vibrancy of our industry.

Second, we must accelerate the commercialization of alternative energy sources. That means implementing a comprehensive program designed to rapidly commercialize vehicles that derive power from the electric grid. And we must also facilitate the commercialization of the next generation of non-petroleum, biomass-derived liquid fuels that are environmentally beneficial and do not compete with food supplies.

Third, we need to improve and expand federal R&D into alternatives. To make that successful we will need to reform the existing institutions and processes governing federal R&D spending for early-stage R&D and for later-stage deployment and commercialization

Finally, we need to look at ways to expand domestic energy production, while preserving strong environmental protections. This last point is obviously a sensitive one – and it’s a topic that has often become politically heated. But I am convinced that working together there are ways to responsibly tap domestic supplies in a manner that is safe, respectful of the environment and consistent with a long-term effort to transition to lower-carbon alternatives in the future.

As government and business leaders, we must endeavor to break through the gridlock that has blocked a comprehensive energy bill from gaining traction in the past – it’s an imperative for our industry and for the entire U.S. economy.

The Need for Partnership Between Industry and Government on TSA/Visas

The second great imperative for consumers is convenience. And few things add more unnecessary burdens and hassles for consumers today than the process of securing a visa if you are an international visitor, or navigating TSA security once you are within U.S. jurisdiction.

For tourists looking to visit this country, the U.S. visa system is not only inconvenient, but at times seems downright impossible. Instead of encouraging visitors to come to our country and spend their tourist dollars, we make the visa application process so onerous that many foreign travelers simply give up. That’s taking money out of the coffers of U.S. businesses, preventing new jobs from being created, and sending it all to other countries and destinations that don’t throw up these barriers
Consider: In the entire country of Brazil, there have only been four U.S. consular offices. That is a lost opportunity especially when you consider that Brazil’s middle class is expected to surge

That is why the Obama Administration’s recently announced steps aimed at helping to fix the visa system are so welcome. The Departments of Homeland Security and State are developing a plan to speed the visa application process for tourists from Brazil and China and we have every reason to believe that real progress is possible. Bloomberg reports this could create 1.3 million 274 percent between 2010 and 2016

That is why the Obama Administration’s recently announced steps aimed at helping to fix the visa system are so welcome. The Departments of Homeland Security and State are developing a plan to speed the visa application process for tourists from Brazil and China and we have every reason to believe that real progress is possible. Bloomberg reports this could create 1.3 million 274 percent between 2010 and 2016.
U.S. jobs and inject $850 billion into our economy by 2020.
calling for legislation to allow more countries to be added to the list of nations whose citizens can visit the U.S. without obtaining a visa. The White House is also looking to expand the Global Entry Program. This initiative requires an extensive background check for frequent travelers to and from the U.S.; however, once they have passed, they can clear the immigration lines at airports much faster – security officials will be able to simply scan their passport and finger prints, and approved travelers will be good to go.
All travel industry stakeholders should get behind these enhancements and encourage expansions to them. They are safe and they just make good sense. Our visa system must offer protection to our country. But we have to view the travel experience through the consumer’s eyes too – and enhance that system so that it offers convenience to those who want to spend money coming to visit the U.S.

Within the U.S. travel system, the TSA security apparatus is in need of similar improvements. Since 9/11 the nation has made the necessary move toward bolstering security. But far too often we have mistaken adding additional layers of security with enhancing the actual security of travel. Moreover, the reactive posture of much of our security apparatus means that every time a new potential threat emerges – such as explosives hidden in shoes, in clothing or as a liquid – an entire new layer of security checks is added. The result is that for the 99.9% of travelers who pose no security risk, the process of clearing security has become increasingly long, unpredictable and invasive.

We can do better. The leadership of TSA deserves a great deal of credit for adopting new techniques and new technologies to streamline the security process. Applying risk-based strategies that allow TSA to focus its attention on the small subset of travelers who require additional screening and away from those who don’t… will make the travel experience more convenient, and safer, for everyone.

As anyone who has used the new Pre-Check program (formerly referred to as Trusted Traveler) can attest – it is truly a fantastic experience. Some have likened it to running naked in the wind… and while I can’t personally attest to that experience… I can say that traversing the security checkpoint without removing shoes, jacket, laptop, or liquids is a freeing experience.

We can extend that benefit to more people – so that the security check goes back to being what it should be for the vast majority of us: a quick, painless, non-invasive process that ensures our security without ruining our day… it’s the wind beneath our… wings.

And that, in turn, will make travel more attractive for consumers and a better engine of growth for our economy.

The Need For Partnership Between Industry and Government on Infrastructure and Air Traffic Control

The third item I would put on an Agenda for Consumers is safety.

To be sure, the U.S. civil aviation system is a model for safety. Indeed, the past years have seen tremendous achievements in safety – indeed, there has rarely been a safer way to travel than in today’s air travel system.

But to maintain that level of safety within our current infrastructure, we are sacrificing potential capacity and efficiency. The real test for our industry is to be able to substantially expand the number of planes in the skies and on the runways without sacrificing an inch on safety.

And that means urgently addressing the need for improving both our air traffic control system and air travel infrastructure in general.

As I mentioned a moment ago, Congress deserves great credit for moving forward with funding the long-overdue “NextGen” Air Traffic Control (ATC) systems… I obviously wish it had happened much sooner. The fact that our ATC system is based on World War II-era technology is a costly and environmentally unfriendly imposition on our entire aviation system.

With Next Gen funding now approved, we need to make sure we don’t take our eye off the prize. Making the funds available was only step one – and we know how long that step took! Now, we need to accelerate down the runway, ensuring that the FAA has the tools and incentives to move forward with timely deployment.

At the same time, making sure the travel industry has the proper infrastructure includes building enough airports and runways. And we need to make sure that this network is current, leveraging the latest tools and technologies. This is key to improving the safety, energy-efficiency and customer-service of our nation’s aviation industry. It is long, long overdue.

Importantly, as we look to make these much needed investments, we are treating them as just that: investments. Building and expanding air travel infrastructure pays off for the entire economy. It is, therefore, unfair, impractical and just bad economics to pile taxes and fees onto air travelers. Already, air travelers pay substantial taxes and fees to offset the costs of the air travel infrastructure. It would be a huge mistake to add on top of these, additional taxes aimed at plugging other budget holes. To do so would be self-defeating. The best path to tackling budget challenges is growing the economy – and that purpose is ill-served by taxes that act as a disincentive to travel.

The Need for Partnership Between Industry and Government on Protecting the Marketplace.

The final issue I submit needs to be on our Agenda for Consumers is one that has divided our industry, and that’s the issue of a transparent marketplace. I recognize that many people here today may not agree with my opinions on this score. But I hope you will hear me out, as I believe we will succeed together when we look at this from the consumer’s perspective, and hopefully when we find common ground.

Consumers have made it very clear that they want two things when it comes to shopping for and purchasing air travel: an easy way to find the best route or deal, and full, up-front transparency when it comes to cost. That means being able to efficiently compare offerings from competing airlines in the most apples-to-apples, all-inclusive manner possible.

That does not mean reducing air travel to a commodity product.

Airlines should be able to tailor their product to the individual flyer with offers on ancillary products ranging from seat assignments, to priority access and everything in between – that choice is good for the airlines and for consumers. But that value proposition falls apart for the consumer if it comes at the expense of easy comparison shopping.

That is why I am so passionate about working with our fellow industry stakeholders toward solutions that preserve and enhance the efficient marketplace, all – and let me stress this again – while allowing airlines’ the flexibility they need within that construct. We at Sabre are committed to doing our part. We continue to make huge investments to continuously upgrade our technology so airlines can seamlessly incorporate their customized offerings into this travel shopping marketplace – whether it is for preferred seating, checked bag fees, priority access, or any other ancillary products. And at no incremental cost to airlines.

We also are confident from our work with travel agencies, travel management companies and corporate travel departments that there is plenty of good will out there to embrace these customized products. But we cannot sacrifice their ability to see and manage the total cost of travel during the booking process.

Despite the controversy that has surrounded this issue, I continue to believe there is plenty of common ground.
I believe we all share a common commitment to competition.
I believe we all share a common commitment to transparency.
I believe we all want to protect a marketplace that gives consumers confidence to shop and purchase. This is a period of transition for the industry, and it is to be expected that such shifts will generate healthy debates about the best way forward.

I submit that the best way to clear the confusion is for the Department of Transportation to help by moving forward with rules that would establish a fair, level playing field for all airlines. Under such rules, airlines would have the freedom to choose to sell their products through any channel they deem appropriate for their business. And within those channels that an airline chooses to sell, they would be required to provide pricing on their core service offering, most notably the base ticket, bags, preferred seating, and boarding priority.

Under this system, airlines get the benefit of competing on a fair, level playing field. And the consumer would have the value of comparison shopping protected – and their confidence in the airlines validated – even as the industry continues to evolve.

This is a complex issue. But, again, I believe, as a baseline, we must focus on what our customers want and need, understanding that having a simpler way to gauge their overall travel cost makes for a better customer experience – and ultimately for more customers, traveling more frequently. As I said earlier, it just makes good sense.

Conclusion

s we look forward, there will certainly be many more issues where – as industry stakeholders – we have both shared… and differing points of view.

But I end with a call to all of us: we can no longer allow our disagreements to derail our progress.

The last decade has been an extraordinarily challenging one for the travel industry, for the U.S. and global economy and for travelers everywhere. Between 9/11, the unfounded fears of SARS and avian flu, and the devastating financial crisis that continues to weigh on the economy – it has been a time of great anguish for business and society.

However, the travel industry – and all those who legislate and regulate travel – have a chance to make a profound and positive impact.

Right now, today, the travel business has vast untapped economic potential. If everyone in this room works together, we can find solutions to the challenges that have held us back in the past. We can work through roadblocks we once found impenetrable. And we can make travel more affordable, more convenient, safer and more attractive to consumers than ever before.

At the beginning of my remarks, I said that we meet today at an important time. Let’s make this moment an opportunity for the travel industry to stand tall and drive progress for everyone. Let’s resolve to work together to help power the travel industry forward, restore the economy, and to create new jobs and new hope for the American people and for people the world over.

I have said it before and I will say it again: travel is good. This is our industry’s time to do good – for all our stakeholders… but most importantly for consumers.

Ladies and Gentleman,

It is a great pleasure for me to address the members of the Washington International Aviation Club and would like to thank you and your President, Andrew Steinberg, for this opportunity.

When you think about it, our two organizations have much in common.

Since 1961, the Aviation Club has been an effective forum for new ideas and new strategies related to commercial aviation in the United States and around the world. You have promoted interest in the development of aircraft, airports and air navigation, international agreements, cooperation and treaties, all related to international aviation.

For our part we have, since our creation in 1944, acted as the forum for Member States and industry to develop technical and operational standards, procedures and policies that enhance the integrity and efficiency of global air transport.

Over the years, ICAO has undergone many changes but it remains the only international framework for aviation. To meet the current and future needs of the international aviation community, and to maintain global air transport as a powerful contributor to economic and social development around the world, we are determined to keep changing and adapting to rapidly evolving circumstances.

As you are certainly aware, the sustained growth of air travel in the coming decades will exert tremendous pressure on air transport systems and infrastructure, many of which already
operate at peak capacity in various parts of the world.

This implies that we set clear objectives for ourselves, and the best way to predict the future is to create it.

And so, what kind of future do we want to create for ourselves?

Picture this:

In 2030, even with record-breaking growth rates, civil aviation is safer than it has ever been and no region of the world has an accident rate much higher than the world average.

Likewise, aviation security measures are more effective and efficient than ever. They no longer represent an operational and costly burden for airlines, and passengers have rediscovered the joys of travelling by air.

As for the impact of the aviation sector on the environment, the ambitious targets of 2010 have been surpassed and the sector is well on its way to achieving carbon neutrality.

Overall, international aviation increasingly contributes to the economic development of our global society and, in line with the Chicago Convention, is a key factor in promoting peace and understanding among nations and peoples of the world.

I believe we can realize this vision if we collectively put in place the right strategies and actions to accelerate the

To this end, my commitment as Secretary General of ICAO is to ensure that the Organization focuses its energies on three Strategic Objectives that matter most: safety, security, environmental protection and the sustainable development of air transport.
Allow me to illustrate, beginning with ICAO’s raison d’être transformation of global civil aviation.

To this end, my commitment as Secretary General of ICAO is to ensure that the Organization focuses its energies on three Strategic Objectives that matter most: safety, security, environmental protection and the sustainable development of air transport.

Allow me to illustrate, beginning with ICAO’s raison d’être.

Safety

The global air transport system is as safe as it has ever been and 2011 was the safest year on record. We can therefore only keep pace and improve by focussing on those areas with the greatest return on investment of resources. And we must do so together, in a multidisciplinary way.

Our first target is runway issues, the number I cause of fatal accidents. In cooperation with our aviation partners, including the FAA, ICAO has established a Global Runway Safety Programme.

Our goal is to raise awareness and bring the industry’s collective expertise, knowledge and best practices to bear on the range of runway safety-related events. The result has been a major update to the Runway Excursion Risk Reduction Toolkit.

Our number 2 priority is loss of control in flight. While fewer accidents are caused by loss of control in flight, they are almost always catastrophic and the primary cause of fatalities. Again this year, we will be partnering with key regulators, including the FAA and EASA, to further explore this issue.

Fatigue is another worrisome source of accidents where a global approach is required. Last year, we introduced new Fatigue-risk Management standards and guidance material for regulators and industry.

Safety is also dependent on the efficiency of regulators around the world.

While North American and European regulators are strong, 10+ years of ICAO safety oversight audits tell us that more than 50 ICAO States have less than a 50 percent level of implementation of ICAO Standards and Recommended Practices, the essential building blocks of a sound aviation system.

When I went to school, that was a failing grade. So we grabbed the bull by the horns and developed a Safety Collaborative Assistance Network, which matches States that demonstrate political will to act with States ready to assist through consulting and training. We also established a new voluntary safety fund called SAFE, to encourage States to donate funds for assistance projects if in-kind training is not an option. Results thus far are promising.

For those States that have yet to demonstrate the required political will, I, along with the President of the Council, have been making personal visits to Heads of States and Transport Ministers. Thanks to the proactive analyses methodologies we have developed, I can show them the risk
26.
We want to compel decision-makers to take action on safety risks before they result in accidents. We want to see concrete action and tangible results. Without political commitment, our best intentions are just words.
-7-
24. When I went to school, that was a failing grade. So we grabbed the bull by the horns and developed a Safety Collaborative Assistance Network, which matches States that demonstrate political will to act with States ready to assist through consulting and training. We also established a new voluntary safety fund called SAFE, to encourage States to donate funds for assistance projects if in-kind training is not an option. Results thus far are promising.
they run of a major aviation accident on “their watch” if they don’t do something.

We want to compel decision-makers to take action on safety risks before they result in accidents. We want to see concrete action and tangible results. Without political commitment, our best intentions are just words.

Now, these regulators with a failing mark are just part of the safety puzzle. Over the past year, we have been working with IATA, ACI and CANSO on an overarching aviation mechanism of Systems Assessments involving airlines, airports and air navigation services providers.

All three organizations have agreed to share information through the ICAO Global Safety Information Exchange, the result of an agreement signed with the U.S. Department of Transportation, the European Commission and IATA.

This collaboration creates a broader pool of information with which to assess the overall health of the aviation system. The more the network expands the more lives we will undoubtedly save.

Finally, for the first time in the history of ICAO, we recently published a Global Aviation Safety Report available to all stakeholders and the travelling public on our website. It is both a fascinating snapshot of aviation safety around the
world and a grouping of everything we do in support of safe air travel into one compelling “safety story.” This is “must” reading for anyone in aviation, as is our revised ICAO Global Aviation Safety Plan to be released in the coming months.

Another area of Safety I want to address deals with aviation capacity and efficiency. Over the next 10 years, ICAO States will invest more than 120 billion dollars to upgrade their national aviation infrastructures.

While we often speak of international harmonization, getting there is another story. In the context of air traffic management, it is a question of political will… .and timing.

I believe we have both the political will, and the right timing, to harmonize the modernization programmes underway by the United States in the form of NEXTGEN and the European Community in the form of SESAR.

The excellent cooperation between the US and the EU, ICAO and other industry stakeholders on the interoperability of these systems has laid the foundation for the development of standards necessary for the future deployment of the new technologies. We refer to them as Aviation System Block Upgrades and I expect them to be formally endorsed during ICAO’s Air Navigation Conference in November 2012

In effect, we have taken the international elements of both NEXTGEN and SESAR and grouped them into manageable “chunks” called Blocks which will evolve over the next 20 years.

The entire aviation community will need to either equip, or upgrade, along the same timeline… .or the overall benefits will not be achieved. This has long been one of aviation’s challenges, moving in unison, and I am happy that we are
well along the path to a global buy-in

To reinforce the process, I established a Future Aviation Challenge Team which brings together aviation decision makers from the FAA and the Joint Planning and Development Office, the European Community and the industry

Together we must and will further improve safety, passenger service, and our good stewardship of the environment.

Security

Let me know turn to security, the flip side of the aviation coin.

Terrorist attacks against civil aviation can be horrific and the potential for substantial and costly disruptions to aircraft operations enormous.

Even when acts of terrorism are thwarted, they can significantly undermine public confidence in air travel and seriously affect the bottom line of carriers. Threats to aviation have become more sophisticated and diverse. They evolve rapidly and target all components of the air transport system

Even when acts of terrorism are thwarted, they can significantly undermine public confidence in air travel and seriously affect the bottom line of carriers. Threats to aviation have become more sophisticated and diverse. They evolve rapidly and target all components of the air transport system

Effective security regimes must therefore be smart, cohesive, multi-layered, sustainable, and based on harmonized approaches among travel and trade partners. Terrorists seek vulnerabilities throughout the global network. They do not respect borders. All States have a vested interest in a global
web of effective national and regional security regimes.

I do agree we have made considerable progress in aviation security over the past decade. We can better anticipate, detect, intercept and protect against attacks. We can also respond more appropriately when attacks do occur. Still, we must continually reinforce and adapt our strategy.

That message came out loud and clear at the 2010 ICAO Assembly, as Member States unanimously adopted a Declaration on Aviation Security — a reaffirmation of their commitment to work collaboratively and proactively to
45.
The Declaration called for enhanced international cooperation in key areas, including the implementation of advanced screening technologies, the strengthening of air cargo security and more effective assistance and capacity building activities.
address evolving threats to civil aviation.

The Declaration called for enhanced international cooperation in key areas, including the implementation of advanced screening technologies, the strengthening of air cargo security and more effective assistance and capacity building activities.

In all of these and more, ICAO continues to exercise its leadership by facilitating global cooperation and implementation.

To strengthen security procedures and improve passenger facilitation, we are collaborating with aviation security authorities and the industry to develop an airport checkpoint of the future and improved screening procedures.

For air cargo, we adopted new and more stringent security standards, notably a requirement for States to establish a supply chain security process.

We are also expanding our relationship with the World Customs Organization and other regulatory agencies to develop appropriate new security controls for air cargo, while preventing unnecessary delays in the movement of goods across international boundaries

This is a huge undertaking given the vast amount of cargo handled by the world’s airlines: 48 million tonnes in 2010 alone, more than half of which was carried aboard passenger aircraft.

Improved security can also imply assistance. If it is to play its role fully, ICAO must focus its resources and attention on those States with the greatest need for assistance in
52.
Early last year in New Delhi, I kicked off a series of regional conferences to promote the implementation of the Assembly Declaration on Aviation Security. Others were held in Dakar, Moscow and just last week, in Kuala Lumpur. In each case, States and other stakeholders agreed on concrete actions for collectively and individually strengthening aviation security in accordance with the Declaration.
meeting their obligations

Early last year in New Delhi, I kicked off a series of regional conferences to promote the implementation of the Assembly Declaration on Aviation Security. Others were held in Dakar, Moscow and just last week, in Kuala Lumpur. In each case, States and other stakeholders agreed on concrete actions for collectively and individually strengthening aviation security in accordance with the Declaration

What I find inspiring about these conferences is the determination among States to continuously improve their security systems, and the willingness on the part of industry and other stakeholders to work with regulators.

By building consensus on critical priorities and issues, we are paving the way for a successful High-Level Conference on Aviation Security this September in Montréal. That is when the realities and concerns of each region — considered collectively — will contribute to a global solution for strengthening the aviation security framework.

Environmental Protection

much the same way that security is a global problem that requires global solutions, so is the issue of international aviation and environmental protection

In the specific area of climate, we have our work cut out for us. While there are clear differences among Member States, we have to come up with a global solution within the ICAO framework.

The basis for arriving at a solution is the Resolution on environmental protection adopted by the ICAO Assembly of 2010. Although contains a number of reservations, nevertheless made ICAO the first United Nations Agency to lead a sector the establishment of a globally harmonized agreement for addressing its 2 emissions.

The Resolution includes global aspirational goals of 2 per cent annual fuel efficiency improvement up to the 2050 and stabilizing at the 2020 levels. also calls
for facilitating the development and wider alternative fuels for aviation and a target development of a global certification aircraft.

One of the highlights of the Resolution is the voluntary submission to ICAO by June 2012 of national action plans. These action plans will allow States to identify how they can reduce CO2 emissions from international aviation and what assistance they may need. This will help ICAO to monitor progress in achieving global aspirational goals and to address specific needs of States.

With respect to the EU-Emissions Trading Scheme (EU-ETS), an issue which I know is close to your hearts, the ICAC Council adopted a Declaration on the subject in November 2011. It urges the EU and its Member States to refrain from including international flights by non-EU carriers to and from an airport in the territory of an EU Member State in its emissions trading system. It also urges the EU and its Member States to work collaboratively with the rest of the international community to address aviation emissions.

As you well know, disagreement persists.

I can assure you that ICAO is committed to accelerating its work on the development of a framework for market-based measures (MBMs) in international aviation and on the feasibility of a global MBM scheme.

A briefing session is planned for 20 January to update Council Members on progress made in this area.

As for the climate change conference held in Durban last December, we are continuing to closely monitor the work of the United Nations Framework Convention on Climate
Change – the UNFCCC — to ensure that international aviation is not singled out as a source of revenue in a disproportionate manner.

As we look to the future, we will continue to evolve, to meet the rapidly changing expectations of our Member States, the industry, and the travelling public. You have my word on that!

Crisis Management

Part of ICAO’s mission is to ensure that all areas of the world benefit from air transportation, in good times and bad.

Whenever there is a potential or actual disruption to aviation facilities or services, whether because of war, industrial action or natural disaster, ICAC is always ready to step in. With Member States, UN agencies and concerned international organizations, we make sure that major world air routes and airports, to the extent possible, remain open and accessible. This involves maintaining essential aviation activity such as air traffic control, communication, navigation and surveillance systems, weather reports and other information necessary for safe aircraft operations in the affected areas.

Some of the more high-profile crises in which we took part include the Hi Ni outbreak and pandemic; the aftermath of the volcanic eruptions in Iceland; the devastating earthquake and Tsunami in Japan; events in the Middle East related to the public unrest in several States affected by the so-called “Arab Spring”, as well as the crisis in Libya
69.
In a way, working behind the scenes, whether in times of crisis or on a day-to-day basis, is what ICAO is all about. What you don’t see you often take for granted. But without ICAO, there would be no international civil aviation as we know it today this past year.

In a way, working behind the scenes, whether in times of crisis or on a day-to-day basis, is what ICAO is all about. What you don’t see you often take for granted. But without ICAO, there would be no international civil aviation as we know it today.

Good afternoon, ladies and gentlemen. And thank you, Mr. Steinberg for the invitation and the kind introduction.

 

It is certainly an honour and a pleasure to speak at Washington’s International Aviation Club which is without a doubt one of the air transport industry’s most important for a in one of aviation’s most important cities. Consequently there is no better place to speak about the world’s most important aviation relationship.

 

I give this speech about one year after Vice-President Kallas, responsible for transport in the European Commission, spoke to you on “the future of transatlantic relations in air transport”. Regardless of how tough or how nice you will be with me today, I can already promise another EU luncheon speaker in 2012…

 

I would like to talk about the EU-US aviation relationship and also to explain how important aviation is to our overall economic health on both sides of the Atlantic and all quarters of the globe. The figures of our bilateral relationship remain striking, even to someone like me who is used to citing them as I travel around this great country: the EU and US economic relationship is quite simply the largest artery in the world, counting for more than 50% of world GDP and more than1/3 of world trade. Around 15 million jobs depend on transatlantic trade and investment.

The recent focus on the Euro area debt crisis has helped many in the US – sometimes distracted by China and Asia- realise how important the EU is for the American economy. Two weeks ago, at the EU-US Summit, our leaders confirmed that and agreed to launch a new Jobs and Growth High Level Group aiming at maximising the potential of our bilateral economic relationship. We can do even more together to promote jobs and growth across the Atlantic.

Within this vibrant relationship, aviation is fundamental to transatlantic investment, trade and tourism flows. Air transport lies at the heart of modern, globalised economies: Over 5.5 million workers are employed directly in the industry worldwide, with a turnover of more than US$1 trillion. If aviation was a country, it would rank 21st in the world in terms of Gross Domestic Product (GDP), generating US$425 billion of GDP, and would make it a very promising candidate member for the G20…

A total of 2.5 billion passengers and approximately 50 million tonnes of freight are flown worldwide annually. Around 60% of this global aviation activity takes place between the EU and the US. Eleven out of the top twenty airlines are either American or European.

These figures underline the enormity of the stakes in the trans-Atlantic aviation relationship, on both aviation and the wider economic relationship, and put into context the scale of the challenges we face.

The basis to our cooperation is the EU-US Air Transport Agreement. This is the biggest and best example of our desire to forge even closer ties in aviation.

The EU-US Air Transport Agreement is a living agreement, a continuous dialogue between policy makers and industry most clearly exemplified by the Joint Committee, aiming to oversee its implementation. It has already met 10 times, most recently here in Washington, D.C. last week. It is also an agreement that can and must change with the times – indeed, some of the most important elements of the Agreement may take some years to implement, such as the removal of remaining market barriers for market access and investment, including those that limit airlines’ access to international capital. We remain determined to do this – opening fully the EU-US aviation markets would benefit consumers on both sides of the Atlantic. It would also provide substantial economic benefits and create jobs.

Of course, some might say that traffic rights and investment limits are becoming less important with the spread of airline alliances. While there may be something in this, the fact that airlines continue to merge – both in Europe and in the US – demonstrates that alliances are maybe not a “cure-all”. I understand the political constraints on moving forward on ownership and control, particularly as we enter an election year. But let there be no doubt that the EU will continue to push for the continued normalisation of the airline industry, and in particular for the reform of US investment rules.

Like the US, the EU has other key partners, and we are busy elsewhere. The EU has reached a similar “open skies” agreement with Canada, which will ultimately remove all existing barriers for market access and investment, and with Brazil. And closer to home, the work continues on the establishment of an Open Aviation Area with all EU neighbouring countries that will ultimately cover 58 countries and one billion inhabitants. Agreements are already in place with Georgia, Jordan, Morocco and the Western Balkan countries, and negotiations are underway with Ukraine, Israel and Lebanon. All of these efforts are pushing in the same direction – towards more open markets, greater cooperation, and stronger regulatory convergence.

Let me return to the US and take a moment to outline just some of the areas where we are working very closely together. I would like to mention three areas:

Firstly, the modernisation of air traffic control systems. We both have to deal, particularly in Europe, with increasingly congested air spaces, hence our determination, in the EU, to complete our ambitious project known as the Single European Sky.

But within that, there is a lot of scope for EU-US cooperation on the technology. Modernisation efforts are without doubt necessary for saving fuel and maintain high level of safety. We are both still heavily reliant on concepts and technologies that were prominent too many years ago, such as radar and VHF radios. We both want to move forward. In March 2011 the EU and US signed the Memorandum of Cooperation in the field of aviation research, also covering the essential issue of SESAR-NextGen interoperability. This is by the way an excellent metaphor for how we should work together, to develop with ICAO and our other partners the standards for the future deployment of the new technology. I may not be the greatest expert in the room on aviation technology, but it is clear to me that if we, the trans-Atlantic regulators, ask our airlines to retrofit their planes with not just one million dollar box of tricks to bring the new technology into effect, but two or more boxes, because we haven’t ensured interoperability, they will never forgive us! I have done my part of the homework and will have a colleague from SESAR in my Delegation as of next year to make sure that we get to that one box. Now you all have the much easier task to make sure that Congress gives NextGen all the money it needs…

Second big area of cooperation: safety. For both of us, safety is paramount, and that is why the champagne corks popped this year with the entry into force of the EU-US safety agreement, a landmark deal covering all safety issues, and bringing concrete benefits on both sides of the Atlantic to the aeronautics and airlines industry by putting to an end the unnecessary duplication of work and minimizing transatlantic red tape.

Because this agreement sets out a framework for a continuous, timely and transparent exchange of solid and verifiable safety information, it goes beyond the original goals of mutual acceptance of certification findings. So it should provide a further boost to trade in aeronautical products and services at the same time that it gives both two sides a firm basis for tackling safety problems, wherever and whenever they arise, through joint actions on a timely and effective basis. Implementation is well under way of two important annexes on certification of design and production, and maintenance. Soon we will expand into important new areas such as flight crew licensing, simulators and training organisations.

At the EU Delegation we are contributing as much as we can to this cooperation. My colleague in charge of aviation safety is Julie Oettinger’s favourite EU official. She never gave an FAA office to anybody else of us…

And thirdly, security. Unfortunately, because there are too many bad guys still out there, civil aviation security continues to be a growth area. We are both keen to stay one step ahead of the terrorists in improving aviation security, whilst facilitating trade and travel to the highest extent possible. Recently, the EU has adopted new legislation which allows EU Member States to deploy security scanners in their passenger screening process. And on air cargo, new regulations to address the shortcomings identified in the Yemen incident will apply in the EU from February 2012.

The cooperation between the EU and the US has become remarkably close in a very short space of time, and I pay tribute to both the Commission and TSA in their continued efforts, for example to lift the liquids ban which is in place at the moment. The ultimate goal has to be mutual recognition of each others’ aviation security controls, and there is progress on this front too.

Here are three areas of joint efforts, cooperation, cross fertilisation where we recognise our differences but engage in finding common solutions. This is an illustration of how much we can achieve when we decide to work together in full respect of our respective realities but also in full awareness of our common challenges.

And finally, I would like to refer to the question of environment. A word of background. The Second Stage EU-US Open Skies Agreement, signed in June 2010, signalled – we thought at least – a new era of cooperation on environmental matters between the US and EU. Article 15 (Environment) of the Agreement, and the Joint Declaration on Environment represent a significant step forward. The focus is on collaborative optimization of respective environmental policies, including maximising the effectiveness of the EU and US existing and future market-based measures. It also recognises that there is a clear intention to avoid any potential overlaps between measures taken on both sides of the Atlantic. The EU-US Open Skies Agreement provides a clear basis for good transatlantic co-operation on aviation and the environment.

Environment is a major political issue – certainly in Europe – and a key strategic issue for the industry globally. We are starting to cooperate much more. In the area of better aviation fuels for the environment. On the platform of the ‘AIRE’ initiative, the EU tightly coordinates with the FAA in the area of greener fuels research and the conduct of green flights, green approaches and ground movements. A number of EU and US airlines, seeing the AIRE experience (in 2010-2011 more than 6000 commercial “green flights”), recently approached us to be part of the next AIRE projects. It has been one of the most successful cooperation activities so far. The EU and the US should endeavour to continue the cooperation and enhance our efforts in this field. But it is obvious that it would not be serious to limit our action on environment to the sole area of better quality fuels.

Aviation is a growth industry, and its emissions, globally and in markets serving the EU, are growing significantly. Addressing aviation’s environmental impacts in general, and climate change in particular, is a prerequisite to securing the sector’s growth in Europe. And that has to do with controlling emissions. Let me be very clear about one point: as much as for the global challenge of climate change, the EU favours a global solution to the issue of aviation emissions, a global solution developed through the International Civil Aviation Organisation (ICAO), and is ready to work together with the US on this. Indeed, one of the great myths of the ETS saga, if I may call it that, is that the EU somehow prefers ETS to a full multilateral solution. Nothing could be further from the truth. Of course it will not be easy and will take time. ICAO has been grappling with this issue for several years and progress has been slow, frankly lacking the joint EU-US leadership that we know, as in other areas, is necessary, if not always sufficient, to making progress multilaterally. We could not wait any longer.

That is why the EU decided 3 years ago to take action by including aviation in the EU Emissions Trading System (EU ETS). This decision was taken after ICAO explicitly decided in 2004 not to pursue a global legal instrument of its own. Instead it identified inclusion of aviation in national or regional emissions trading schemes as one of the possible ways forward. The EU has acted in line with this. And we are confident that in doing so we are acting consistently with international law. Our legislation was democratically approved by our Member States and our European Parliament. It will enter into force in two weeks time.

Yet Europe is being attacked from all sides. We are told we are going the wrong way about the right objective. Allow me – as you would expect – to disagree.

My job as the EU’s Ambassador is to move things forward, is to look for areas of agreement! So let’s start with the positive side of things:

The EU and US essentially share the same objective when it comes to global aviation emissions. We both agree that by 2020 global aviation emissions should be substantially lower. We differ of course in terms of the precise level of ambition, but I am sure we are able to work together. We are not a million miles apart. We should collaborate to find ways in which this goal of substantially lowering emissions can be delivered.

We also agree that market-based measures are one important tool that can be used to achieve this objective. Not the only tool, but an important tool.

We also agree that a global approach is the preferred solution. But permit me the observation that while we are told that our regional scheme is not the way to go (and this has been clearly expressed in the US), there are no concrete proposals on the table, from the US, from the industry or from anyone else as to what a global approach looks like. Believe me, we would love to have some competition, a market for ideas if you will, in how to tackle aviation emissions! And I am sure that there are many US innovators here with us today who have the low-carbon airplanes of the future already on their drawing boards. But for the moment there is nothing on the table on this side of the pond.

I do not want to dwell on areas of disagreement, because what we need more than ever is to use the strength of our aviation relationship and the depth of our common interests to navigate a path away from confrontation. But I have to acknowledge that so far we disagree on how market-based measures, in particular emissions trading, should be applied to international aviation. Again let me be clear: The inclusion of aviation in the EU ETS is a measure taken within the sovereign territory of the EU and its Member States. It applies only to aviation activities taking place to or from EU airports. It infringes in no way the sovereignty of the US. It neither prevents action by the US authorities, nor does it require action by the US authorities. I have to tell you that being told what we can and cannot do in our own territory in relation to aviation emissions is not going down well with politicians in the EU. Just as it wouldn’t go down well here.

There is enormous political support in the EU for this legislation, and we would urge the US to work with us to find a way forward internationally that builds upon, rather than seeks to negate, the EU’s actions in this area. I hope that we can avoid a confrontation on this issue, which would risk severely undermining the wider economic interests.

We would like to see the US work with the EU on this issue. We should work both bilaterally and multilaterally to define a sustainable way forward for aviation, which should deliver more jobs through investments in aviation technology and infrastructure. Furthermore, approaches developed by the EU and US in this area will be very influential in relation to shaping the international agenda. The recent discussion at the EU-US Summit between Presidents Obama, Barroso and Van Rompuy at which I was present offers a good basis for further cooperation on environmental issues, where it was agreed that we intend to work together “in the appropriate multilateral forums and consistent with applicable agreements”.

Our common commitment to make progress on climate change was witnessed by the recent international climate change conference in Durban, which resulted in agreement by all States that there will be a new comprehensive legal instrument to limit greenhouse gas emissions. This is to be agreed by 2015 and will be implemented as of 2020. On aviation in particular, further discussions are expected in ICAO next year on limiting aviation emissions. This will provide another opportunity for the E.U. and US to work together on this important issue.

Following the Durban Platform, which offers a real chance to overcome the long-standing divide between developed and developing countries, we need to close ranks and work together more than ever. In this regard I personally regret Congressional efforts to produce a bill that would prohibit airlines from addressing climate change. Not only would it be highly unusual for one State to ban compliance with the rule of law in other territory, but it also does not seem conducive to advancing matters internationally in ICAO.

We need to work together to produce robust and effective policy responses, and not prohibit the response adopted in Europe without offering a viable alternative. Working together is the approach which has been recognised by the recent EU-US Summit and EU-US Joint Aviation Committee as the best way forward on this matter.

Before I conclude, I would be remiss if in front of such a qualified audience I did not touch on another area of trans-Atlantic debate or difficulty, namely the Airbus-Boeing trade dispute. After the US initiated legal proceedings in the WTO against Airbus in 2004, we have spent upwards of seven years, and nobody knows how many millions in legal fees, prosecuting each other. As is usual in cases of such complexity, we have both won and lost on important points in the two WTO panels we initiated against each other. We also both decided to exercise our rights of appeal.

Earlier this month the EU presented the WTO a detailed report setting out how we will implement the Appeals ruling in the Airbus case. The package we presented achieves WTO compliance and addresses all categories of subsidies, all forms of adverse effects, and all models of Airbus aircraft covered by the WTO rulings. In putting it together we consulted independent experts to determine whether subsidies have “come to an end” and are no longer capable of causing adverse effects. Yet last week the US requested consultations on our implementation and – in our view prematurely and outside the most common sequencing of the WTO – has also requested approval to impose retaliatory measures against the EU.

You may know that the companion Boeing case is running about nine months behind the Airbus case. In a few months time we will expect the US to come up with an equally ambitious implementation package. Now, there may be disagreement on whether the implementation packages are ambitious enough, and there may be further litigation, but at some point if we are to avoid further escalation of the dispute, cooler minds will have to prevail to put an end to this spiral of costly litigation. The EU has always been willing to find a negotiated solution to the issues that gave rise to the dispute with the US, provided that the US is prepared to fully commit itself to such negotiations, the outcome is balanced and provides a level playing field in order to maintain a healthy and viable aircraft industry producing safe and more environmentally friendly aircrafts. That would enable the two companies, both of which have a proven track record of innovation and safety, to get on with what they do best, building highly competitive planes for customers across the continents, and preparing themselves for the inevitable competition we will soon face from producers in other parts of the world.

Conclusion

Over the years, the EU and the US have been effective trail blazers in a number of significant areas. We didn’t always lead in the same way at the same time, and there have been plenty of bumps on the road, or should I say the runway. But together, we have led the development of global aviation. That is a significant achievement in terms of our overall transatlantic relationship, and one which frankly we sometimes have allowed to be overshadowed by our disputes on Boeing / Airbus or more recently ETS. Believe me, we are utterly determined both to find solutions to these disputes, and to also keep our existing areas of cooperation strong. We face important challenges, in aviation as elsewhere, from Asia, from the Middle East, to our global leadership. The challenge of both this moment and the next decade is to continue exercising that leadership in a fast-changing world. You can count on the EU to do just that.

Thank you for your attention.

Good afternoon and thank you for that introduction. Washington’s International Aviation Club is one of the air transport industry’s most important forums in one of aviation’s most important cities. It is an honor to be here on my first visit to the United States since assuming the leadership of IATA.

I am also pleased that leaders of several regional associations are here. Sharing many of the same members and issues, we are a team with a common goal. That is to help our members run their businesses successfully and provide the global connectivity that is the lifeblood of the global economy.

A few words about me…I am an airline person for over three decades. I am passionate about aviation and I believe strongly that it is a force for good in the world. Every airplane that takes off carries with it almost infinite possibilities. It connects people and commerce, creating wealth both physical and of the human spirit.

Unfortunately, in spite of the value aviation creates, it is a very challenging industry, as our financial numbers bear out. 2010 was one of the best years we ever had. Airlines made a collective $15.8 billion. But our margin was a meager 2.9%. This year, we expect a $6.9 billion net profit on revenues of $594 billion. That’s a margin of just 1.2%.

2012 is looking even tougher. The high price of oil and an anemic economic outlook are the biggest issues. Air cargo demand, which had been flat for more than a year, is now declining. September volumes were 2.7% below the previous year. Passenger traffic has been unexpectedly resilient but it is difficult to imagine that trend continuing in the face of rising economic uncertainty and stubborn unemployment levels.

We expect profits to fall further to $4.9 billion in 2012 for a 0.8% margin. The problem with the airline business will continue to be that it’s all turnover, and no leftover!

If we are right about 2012, it will mean that airlines, since 2001, lost $25 billion on $5.5 trillion in revenues. That is not a performance to attract new investment or enable fragile balance sheets to be repaired.

We face these challenges, however, against the backdrop of a world thirsty for our product. This year airlines globally will carry about 7.6 million people a day. In 2015 that number will increase to nearly 10 million. That is equivalent to transporting the combined populations of the Washington and Dallas metropolitan areas every day.

That is great news for the future development of our business. So even if times are tough today, we should have every confidence in our future. We are still a relatively young industry. In 2014 we will celebrate the 100th anniversary of the first commercial flight, when Tony Jannus flew between Tampa and St. Petersburg. We still have enormous potential for growth and innovation. But it rests on our ability to continue to deliver a safe, secure, efficient and environmentally responsible product.

Achieving this is the collective responsibility of airlines, airports, air traffic management, manufacturers, the passenger and cargo distribution chains, caterers, ground handlers, fuel suppliers, regulators and many more. Aviation is a team effort.

One theme that I want to establish early on in my time at IATA is that the aviation value chain must work even more closely together in the many areas where our interests not just overlap…but where they are exactly the same. That was my message to the Airports Council International World Annual General Assembly last week. And it is one that I am repeating to all of our industry partners.

Under my watch, IATA will continue to be a strong advocate of industry issues. But IATA will be even more effective as a voice in a chorus of industry advocates than as a soloist. And of course the message will resonate more effectively with those we seek to influence if the industry is aligned, in harmony and delivering results.

Safety

Safety is the perfect example. In the decade to the end of this year, over 23 billion people and nearly 426 million tonnes of cargo were transported safely by air. Those amazing statistics are the result of our rich history of working together to address this fundamental challenge with global standards consistently applied.

The IATA Operational Safety Audit (IOSA) and IATA Safety Audit for Ground Operations (ISAGO) are good examples. Both are global standards developed in cooperation with industry stakeholders—including governments—that are helping to drive safety improvements across the industry.

IATA’s longer-term vision is to develop a Circle of Excellence that covers safety functions with global audit standards. It is an ambitious innovation that will require the cooperation of many partners. But it is a natural progression in our common quest to make our safe industry even safer.
And finally, to ensure that safety innovations are driven by data, we are working with the Federal Aviation Administration (FAA), the European Commission and the International Civil Aviation Organization (ICAO) in a Global Safety Information Exchange.

Environment

Environment is another great example of cooperation. A decade ago, we found a solution to noise in the Balanced Approach agreed through ICAO and supported by industry. Today, we are focused on ICAO for a global solution for aviation on climate change.

The industry has done its homework to address the 2% of global manmade emissions that it produces. As I am sure you are all aware, airlines, airports, air navigation service providers and manufacturers have made three sequential commitments:

To improve fuel efficiency by 1.5% annually to 2020
To cap net emissions from 2020
And to cut net emissions in half by 2050 compared to 2005

We are working together with governments to achieve this with a four-pillar strategy of investment in new technology, better operations, more efficient infrastructure and positive economic measures.

Sustainable biofuels have the greatest potential to contribute to these goals with up to 80% CO2 reduction over the lifecycle of the fuel. This is a game changer and US airlines and their partners have been playing a leading role, starting with the certification process. But the industry needs help to turn the potential into reality. Specifically, we must work together to convince governments to take policy measures that:

Foster research into new feedstock sources and refining processes
De-risk public and private investments in aviation biofuels
Provide incentives for airlines to use biofuels from an early stage
Encourage stakeholders to commit to robust international sustainability criteria
Understand local green growth opportunities
And establish coalitions encompassing all parts of the supply chain

A successful sustainable biofuels industry is in the interests of every government, including the US. It would improve energy self-sufficiency and create jobs in the green economy.

Unfortunately, the attention of governments on aviation and environment issues is being distracted by Europe’s unilateral plan to include international aviation in its emissions trading scheme from 2012. The airline industry has long opposed this because regional schemes will distort markets and open the door to a patchwork approach of conflicting, competing or layered measures including taxation.

The aviation industry does support market based measures—including emissions trading—but they must be globally coordinated among governments. And the place to do that is at ICAO.

In recent months, the debate on Europe’s misguided plans has taken on a new dimension.

Governments outside of Europe see its extra-territorial aspects as an infringement on their sovereignty.

The US is debating legislation that would prevent its carriers from participating. And last week the ICAO Council agreed on a declaration opposing Europe’s plans, sponsored by 26 of its member states. Europe’s plans are coming under enormous pressure. Indeed, I cannot think of another issue touching on international aviation, with the exception of safety, on which China, India, Russia, Japan and the US are in agreement.

But there is a way forward. ICAO has already agreed to principles for global market based measures. And there are ongoing discussions towards the agreed goal of presenting a framework for globally coordinated economic measures at ICAO’s 2013 Assembly. The ICAO Declaration urges Europe’s governments to abandon their unilateral and extra-territorial approach and to support the success of a global solution.

Security

Security is an area where industry and government cooperation is an absolute must. It is a government responsibility but can only be delivered in cooperation with industry.

Two months ago marked the 10th anniversary of the tragic events of 9.11. Air transport is far more secure today than it was 10 years ago. But that security has been achieved at enormous expense. Airlines and governments have spent at least a cumulative total of $100 billion. Airlines themselves are now spending $7.4 billion a year. Unfortunately, for many of our passengers that investment has made security the single biggest point of dissatisfaction in the travel experience. It is often slow, unpredictable and overly intrusive.

Part of the problem is that we are working with a 40-year-old concept for checkpoints. It was developed to stop hijackers by detecting metal weapons – at a time when there were far fewer air travelers.

Processes have been enhanced and technology grafted on. It works, but it is neither efficient nor sustainable. In some places throughput rates have dropped by as much as 50% over the last two years.

IATA’s vision is for a Checkpoint of the Future that takes a risk-based approach and uses technology solutions to allow a passenger to walk uninterrupted from curb to gate.

The first element uses passenger data that we already collect for governments to make informed risk assessments. All passengers would get a baseline screening. Those about whom we know little or who appear on a government watch-list would get more rigorous treatment. And those who voluntarily offer background information through the Transportation Security Administration’s (TSA) Trusted Traveler or similar programs could have their checks expedited.

This does not infringe on privacy. Known traveler programs are completely voluntary. And risk assessments would use information that is already collected for governments to use in immigration processes. We simply want to use the same information at the security checkpoint.

am encouraged by the enthusiastic support of both Secretary of Homeland Security Janet Napolitano and Transportation Security Administrator John Pistole to replace the one-size-fits-all approach with risk-based processes. Moreover there is international support from 12 states and Interpol who have signed a statement of principles.

By repurposing current equipment we could realize a 30% improvement in wait times within two to three years. But we are more ambitious. Within seven years or so technology will be available to screen travelers and their hand baggage as they walk uninterrupted through checkpoints.

During my tenure at IATA, along with improving safety, if there is one change that I would like to achieve, it is the security experience.

Of course, as we were reminded just a year ago with the Yemen printer cartridge incident, cargo security must also be addressed. A risk-based approach is needed here as well, but there is no Checkpoint of the Future solution for cargo—nor should there be. The innovation needed is to secure the supply chain. That means shippers, freight forwarders, airports, airlines and regulators working together on a multi-layered approach combining advanced electronic information and physical screening. ICAO is aligned with this vision. We can see progress in the e-cargo security declaration which offers states data on who is shipping what and where. This provides a globally harmonized format for governments to make risk assessments.

Unlocking Aviation’s Value to the Economy

Many of aviation’s challenges are political. Aviation globally supports $3.5 trillion in economic activity and 33 million jobs. In the US, that means $1.2 trillion dollars a year – over 5 percent of the US GDP – and more than 10 million jobs

Despite our vital economic role, politicians appear to value us more as surrogate tax collectors or as a target of populist regulations that undermine the industry’s efficiency. Too often the chorus of opposition to such measures is not assembled. But when it is, it can be very effective.

We saw that with the reaction to US proposals to double the passenger security fee and impose a $100 charge on every aircraft that takes off. The purpose was primarily to generate funds for the treasury at the expense of travelers. IATA joined an opposition coalition of 30 organizations representing all aspects of the industry, its customers and employees. Congratulations to Nick Calio and the ATA team for leading the effort and awakening strong resistance in Congress.

There are good reasons to oppose aviation taxes. When the Dutch government imposed a EUR 300 million departure tax, EUR 1.2 billion disappeared from their economy. On the other hand, from my first-hand experience in Asia, I have seen aviation act as a catalyst for economic growth in China – and elsewhere across the region. Governments in Singapore and South Korea have built strong economies on global connectivity. The expansion that we are seeing in the Middle East is the result of a similar strategic approach.

I am not saying that governments should run our businesses. That is not what is happening in these regions. But governments should not bury us in taxes that compromise our ability to drive growth and generate jobs. That is a message that the industry and all those who depend on connectivity need to send loudly and clearly to governments.

Regulation

Our challenge with governments is not just taxes. We suffer equally, if not more, from bad regulations.
The near complete closure of European air space as a result of the Icelandic volcano eruption last year was a double example of regulation gone astray. First, governments should not have closed the airspace, but rather left it to the operational expertise of the airlines—as you do here in the US. And secondly, under the EU’s punitive passenger rights rules, airlines paid millions in compensation to passengers. But an act of nature made worse by the decisions – or indecision – of politicians and regulators is certainly not the airlines’ fault. And the cost to the European economy over the week was estimated at $4.7 billion. Bad regulation has a very real cost.

We see that here in the US as well. The FAA estimates that delays and flight cancellations cost the US economy some $31.2 billion in 2008. Yet we see regulation that is meant to protect passenger rights actually provide incentives to airlines to cancel flights because penalties for extended delays are so costly.

The US Government Accountability Office (GAO) recently estimated that the number of flight cancellations increased by more than 5,000 over similar time periods before the DOT passenger rights rule went into effect. Not only that, the regulation puts the entire burden on the airlines even though the responsibility for delays is often beyond their control.

Look at the recent JetBlue tarmac delays in Hartford. An American Airlines flight was at their gate and was not permitted to disembark international passengers because Customs was not prepared to process them. Furthermore, power failures caused by a once in a century October blizzard made refueling impossible.

I used to run an airline. We wanted to get our customers to their destinations on schedule as much or more than they did. But aviation is above all a collaborative endeavor and it is both unfair and unproductive to lay all the responsibility and financial liability for an irregular operation on just one participant in the process.

I am not arguing that airports and government agencies should also be subject to draconian fines for equipment failures or personnel shortages. I am suggesting that we need to innovate our thinking and replace a rigid culture of blame with a flexible structure mandating collaborative decision-making among all the stakeholders.

Airlines are required to have formal contingency plans for handling extended delays. Shouldn’t the same be required for airports, TSA, FAA and the Customs and Border Protection (CBP)? And shouldn’t these be synchronized so that everyone knows each others’ plans in the event of a disruption? If our goal is to solve the problem—not just wave the finger of blame—then this is the answer.

I also believe that we need innovation in aviation’s economic oversight. Deregulation started in the US over three decades ago and spread around the world. But it is only half-baked because governments are unwilling to cede to the marketplace their control over competition.

We see it in fare unbundling. It is taken for granted in the telecom, hotel and car rental industries. But governments want to regulate the product offering of airlines. Of course, no one likes paying for things they used to receive for free. But it is unrealistic to expect a deregulated industry to maintain the business practices used when airlines were quasi-public utilities with a regulated cost-plus pricing model. Governments should not deny airlines tools which are taken for granted in other industries.

The success of the anti-taxation message that we were able to deliver to policy makers is a potential turning point. In the US we should seize the momentum to launch a broader dialogue of innovation with government focused on enhancing competitiveness. Given the gloomy economic outlook, there could not be a more opportune time to bring solutions that could positively impact jobs and the economy. It should also be an inspiration to the industry everywhere of the impact that we can have when we act with a common voice for a common purpose.

Conclusion

I have witnessed vast changes in the aviation landscape since I joined this industry in 1978. The disappearance of some of aviation’s greatest names has been accompanied by the rise of new liveries, some in regions that previously were considered aviation backwaters.

Through it all, there were at least two constants. Innovation made aviation safer, greener and more efficient. And aviation made the world better— with connectivity driving both economic and social progress.

Working together, we can overcome the challenges we face and enable aviation to continue to transform our planet into a global community.

Thank you.

Adapting to the Globalization of Customers

Ladies and Gentlemen,
It is indeed my honor to address you this afternoon. I wish to thank Mr. Steinberg, Mr. Lavin and my dear friend Jeff Shane for making this possible.

Fortunately, because of the time difference between Washington and Beirut, where I live, I won’t feel the heavy effect of a joint invention by Arabs and Europeans: Siesta. I am sure there are other inventions which can be co-attributed to Europe and the Arab world, during the 8 centuries of Arab presence in Spain. The intense interaction between the Arab world and Europe has never ceased to exist. The remarks
made by my dear friend Ulrich Schulte-Strathaus to this forum back in January are only a reminder of the intensity of that interaction in aviation. Of course my speech is not going to be about the historical ties with Europe; albeit I believe that, in order for one to understand the aviation industry, one has to have among many other talents, the attributes of being an historian, an economist, a sociologist, a geo- strategist, to be politically savvy and more recently to be a volcanist, seismologist, and a climatologist. Now in order to work in aviation one has to have a few more attributes: to be a soothsayer, and every so often a gambler given the bad fortunes of aviation, particularly during the last decade. The reason why I gave this long list of qualifications for the aviation fraternity is that I will try to address issues from the angles of these attributes in the next 20 to 25 minutes. So let me first begin with geo-strategy: what is the Arab world? The Arab world is the group of countries situated between Morocco and Mauritania – West of the African continent and Syria, Iraq and the Arabian Peninsula in Western Asia, including Sudan, Somalia, Comoros Islands and Djibouti. The Arab World covers an area of 5.5 Million square miles; a million less than the area of Europe and the USA combined. 360 million people carry the Arab denomination, coming from diverse ethnic and religious backgrounds, though predominantly Muslims. What gave us a common denomination is primarily language, then history. The next question should be why are we such a trouble to the world and why do we represent an inexhaustible source of news to the television networks? Two major reasons for that “interesting” stigma: Oil, since we have most of it in our land, and Geography since we are situated in the middle of the intercontinental trade routes of the ancient world. These two attributes are very important and pertinent to understanding a four dimensional picture, of previous and current events, affecting our lives and aviation at large.

Arab aviation started in earnest in the mid 1970’s although some Arab airlines were established as national, and private establishments as farback as 1932 (like EgyptAir), and in the 1940’s as joint ventures with Air France or BOAC – the predecessor of British airways ( like Middle East Airlines) – or independently (Saudia and Iraqi Airways). With the independence of Arab states came the establishment of airlines, and with the states’ realizing that they were capable of exacting higher prices for their natural resources came the expansion of those airlines and establishing new ones. Since the mid 70’s – the growth of Arab aviation was always two to three folds that of the global industry. One reason for that was we are developing nations; hence market maturity is still far from being realized. The other reason is, once again, Geography. Making use of geography in aviation is not a novelty; European airlines, namely KLM and Swiss Air, in the decades leading to the 90’s were pioneers in that field; so were Singapore Airlines and Cathay Pacific in Asia. These airlines established, and some of them still do, a splendid model of fusing travel requirements to and from their countries with their excellent geographical position to provide services
for customers transiting through their hubs to their original destinations. That business model was only an international expansion of the hub and spoke one, originally created by US based airlines. Therefore, when an airline can carry passengers and cargo between two other points via its base, then it should.

Now that I am touching about history, I would like to go back a bit more in the time line. Let’s turn the clock back 65 million years, give or take a few million. A relatively small proportion of the dinosaur population on the earth perished as an immediate result of the meteorite impact which supposedly hit the Gulf of Mexico; the rest of the dinosaurs were oblivious of what has happened, and of what was yet to come. Gradually life became harder for them. Big bodies needed big food intake to give them the energy to survive. With an ash cloud covering the skies, an immediate winter came about, plants perished and dinosaur plant eaters were the first to go. The plant eaters’ eaters followed. The ones who survived this calamity needed either to adapt drastically, as the case with the smaller dinosaurs which evolved into birds, or were of completely different species: small, nimble, humble in their energy requirements and could run AND hide. These were the small mammals and insects still ruling today. So what am I trying to say here? If Dinosaurs had any ability to transmit information other than in the normal evolutionary process, many of them would have survived. The actual punch-line though is that being at the top of the food chain does not guarantee you will stay there forever; because new and more nimble entities, in tune with the critical requisites of the time, may replace you.

Fast forward to 1982. On the 5th of June I was at the lobby of the Intercontinental Hotel in Abu Dhabi following the events as they unfolded in Lebanon. There was an assassination attempt on the life of the Israeli Ambassador in London. The PLO was controlling effectively most of Lebanon. The Israelis were expected to launch a full scale invasion unto Lebanon. My means of knowing what was happening,and if I will be able to make it back to Beirut and be with my wife and 5 year old boy before the war breaks out were pieces of paper taken out from a news agency ticker placed in the lobby of that Hotel. The good news was that I made it back to Beirut. The really bad news was that war broke out immediately after. Now let’s advance the clock to 1991; I saw the start of operation Desert Storm live on television while at home, in the early hours of 17 January. My wife and 2 boys were sleeping then and I had no reason to worry about them. Satellites brought the whole world into my living room in real time.

2011: we witnessed the first ever technology enabled and successful revolutions in Tunisia and Egypt. Facebook and Twitter became the weapons of choice for revolutionaries. You Tube turned billions of people into field correspondents, embedded incognito en populous with neither minders nor censorship. It took 65 million years to make the world small enough to know what’s happening elsewhere with few hours of delay while at the lobby of a hotel. It took only a further 10 years to have your TV set turned into a window at the world. Since then, It took a meager 20 years to shrink that window to fit in the palm of our hand, and to provide us with uncut, uncensored and unedited videos worth billions of words. Real globalization just started… It is not only the globalization of the economy; it is the globalization of the individual in a limitless, borderless, virtue-physical realm establishing a new global society. The future is approaching fast. The world of aviation is heading in the direction of true globalization not because governments want it; it is because people want it. Customers will force change upon us all. They already started by forcing the expansion of the flag-free carriers of low cost. They forced network carriers to become more creative and better with their cost rationalization. But regulators on the other hand, are still mostly ruled by a convention concluded at the end of World War II and by a templet for bilaterals, created by Bermuda agreement, enshrining sovereignty of nation states with physical and geographical boundaries. That backdrop has not dramatically changed thus far. Aviation business is still governed by bilaterals, national ownership rules, and modus operandi for the management of airspace created more than 65 years ago. Airlines are still far from being looked at as global businesses. Instead they are regarded as an integral part of national interests or at best regional ones. Ignoring that reality leads to ignoring what needs to be changed. If one supports liberating the airline business from the claws of bilateralism, one need go beyond the set of interests and inefficiencies which bilateralism protects. One needs to move into a liberal open skies model that would respond to customer wishes of today and tomorrow. Let me elaborate a little bit on this point: The US has been the flag- bearer of liberalization of aviation since the end of the 1970’s. But Europe created a new milestone in the quest for a liberal aviation by establishing the single aviation market for a multitude of states. This in my opinion is opening the door for credible challenge to the rules of the game set by the Chicago convention of 1944 and the Bermuda 1 templet by creating a true single aviation market made of a multitude of sovereign states. This is a formidable feat. In fact, all the aviation stakeholders in the Arab world are working very hard to replicate the European experience, in trying to establish a single aviation Arab market leading, perhaps down the line, into a Euro-Arab aviation market. However, national interests and the defense thereof by national stakeholders is not yet giving way to a true globalization oriented set of interests. Europe has followed the US in carrying the torch for liberalization. So, well done European regulators! perhaps not on everything, but at least on the way they listened and acted according to wishes and interests of their people, so to the European regulators I say: Don’t change your course and don’t go turn back to an obsolete protectionist history.

Customers want competition. Customers want value for money. Customers want to be recognized as our bosses. Customers want us to know their expectations and exceed them. Of course that creates competitive pressure, and of course competition should always be based on a level playing field. Now let me talk about a couple of examples on what is supposedly called a level playing field. The fact that slots at major European airports are in the hands of the dominant European airlines is, more often than not, nullifying the liberalization of traffic rights. So Yes you can achieve an open skies agreement with the EU and Yes you may have no restrictions on capacity and frequency but No you cannot have the last step of a free market access, which is actually flying an airplane to that major European destinations. Is that a level playing field? I doubt it is. Moreover, you find that access to all airport facilities is not truly permissible on the level playing field concept either. The dominant airlines often get the most modern facilities at their disposal; other airlines are not allowed access to the same facilities. Is that a level playing field? I am sure it is not. So what can we describe those practices other than creating a lopsided uneven playing field? This uneven playing field was actually the most
contentious point during the US-EU negotiations that led to the open skies agreement. Level playing field should not be in the eyes of the beholder, it should rather be so in the eyes of all stakeholders. On another note, some say how can we compete with subsidized government owned airlines? Well Arab airlines are not subsidized to start with. If truth to be told .. European Airlines, which have been in existence for well over 8 decades, were in most of their history government owned, subsidized and supported. Even under the EU liberalization process, they were given the chance of getting huge sums of money from their governments for restructuring purposes. US based airlines on the other hand are given the protection of Chapter 11, and when sever times befell upon them because of the terrorist attacks of September 11th, the US government actually supported the airlines in more than one way. Now we hear from some European airlines that what they have enjoyed for decades is unique to them and no other airline in the world should enjoy the support of its government even during its formative years. Governments, at least in this current geopolitical structure, support their national interests. I am not defending subsidies here, nor am I saying that if one airline was subsidized in the past that another should: What I am saying is that let us look at issues with both eyes wide open and not to have them shut when it is us, and open when it is “them”.Arab aviation has been growing exponentially during the last four decades. That growth predates what is described by my friend Ulrich as “the big three GCC airlines,” namely, Emirates, Etihad and Qatar Airways. The fact that these airlines have recorded high growth in the last decade is not a strange phenomenon to Arab aviation. We have been growing in double digits since 1975. The traffic flows of the Arab travel market and the concentration of the Arab airlines’ capacity did not really change since then. Around 1/3 of the travel market of the Arab world is still within the Arab world. The traffic with Asia and Europe is each a little less than 1/3 while the rest of the traffic is distributed between Africa and the Americas. Our geographical spread is expanding. Our values for competitiveness are being accepted by more and more customers around the world. Yes! Our market share is growing on a global scale, but do you think we do that by subsidizing customers? Do financial institutions give the excellent ratings they do to Arab airlines if these airlines are throwing money at their customers by selling below cost? And even for the few government owned Arab airlines that do not publish their financial reports as yet; do you think that any of the Arab governments accept subsidizing travelers between Europe and Asia? Or any other traveler for this matter. Our competitiveness doesn’t stem from government subsidies nor is it a bi- product of national or vertical integration. Arab airlines competitiveness starts with what technology and geography enabled us to do: To provide truly global connections with one stop. But technology is not the only reason. The grounds for our competitiveness which by no means is limited to us are numerous, the most notable ones:

1- Value for money: Arab airlines provide the global customers with
value for their money by offering the right price to the right
customer segment.
2- Quality of service: customers appreciate hospitality. Hospitality is a
traditional Arab characteristic. Arab airlines do not deal with customers as passengers. Our credo is to deal with them as Guests, emphasizing the human dimension of the relationship rather than the business one between a client and a provider.
3- Excellent infrastructure: Arab airports are built and expanded without the hindrance of small geographical space. Europe is highly congested. Its airports don’t have a monopoly over the role of global hubs whereas ours and some other airports in vicinity and in Asia are ideally situated to play an increasingly greater role in the hubs of the 21st century.Environmentally savvy: Airlines will increasingly be judged on their environmental record. Arab airlines have the best environmental footprint in the world. The average age of the 900+ aircraft in the Arab fleet today is 7.2 years. It is the youngest in the world producing 15-20% lower carbon emissions per tonne kilometer than the industry average. Arab airlines are also at the forefront of experimenting with the use of alternative energy from biofuels and gas-to-liquid products. The fact that the Arab land has huge reserves of oil doesn’t mean that this oil is the airlines’ property nor it means that Arab airlines do not see the quest for cleaner industry as a worthy cause.

Cost, cost and cost: Arab airlines maintain a very low unit cost. Our unit cost is comparable to that of the low cost airlines in Europe. We have an excellent tax environment, young population which feeds an expanding labor requirement, a strategy of keeping our fuel burn and maintenance cost at a minimum, we employ the most modern revenue management systems in order to make sure that we
maintain viable networks.The Arab travel market is far from being mature. The passenger to
population ratio in the Arab world is 1:3. It is almost 2:1 in the US, and 1.1:1 in Europe. I wish to underline here that in spite of the current pains of the Arab worlds, in a future where transparency rules, the growth of traffic in all segments will be even higher than that witnessed in the past.

The land of the Pharaohs was the one to create mythology. Apparently, this art is being perfected with regards to Arab aviation by some of our neighbors in Europe. Lots of myths have been created. That doesn’t make them true, such as a myth of over-capacity although history shows that Arab airlines have been meeting their expansion with actual growth, our average capacity deployment per aircraft is above 200 seats. Our load factor is in the high 70’s , year round.

The second myth is that we are out to conquer the world of aviation. The reality is the only conqueror in aviation is the customer. If an airline was able to respond to the requirements of customers by providing him or her with value for money and a good service, then that customer will definitely put his or her confidence in that airline. If your cost base is high, if your obligations are making you slow to move, and if you’re losing your competitive edge, beware that the customer is not a charity, and will not stick with you as an act of kindness.

The world is moving towards the realm of people’s power and by people I mean individuals who are overwhelmingly young, connected, and savvy. The cyber world does not recognize geographic boundaries, nor is it limited to old and sometimes archaic notions of flags, nationalities, and chauvinism. Regulators need to cater for this type of world. ICAO has a duty to develop Chicago framework, to one which recognizes the globalization of the customer. The aviation world shouldbe a world where market access and, I mean real market access, is free coupled with the freedom of ownership and control providing the customer with a choice between brands rather than continue to try to influence him or her with a choice of flags. This young, savvy and global customer wants air transport to respond to his or her requirements. I am sure that this type of Change will take time, effort, and powerful market forces to remove the restrictions of the old system and to meet the requirements of today and tomorrow. Many airlines in the world, including the Arab airlines, are already contributing to these market forces. I am sure many still defend the old regime. Let customers decide what they want! Let them speak, and let us try to learn from the experience of those small dinosaurs, mammals and insects who are still ruling today, by adapting to what tomorrow will bring rather than wait for it to come one day at a time.

Thank you for listening, I welcome your questions, comments or criticism.

2011: My Year of Many Crossroads and a year to act, not delay

Ladies and gentlemen,

Thank you for those kind words of introduction. It is a pleasure to be here again in Washington. We have indeed witnessed remarkable developments in recent years, so it is good to see yet once again so many friends that I have known for so many years. It is wonderful that many of you that I can see here today are, thank goodness, still working in and for an aviation industry that is the same, and yet totally different to what it had been only a decade ago.

At first, I wanted to avoid quoting any individual speaker who had addressed the International Aviation Club in the past, but I will. I was particularly moved when noting John Byerly’s remarks several months ago here at the IAC; I believe he spoke in October last year.

His vast experience enabled him to deliver a superb overview of past achievements of US aviation and foreign policy in transforming the shape and functioning of international aviation. Thanks to him, Jeff Shane and…here I stop quoting the names of formidable personalities, for fear of not arriving at my conclusion, thanks to the likes of John therefore, aviation has matured, and is more robust in delivering safe, affordable and competitive services sustainably than it would otherwise have been. John referred explicitly and rightly to several individuals, many of whom are in the room here today, who all contributed so much to ensuring that US aviation, but aviation in general would continue to deliver.As evidently many other speakers, he also alluded to issues still in dire need of attention for the future. I would like to take that one step further, without questioning any of the past achievements.

The consolidation in the USA, the successfully concluded cross-border consolidation in Europe, as well as the now concluded second phase EU-US new generation Open Skies Plus Agreement, but also the gradually changing role of ICAO as a negotiator, lead me to believe that the more we experience change, the more we need it.

I have the honour to be the first speaker at this illustrious International Aviation Club in 2011. With that honour comes, I presume, the obligation and privilege to speak about the expectations for this coming year. I shan’t disappoint you.

It was the 16th president of the United States who said that the best thing about the future is that it comes only one day at a time.

That definition of ‘future’ by Abraham Lincoln makes it a lot easier to make forecasts about 2011. Unfortunately for us, we cannot plan for the future one day at a time. We do not have that luxury. We are a fast-moving, dynamic, ever- changing industry that requires substantial long-term planning, from fleets to infrastructure to policy.

A dynamics, a momentum, has been created in the market that calls for new solutions, a new dimension. I suggest that 2011 will indeed be a year of cross roads. If we take the right decisions now, we will be on track for a sustainable recovery of the international aviation sector in the years to come.

If we don’t, who knows. But, in my humble view, it is time to do, not delay, to act, not angst and to move ahead, not fall behind.

In the bad old days, the motto for regulators was: If they (the airlines) move, let’s tax them,
If they stop moving, let’s subsidize them,
If they continue to move, let’s regulate them.

Nowadays, the Future of Aviation Advisory Committee in this country, and the Aviation Platform of the EU Commission, and the Aviation Summit organised by the Belgian Presidency of the European Union a few months ago, to name but a few players, have effectively identified competitiveness as the key driver for our future. That is fascinating. On both sides of the Atlantic, financial issues are predominant. On both sides of the Atlantic, high level groups, committees, platforms are addressing competitiveness as an issue in need of political attention. It is fascinating, and it makes 2011 so important.

Let me turn your attention to three issues in particular. I believe that if we do not tackle them, 2011 will have been a year lost. Crossroads yes, but wrong direction.

As Ella Wheeler Wilcox, the great American poet, said:

One ship drives east, and another west With the self same winds that blow, ‘Tis the set of the sails,
And not the gales
That tell us the way to go.

So how do we set the sails? First of all, we address the need for an international level playing field, but not in the sense in which we have used or heard that term before, which was either in the context of one country against another or one region – the EU – versus another – the US. No, I am talking about a truly international, or global level playing field.

You could argue that that is important, but not really urgent. What’s the big rush, you might say, with all of the other things on our aviation plates. Consolidation in the US airline sector is well underway. And cross-border consolidation within Europe is gaining momentum – remember that three groups are emerging in Europe, a German-Swiss-Austrian-British-Belgian, a Franco-Dutch, and an Anglo- Spanish. Evidently these developments will impact structures operating on the North-Atlantic; and it appears that the EU-US regulatory framework provides for necessary tools to promote safety and competitiveness in these markets.

But, as I said, my first point is not on EU-US competitiveness, it is global competitiveness. This is an issue square on for Europe today, and it will become an issue for the US and Canada tomorrow, and then Asia, and South America, and Oceania, and Africa. And here is why.

We, on either side of the Atlantic, are conditioned to thinking of ourselves – the US and European carriers – as pre-eminent in global aviation terms. We look forward, naturally, based on the past. And yet, both reality and perceptions are moving on, as we continue to look in the rear view mirror and believe that tomorrow will be like yesterday.

After a conference I attended recently in Munich, I spoke to the waitress in a restaurant who told me she would go on vacation to Thailand. I asked which airline she would fly on, thinking of my member airlines, of course. She replied that her first choice was “evidently” Emirates.

“Evidently”? Well, in case the news passed you by, in 2009 Emirates became the world’s largest international airline, in passenger-km terms. For a large proportion of European travellers, it offers a one-stop transfer product to all the major Asian, Australasian and African destinations. And it is growing, massively. Its CEO is on record as saying that its planned fleet of 90 A380 superjumbos could be increased to 120 if stand capacity were available at its Dubai hub. And, I suspect, for the reasons that I explain in a minute, Dubai will certainly accommodate Emirates’ need for yet further capacity on the ground.

Now – in case you’re not aware – the United Arab Emirates has two main commercial centres, the other being Abu Dhabi, just 75 miles away. Each has its own airline with global aspirations – the Abu Dhabi carrier is Etihad, smaller than Emirates but growing more quickly. These airlines are owned by their respective governments, and operated as an instrument of national strategy (if ‘national’ is the right word within this regional rivalry), and they are integrated vertically across commerce, tourism and foreign policy – as our Canadian friends have recently discovered. For them, the airlines are just a part – a tool – of this vertically- integrated economic chain.

But the phenomenon is not restricted to the United Arab Emirates. Just up the desert highway about 230 miles from Dubai and 185 miles from Abu Dhabi is the
city-state of Qatar, whose airline also has global aspirations, and is – you guessed it – growing massively.

These three airlines have more wide-body seats on order than the entire US industry has in its current fleet. [I’ll pause to let you reflect on that – the total longhaul lift capability of Delta plus United plus American plus Continental plus US Airways doesn’t match up to the order book of just these three Gulf airlines]. 425 brand-new longhaul aircraft in the next five years – where will they fly? The answer, of course, has to be everywhere. Looking to the West of the Gulf hubs, we can expect further saturation of Europe, but also increased penetration of the US market. And Canada. To the East, the emerging economic superpowers of India and China are obvious candidates, but so, too, are other Asian countries – Japan, Korea, Thailand, Singapore, Malaysia, Indonesia, Vietnam, and so on. And, then there’s Australia and New Zealand. And South America. You get the picture.

Here I ask: Does growth of this magnitude really make sense?

After all, the population of Dubai is just 2.3 million people, about the size of Pittsburgh and smaller than Baltimore. Qatar, at 1.4 million, is smaller than Providence, Rhode Island’s metropolitan population, and Abu Dhabi, at just under 900,000, is about the size of Fresno, California or Tulsa, Oklahoma. So, again, I ask “does growth of this magnitude make sense?” I am sorry to confuse you so early after lunch, but the answer is a clear yes, and no. But, who am I kidding? This is Washington, where lawyers and lobbyists – I know that’s most of you – make your living taking both sides or moving between them, so “yes and no” makes perfect sense in this city and this crowd.

The “Yes” answer is that, yes, it does make sense even for a region with, in global terms, a limited population size, to invest heavily into infrastructure, if the investments generate a sufficient return. And evidently, the Emirates of the Gulf region are satisfied with the value-added created by their investments or believe that in the long-run these investments will generate macro-economic, vertically- integrated returns of the magnitude sufficient to warrant the investment.

But does it make sense for airlines and travellers worldwide if three carriers – two of which have never made a profit – collectively commit 100 billion dollars to transforming the aviation map of the world?

I do not know the answer, but the situation makes me uneasy. I am not paranoid, although this is an accusation frequently used when Europeans speak out about Gulf carrier expansion. Make no mistake – these airlines are efficient, they have extremely low unit costs yet deliver consistently high service quality. They have clarity of vision and decisiveness of action. They also have the full and enthusiastic support of their domestic political institutions.

My point is this: In a market of double-digit growth, airlines that have long-haul aircraft fleets which dwarf those of their international competitors are being driven by a policy which is not compatible with that of the US and Europe, or, I suspect, Australia, China, Japan, Canada, Mexico, Brazil, Chile, Korea and so on. You get the picture.

How does a European or US airline compete in the short-, medium and long-term? Or, a Canadian, Japanese, Australian, Brazilian carrier compete?
In the short term, the answer could be to ask governments to prevent additional market access. But stalling growth opportunities for airlines is not synonymous for “another year gained”; it is tantamount to “another year lost”. The purpose of an aviation policy cannot consist of intervening in commercial airline decisions. The purpose of regulatory activity must be to provide for safety, of course, but also to address imbalances, divergences of policies, and distortions to competition.

So the answer is ensuring that the governmental policies converge. That should not be done by imposing one’s own policies extraterritorially.

In the good old days, the US would impose their security policy, including all forms of Emergency Amendments, on non-US carriers with the formidable argument that they don’t have to fly to the US if they don’t want to.

The EU in turn are beginning to apply an environmental policy extraterritorially with the equally strange argument that paying European governments for CO2 certificates will help developing countries invest into environmentally-friendly technology. As one Asian friend said pointedly: they are replacing US imperialism by EU imperialism.

So if regulatory provisions should not be imposed extraterritorially, the framework for a level playing field should be negotiated. Not only bilaterally, as between the EU and the US, but multilaterally, to cover global competitiveness. The aviation forum for that is ICAO.

Last year, we celebrated the 60th anniversary of ICAO. Is this the age of retirement for ICAO? After all, cross-border acquisitions were not possible, and the EU-US

Open Skies Plus was not developed because of the Chicago Convention, but despite the 1944 Convention. Or is ICAO, at 60, the new 40, as those of us fast approaching that age, would like to think of it?

Is ICAO the way forward? I believe so. Despite the criticism that ICAO has not adapted to the requirements of a modern economic globalised market, I believe ICAO has the potential to become our solution-provider. If ICAO can become a negotiator on behalf of aviation on a global environmental scheme, a de facto State of the UNFCCC, why can ICAO not also become a negotiator with the World Trade Organisation. The WTO has clear processes to deal with capacity dumping in other trade sectors. Why cannot ICAO negotiate a mechanism to deal with capacity dumping in the field of aviation?

I have lost you now, right? I can see you grumbling that the instruments we developed in the past were more than adequate to deal with any challenge. So what’s so special?

It is the dimensions that come with globally operating airlines.

True, it has been quite a while since anyone in the airline industry mentioned capacity dumping as an issue. The issues of overcapacity scheduling by one airline have disappeared from the political radar screen, as we have entered an era where airlines have been privatised and must act as private entities and not part of any government bureau, policy, or macro, nationalistic economic motive or agenda. But, the spectre of an airline as part of a government vertically-integrated design operating to all corners of the world forces us to reconsider the issue of capacity dumping.

Having ICAO negotiate a mechanism to deal with capacity dumping in the field of aviation would give the industry a globally agreed procedure to address and, in case of need, resolve the issue globally, without resorting to unilateral actions or power-plays.

Ladies and gentlemen, I strongly believe we need to change the way we look at the challenges aviation faces. In Europe the railway sector has sought to argue that ultra-long highway trucks should not be certified because they are such an efficient competitor against the railways. What a logic! I could accept any argument except that one.

But likewise, we cannot, and will not argue that efficient competitors from abroad should be prevented from competing in our sector on the mere grounds that they are efficient; however, the corollary to that is the need for a framework to address possible distortions generated by global carriers operating in a global economic market, but subjected to divergent governmental policies.

This is linked to my second point. Another international phenomenon, the environmental challenge, can only be dealt with adequately at a global level.

Regional and national measures by definition create distortions because they cannot address the global dimensions. The progress achieved at ICAO at the last Assembly, although in itself highly commendable, has not resolved the problems we all face with the EU ETS. So what is the Association of European Airlines doing about that? Good question, next question!

Technically, the EU has adopted a Directive which is being applied into national law by all European Member States, thereby impacting all airlines flying to, from and within the European Union. Right?

Yes and no. Take the de minimis rule. ICAO favoured adopting that principle. The EU ETS has its own, carrier-based and not country-based de minimis rule, the idea of both ICAO and the EU being to home in on the big guys.

OK, so the carrier operating two weekly frequencies from, say Latin America to one destination in, say, Spain, is a negligible entity in terms of environmental impact. So, the same amount of emissions from the European carrier flying the other two weekly frequencies on the same route to Latin America is….also negligible?

Or take another seemingly irrelevant technical detail: If schemes equivalent to the EU ETS are implemented by non-European governments, their non-European carriers would not pay twice, but only into the non-European scheme. They would certainly do so if their non-European government applies its scheme to and from its country. Can European carriers opt into that non-European scheme and sell the certificates they no longer need?

We have yet to be convinced that the EU ETS will be non-distortive. Moreover, cap-and-trade measures only make sense if they impact positively the environmental bottom line. Will the EU ETS benefit the environment? A cap-and- trade system, applied globally in an open scheme, would. A regional scheme, to be applied internationally to mobile emitters, would not. European finance ministers
will be the beneficiaries of complex auctioning processes, not the global
environment.

Credit is due to IATA and Giovanni Bisignani for having rallied the entire global aviation sector around objectives for emissions reduction. ICAO recently endorsed broadly the same vision for emissions reduction in the mid- and long-term. These goals are predicated on the insight that the environment will benefit from technological progress and improvements to infrastructure.

Now that is something we can learn from the Gulf states: investments into infrastructure are investments into the future. In this country, the Future of Aviation Advisory Committee has done an excellent job in providing out-of-the- box thinking and developing several highly pertinent recommendations. From an outsider’s perspective this should make it easier for the Administration to propose some form of public funding for NextGen equipage for example. The underlying logic, that a satellite-based system is a next generation infrastructure and should therefore be funded publicly, is I believe, spot-on. But I can imagine that in the current political climate, it will be an uphill battle to generate enthusiasm for any form of spending.

If it is any consolation, the situation in Europe is significantly more complex. As you know, in Europe, we need not only our next generation technology, SESAR, which must for the same reason be a public-private partnership, but a European re- organisation of the air space, a Single Sky as opposed to a set of 27 national ones. The good news is that political will was shown, a Second Single Package adopted to set deadlines for implementation of the Single Sky, and the creation of the 9 Functional Air Space Blocks which would replace the national systems. A month ago, an intergovernmental agreement was signed to actually create the biggest
central European FAB involving France, Germany the Benelux countries and Switzerland.

The question is will they walk their talk. Labour in some countries has yet to be convinced that this is the way forward to secure competitiveness and thus employment. And the EU is evidently facing severe issues in the Euro zone which easily and quickly can, and have, changed political priorities for the foreseeable future.

It is absolutely imperative that the aviation sector on both sides of the Atlantic secures a consistently upheld understanding that investments into infrastructure and technology are investments into the future. And, I hasten to add, the SESAR and NextGen systems should be inter-operable.

Several institutions, the FAA, Euro control, NavCanada, ACI, aircraft manufacturers and airlines have all individually publicly highlighted the significant environmental gains that technological progress on the ATC systems, and research into biofuels, will generate in terms of saved CO2 emissions. This is not just PR of individual providers or companies. Taken together, this is a global sector which demonstrates what it is doing to reduce its impact on the environment. And that aviation is not a low-tech industry which needs market based mechanisms to force it to offset its inevitable and growing CO2 emissions; it is a high tech industry that has decoupled emissions growth from traffic growth, and is successfully decreasing emissions growth through investments into technological progress.

Another reason why 2011 is the year of crossroads. If austerity measures and environmental dogmatism swing the development, we run the serious risk of losing a window of opportunity to secure progress achieved so far.

In the course of this year, AEA will build upon the recommendations from the Aviation Summit in Bruges last year, and upon the Aviation Platform to at least find ways of avoiding trade conflicts resulting from an extraterritorially-imposed EU ETS.

This leads me to my third point. In 2011 we need firstly, as I mentioned, to deal with the distortive impact governmental aviation policies can have on trade; secondly, deal with the distortive impact governmental environmental policies can have on aviation; but thirdly, 2011 is the year in which governments should turn their attention to aviation value chain issues, as opposed to airline issues.

In 2004, the European legislative process gave birth to a regulatory monster called the Denied Boarding Compensation Regulation. The main thrust was to penalise airlines for miscalculating the number of expected no-shows. In a regulated world, you would expect regulators to regulate market behaviour. If there is a political will to do so in a liberalised environment, so be it, as long as it is done in a way the market understands. But if you need courts to figure out what was meant in the law, something went wrong. And a lot went wrong with the EU DBC Regulation.

Its ambiguous wording gave rise to the notion that it provided passenger rights under all circumstances, even exceptional circumstances. If the flight is cancelled for reasons beyond the control of the airline, the passenger can expect the airline to cover the cost of care whilst it is rerouting the passenger to his/her final
destination. If the entire air space is closed and there is no possibility to reroute, the Regulation foresees no limits to the cost or duration of the care. Airlines did their utmost to satisfy the claims of the 10 million passengers which could not reach their final destination during the air space closure in Europe, but many carriers were confused as to how to apply a Regulation for a situation for which it had not been designed. Clearly, the closure of the entire European airspace is exceptional, but that was supposed to have been the purpose of regulating “exceptional circumstances”.

Europe recently witnessed the extraordinary phenomenon sometimes referred to as snow; and some airports were also surprised by ice in winter. Really? Surprised?

Because aircraft cannot land or take off under such adverse circumstances, these are “extraordinary”. But are they as extraordinary for airports? If the airlines are to be held accountable for unpredictable events like volcanic ash – which they should not be – then airports should be held accountable for predictable events like snow and ice. Again, it appears to me that clarifications are called for – clarifications of the liabilities of the service providers to the airlines, but also in the interest of the travelling public.

It is simply not reasonable to lead the traveller to believe that the aircraft operator is always liable, irrespective of the irregularity. Aviation has developed into a complex system, in which the elements of the aviation value chain are inter- dependent. This is not adequately reflected in current legislation on either side of the Atlantic.

Whether we like it or not, consumer rights have become an issue. Just as carriers are entitled to have assurances that a regulatory framework is applied globally to address distortions, so are consumers entitled to know what their rights are. And the rights are not dependent upon the direction of the flight they are taking. However, no one wants a regulatory frenzy on either side of the Atlantic, or anywhere else, to define what the market cannot, but should deliver for the customer.

What is called for is an understanding of the functioning of the value chain. Airlines are part of a complex service system, the elements of which are inter- dependent, which makes the system fragile, and which requires a clear definition of liabilities of all parties concerned. Airlines are only as efficient as the system lets them. Governments must see the “big picture” and address inefficiencies of the value chain if airlines are to deliver on consumer satisfaction.

If anyone can see the big picture, it is the USA. No one in Europe seriously believes that any state or airline, certainly not the Gulf carriers, could undermine the traditional and indisputable ability of the USA to assume leadership to master any challenge. In the aviation sector the USA has certainly been in the driver’s seat and successfully modernised aviation.

My point today is that in light of the dimensions of globalised economic and financial developments, together with the gravitational shifts of growth and traffic to Asia, we need to think out of the box as to what this global aviation village needs if it is to function sustainably.

In the context of competition policy and environmental issues, I mentioned the need to review the role of ICAO as a global regulatory body for a globally oriented aviation sector. But we believe the engine for further change lies in the EU-US Agreement.

We all know that in order to achieve the advantage of legal and regulatory stability of the 2nd Phase of the EU-US Agreement, many discussions were not led, and conclusions not drawn; the achievable was achieved.

But as we see the global aviation development knocking on our EU-US door, EU- US leadership will be required to take a broader view of what lies ahead, and, yes, resume a fresh review of ownership and control restrictions. I recognise that different camps are re-evaluating this complex issue as we speak. But it does seem to me that the new structures that are emerging on the North Atlantic will be turning to stabilise their operations by securing the interest of financial and/or strategic investors. But essentially the issue on the table is whether, in the dimensions of cross-border mega carrier conglomerates, a 24.9% ownership clause of voting rights is still appropriate.

But, to end with the beginning in mind, 2011 will be, barring further extraordinary crises, a year of economic growth and recovery for many regions, even Europe. However, that recovery is fragile.

Let me conclude my remarks, as I began them, by quoting another famous American poet, Robert Frost:

Two roads diverged in a wood, and I— I took the one less travelled by,
And that has made all the difference

Ladies and Gentlemen, in 2011, we, too, must take the road less travelled. And that should make all the difference in securing a stable, prosperous, sound global aviation environment for all of us.

Thank you

Safe,Secure and Sustainable Aviation

Beginning in 1994, when ICAO marked the 50th anniversary of the Chicago Convention, it also declared that on each year thereafter, Dec 7th would be International Civil Aviation Day — and further, that each year would have a theme for that occasion.

This year’s theme is “Safe, Secure, and Sustainable Aviation for our planet.”

As theme’s or slogans go, “Safe Secure, and Sustainable” seems to meet some of the first level requirements of any purposeful theme. It’s short, and because all three words begin with the same letter — basically easy to remember. Sort of rolls off the tongue — “Safe, Secure and Sustainable”. It would make a great bumper sticker.

I like it enough to seriously consider asking my fellow ICAO Council representatives to keep it unchanged until at least our next assembly in the fall of 2013.

Why? Because those three words, “Safe, Secure, and Sustainable” capture the essential elements that government policy makers across the globe will need to not only focus on — but just as importantly, keep in an incredibly, difficult and delicate balance to enable civil aviation to continue to be a principal driver of the world’s largest business — namely, travel and tourism.

And, as you might expect, since the ICAO Tri-annual General Assembly just concluded a month ago, the body of work of that assembly, and its relationship to this year’s ICAO theme, will be the principal focus of my remarks today.

Without question, the 37th Assembly demonstrated the continued importance of ICAO as the forum for addressing a growing range of issues and laying the framework for the sustainable growth of a safe and secure global civil aviation sector. A record number of participants, nearly 1600, from 176 Member States and 40 organizations attended the 37th Assembly. The United States highlighted the importance that we give to ICAO by including in our delegation two cabinet secretaries –Transportation Secretary LaHood and Homeland Security Secretary Napolitano — as well as the FAA and TSA Administrators and the NTSB Chairman. I was pleased to receive Senate confirmation in time to join this important gathering and am grateful for the support from Congress, industry and the government that helped make that happen.

As always, enhancing aviation safety continues to be a top priority of ICAO and its Member States and, at the Assembly, we continued to build on progress in this area. The Assembly adopted many resolutions on new programs and policies on Safety Management, which include standards on State Safety Programs and Safety Management Systems. Member States continued to support ICAO’s transition to a Continuous Monitoring Approach to safety oversight, which will help improve ongoing safety compliance throughout the world.

Following up on a commitment from the High-Level Safety Conference, the Assembly strongly endorsed increased transparency and the sharing of critical safety information between governments and industry stakeholders, a major goal of the United States and others. Increased collective action to acquire, share and analyze safety data will allow us to better predict risk and proactively develop solutions. In support of this idea, the United States was pleased to sign during the Assembly, a Memorandum of Understanding with ICAO, the European Union and IATA to create a Global Safety Information Exchange. The Exchange will facilitate the collection, sharing and analysis of safety data among participants, again with the idea of improving our collective ability to identify emerging areas of risk and take corrective action.

And now, on a subject very close to my previous lives and duties, the assembly drew particular attention to the critical importance of NextGen implementation and of the equally important subject of harmonization with Europe’s Sesar. NextGen and Sesar are being counted on to provide significant improvement in the world’s ability to effectively and more safely — handle substantial increases in air traffic.

For years now, policy makers and aviation stakeholders have “baked-in” to every “long- term” forecast for commercial aviation, the assumption that NextGen and Sesar will actually become fully operational.

As time marches on, inevitably, what were “long-term” forecasts are rapidly becoming “near-term” forecasts.

ICAO of course seeks global standards for a global system. Both the United States and Europe have been understandably grinding away diligently on their own mammoth programs. What became evident even before the assembly, was that the world’s aviation community outside of the United States and Europe, will require the harmonization of these two programs to begin in earnest, sooner rather than later.

This is important for two reasons: (1) ultimately, a global system requires “buy-in” from the rest of the world before global scale implementation can truly begin and (2) harmonization greatly facilitates ICAO’s ability to develop performance criteria in a time frame that is meaningful.

To that end, ICAO has an ambitious work plan culminating in a Special Air Navigation conference in November 2012 that we are all counting on to present measurable progress and additional roadmaps to harmonization and implementation.

In addition to safety issues, aviation security took on a more high-profile role in this year’s Assembly than in the past. This increased focus on aviation security at ICAO grew out of the international community’s concern over the December 25, 2009, attempted terrorist attack on a trans-Atlantic Northwest Airlines flight. In the U.S. government, we benefitted from the leadership of Secretary Napolitano, who demonstrated tremendous personal commitment and resolve in rallying the global community to bolster worldwide aviation security standards. Throughout the first half of the year, at regional conferences in Mexico City, Tokyo, Abuja and Abu Dhabi, she worked with partner countries, the private sector and ICAO to build international support for action. Of course, she was there at the Assembly, along with TSA Administrator Pistole, to build further global consensus and commitment to adopt more effective aviation security measures.

The hard work had some clear results. The Assembly unanimously approved an unprecedented Declaration on Aviation Security, reflecting new levels of global cooperation to combat threats to civil aviation. The Declaration urges Member States to strengthen and promote the effective application of ICAO Standards and Recommended Practices; share best practices and information; improve Member States’ ability to correct deficiencies identified under ICAO’s Universal Security Audit Program; and, support greater transparency of security audit results among Member States. The Declaration also urges Member States to strengthen security screening procedures and utilize modern technologies; develop new security measures to protect airport facilities and improve in-flight security; develop and implement strengthened and harmonized measures and best practices for air cargo security; promote enhanced travel document security; and, promote increased information exchanges, early detection, and dissemination of information on security threats to civil aviation.

Of course, we — the international aviation community — can’t rest on our laurels and be satisfied with the words of the Declaration. We — governments, ICAO, and industry — now need to ensure that the collaborative vision of the Declaration is brought to life through joint action and cooperation. We need to improve security information-sharing and ensure that states with identified security needs receive rapid capacity-building assistance. We need to continue to work together to proactively develop and deploy screening technologies globally.

Recognizing the central role of ICAO in addressing these security challenges, the Assembly endorsed the ICAO Comprehensive Aviation Security Strategy, a new approach comprised of seven focus areas for the next six years. In addition, Member States gave unanimous support for the continuation of the Universal Security Audit Program.

With the positive momentum that we take from the Assembly and the efforts of the past year, I am confident that global consensus on aviation security issues will continue to grow and allow air travel to be more secure than ever before. This will certainly remain one of the United States’ priority areas of engagement at ICAO and with international partners.

So, we’ve seen the continued focus on safety and significant progress on security. Now, you may be asking, “What happened on climate change at the Assembly?” Well, I have saved perhaps the most challenging issue discussed at the Assembly for last.

First, we should consider how ICAO and its Member States arrived at this latest round of environmental discussions. At the 36th Assembly in 2007, progress was hindered by a significant divide over the issue of applying market-based measures, like the European Union’s emission trading scheme, to international aviation. However, to demonstrate a willingness to take action on climate change, the 36th Assembly created a process, the Group on International Aviation and Climate Change, or GIACC, to develop a global aspirational goal for the aviation sector on the basis of fuel efficiency improvement.

4
A year ago, the ICAO High-Level Meeting on Climate Change adopted GIACC recommendations that included agreement to develop a CO2 standard and commitment to a global aspirational goal of 2% annual fuel efficiency improvement from 2010 to 2050. The High-Level Meeting also recommended further work on more ambitious goals for the medium and long term for presentation at the Assembly this year. Not surprisingly, there were a wide variety of views, as Europe argued for a 10% reduction below 2005 by 2020, while China, Saudi Arabia, and others in the developing world sought merely a study on the feasibility of more ambitious goals and argued that developed countries alone should bear the responsibility for reductions.

After months of further work, an ICAO Council meeting this September resulted in an impasse. Consequently, the ICAO Secretary General, rather than the Council, submitted the first draft of the climate change resolution proposed last month at the Assembly.

Did that include everything that the United States was looking for? No. Along with Canada and Mexico, we had proposed a more ambitious global goal of carbon neutral growth by 2020 based on 2005 levels. With the global industry already prepared for a goal of carbon neutral growth from 2020, we felt that Member States could and should be more ambitious.

At the Assembly, over several long days, our team of negotiators from FAA, State and EPA sought to find common ground among Member States holding a broad range of views. In addition to the issue of the global aspirational goal, we sought consensus on a resolution that would promote cooperation and negotiation on the application of market-based measures and recognize that states with de minimis international aviation activity levels may not contribute to the global goal.

Well, where did we end up? The good news is that the vast majority of countries — both developed and developing — genuinely worked together and recognized the need for global, collective action to address the contribution of international aviation to climate change. Due to divergent views, complete agreement on a total package was not possible, and many states, including the United States, submitted reservations due to concerns about certain aspects of the Assembly resolution.

The final product endorses the global aviation industry’s medium term goal and calls for carbon neutral growth from 2020. That is intended to be a collective, non-attributable goal that does not place any binding obligation or requirement on individual Member States. The United States and several other countries have noted reservations due to concerns over some of the language in the resolution’s goal paragraph. Specifically, we object to language that weakens the imperative for collective global action and unduly differentiates between developed and developing Member States in a manner inconsistent with the Chicago Convention. It would establish an unwelcome precedent at ICAO. While recognizing that contributions may vary according to countries’ circumstances and capacities, the global goal must be a collective one.

The Assembly resolution also outlined a de minimis threshold in an effort to recognize that most countries do not have commercial air operations that make a meaningful contribution to total international aviation emissions. The Assembly set the de minimis level at 1 percent of total international revenue ton kilometers, meaning that states whose operators account for less than that amount are welcome, but not expected, to submit action plans to ICAO. Application of such a de minimis concept and the appropriate percentage needs to be considered in relation to the overall balance of a final package.

There was some, if very modest, progress on the issue of the application of market-based measures that proved so challenging in 2007. We sought to address the issue by emphasizing the importance of countries working together to find an agreed way forward on how such measures can be applied to international aviation. The language agreed upon at this Assembly endorses the traditional approach to resolving international aviation matters — negotiations.

I would be remiss if I did not convey that use of emissions trading on international aviation remains a divisive issue. This should not be surprising. Market-based measures could transfer billions of dollars between countries, shape competition in markets, and affect technology investment in the aviation sector — all topics that generate large interest by governments in how this would be applied to their airlines. I suspect there will be significant opportunities for conflict resolution over the next couple of years as the international aviation community seeks to make progress here. Certainly the U.S. is committed to trying to find a constructive and appropriate way forward.

I do not want to conclude my remarks on the assembly’s deliberations on climate change without underscoring the obvious: The achievements and technological advancements necessary for this vital industry of ours to actually realize the dramatic reductions in carbon emissions that we all hope for, will not occur because of resolutions passed in the ICAO council chambers in Montreal.

They will occur because of the collective will of stakeholders in this room to insure that NextGen and Sesar meet or beat their implementation targets so that projected savings forecasted in reduced delays and more economical aircraft routings actually materialize.

They will occur as our airframe and engine manufacturers continue to bring on line new products with the required performance enhancements necessary to achieve these goals.

They will occur when the critical issue of commercial deployment of alternative fuels moves from theory to reality. Let me cite just three quick examples of progress on that vital front. In late 2009, fifteen airlines signed pre-purchase agreements with two alternative fuel suppliers to develop long term purchasing arrangements. In March of this year, U.S. airlines and military jet fuel purchasers signed a strategic alliance to align their processes and create a “single market” for alternative jet fuel purchasing. Both events represented another important step in providing “demand pull” for accelerating the development and deployment of sustainable alternative fuels.

Additionally, in July the U.S. Department of Agriculture teamed with ATA and Boeing Commercial Aircraft in a “Farm to Fly” program that is working to develop partnerships between
farmers, airlines, and alternative fuel producers to jumpstart fuel production as well as bring economic development to rural communities.

This is far from an exhaustive list. My point of course is that these, and many other critical steps are being taken to insure that as more alternative fuels become certified, there will actually be in place the early beginnings of a sustainable “supply chain” to make commercial deployment of alternative fuels possible.

In Conclusion

I opened my remarks today with ICAO’s theme for the year: Safe, Secure and Sustainable aviation for our planet.

I also opined that maintaining the delicate and very critical balance with all three of those noble objectives would be a significant challenge for the world’s government policy makers as it will also be for our private sector stakeholders.

For my part, as the newly minted United States Ambassador to ICAO, I can assure you all that I will work diligently on all three objectives and faithfully pursue the goals of the United States.

Thank you.

Reflections on a Wonderful Life in International Aviation

Thank you, Brent, for that very kind introduction.

Words cannot describe how deeply touched I am to see so many of you here—it is a huge honor and something that I’ll remember for the rest of my life. If I say nothing else coherent today, let me express just one thought up front and directly from the heart: the real reward for me of being a part of international aviation— and I suspect the greatest reward for all of you—has been the extraordinary privilege and the unmitigated joy of sharing so many wonderful hours, days, weeks, months, and years with so many wonderful human beings. Open Skies, carbon neutral growth, one-stop security, the Agenda for Freedom—these are all fantastic things but, let’s also admit, just still shots in the grand newsreel of human experience. Friendship, common endeavor, loyalty, compassion—these things have permanency, and they are what I have experienced over the past quarter century with you.

To be invited to address the International Aviation Club for a third time is truly special. There are few spheres of economic activity where the spirit of competition runs deeper than in aviation: that is just as it should be. Strongly held views, vigorous debates, robust and sometimes larger than life personalities—all are part and parcel of this fascinating sector in which we’ve chosen to participate. And yet,
-2-
month after month, we come together at the IAC not only to celebrate a shared passion for aviation but also, and more importantly, to renew and deepen friendships. Brent, to you and your colleagues on the Board of Directors—many at the Head Table—thank you for your hard work and devotion to this great institution.

Today, I promise not to offer any further quotes from Georg Wilhelm Friedrich Hegel, that most difficult of German philosophers. Nor will I attempt yet again to analyze the psyche of that strange animal called the EU: just remember that, if you insert an “m” in the middle, you end up with a very large Australian bird that cannot fly. (I assure you: a diplomatic note with a formal apology is already on its way to Daniel Calleja in Brussels.) And, despite urgings from Yoshi Ogawa, I will forgo presenting a lecture entitled “Famous Japan CAB DDGs I Have Known— from Hanyu-san to Narahira-san, with Shibata, Harunari, Idee, Maeda, and Takiguchi in Between.”

Instead, I’d like to look back at some special moments in the past and, in doing so, to take stock of what we’ve accomplished. Then, very briefly and with your indulgence, I’ll mention a few challenges that are still before us. Recalling Vladimir Ilyich Lenin’s book from 1902, I’ll pose the question “What Is to Be Done?” (Note that I’m surely the first, and let’s hope the last, IAC speaker to cite Lenin.)

Let me add that my remarks today represent my personal views, not official positions of the State Department or U.S. Government.

It was a quarter century ago, in 1985, that I was first admitted to the secret society, the Skull and Bones, of aviation negotiations, serving as an attorney to then-State Department Deputy Assistant Secretary Jeff Shane. Times sure have changed, and I think it’s fair to say that, collectively, we’ve changed the world and changed it for the better. Back then, there were no Open Skies agreements. We were struggling to hang on to what we had. The noxious fumes of Bermuda 2 hung heavy in the air, like the smog and smoke over industrial London a century ago. We bickered with Korea over the size of the shelves in the cargo warehouses at Gimpo Airport. And we battled with Germany over pricing. Every traffic season we sat down with the French to dispute whether there was excess capacity in the market, staying up to awful hours, eating pizza out of cardboard boxes in oxygen-deprived conference rooms, drafting tedious Memoranda of Consultations, and accomplishing not very much.

Today, not only have we negotiated Open Skies agreements with 99 countries, but America’s Open Skies principles are broadly accepted as the right philosophy for civil aviation. Heathrow is no longer the protected preserve of the famous “Gang of Four” airlines, and BA is now joined with American in the immunized oneworld alliance. We have fully liberalized our aviation relations with Korea, where the splendid Incheon Airport appears to pose no shelf-space problems for our carriers. Indeed, the growth and innovation of the air cargo business over the last quarter- century, including by express delivery companies like FedEx and UPS, is nothing short of astounding. Germany, for its part, became the largest of our early Open Skies partners, laying the foundation for the United-Lufthansa and Star alliances— all operating under the U.S. model pricing article, not some market-distorting aberration like double approval, country of origin, or sum of sectors. The French Government privatized Air France, which in turn is linked in a vibrant alliance
with Delta that delivers the benefits of seamless air service to consumers, care of Open Skies and antitrust immunity.

You know all of this. It’s something in which we can take great pride: a stunning success of America’s vision, America’s determination at the negotiating table, and America’s ability, when it counts, to come together—across party lines, between Congress and the Executive Branch, and with airlines, airports, and labor working in unison for a common purpose.

So, with this—I hope not too self-congratulatory—summary out of the way, let me tell a couple stories. In the style of Eric Rohmer’s Six Moral Tales, the stories are somewhat pointless and the lessons to be drawn are unclear or, at least, subject to dispute over cigarettes and cognac. Politically incorrect, these little stories will reveal how much the world has changed and yet, in some respects, as the French are wont to say, “plus ça change, plus c’est la meme chose.” The more things change, the more they remain the same.

The first story transpires in Switzerland. Long, long ago—in the summer of 1987—Jeff Shane asked me to join a merry band of U.S. negotiators setting off to do battle with the Swiss civil aviation authority in Berne. In flagrant, if not in flagrante, violation of the Eleventh Commandment—Thou shalt allow a fair and equal opportunity to compete—the Swiss had banished TWA’s ticket counter in Geneva to a dark, dank, and dilapidated corner of the airport, citing aviation security in lame defense. Meanwhile, if I recall, Swissair was seeking some sort of improvement in traffic rights or the like. We negotiated furiously and incessantly for two days and nights. I typed up the compromise accord at the U.S. Embassy between 2 and 6 a.m. on August 1—the Swiss National Day—and then celebrated the initialing ceremony, replete with clinking glasses of bubbly, in the Grand Hotel Bellevue.

It was a gloriously sunny and warm day, and in the afternoon, DOT’s Bob Mallalieu and I donned swimsuits and, over and over, walked several hundred yards up the surging Aare River, eased our torsos into its turbulent and refreshing waters, and were swept downstream in a series of rides that rivaled anything that Six Flags has to offer. Bob, for those of you who know him, had certain advantages of buoyancy, and I had to call on my best athletic talents to keep up.

Let us fast forward twenty-three years to June 2010. Once more, a team of intrepid American negotiators—Paul Gretch, Matt Finston, and I—found ourselves in Berne. This time, however, we signed an enhanced Open Skies agreement with Switzerland, one that includes seventh-freedom cargo rights, some Fly America exceptions, and legal protections for Swiss as a subsidiary in the Lufthansa family.

Once again, in the afternoon, I ventured down to the banks of the Aare River. Yet unlike 1987, it was overcast, a nippy wind whipped about, and there was an occasional drizzle. The water temperature of the Aare on that day was 12 degrees Celsius, 53.6 degrees Fahrenheit. Let me repeat, a bracing 53.6 degrees Fahrenheit. Yet, undeterred by either cold or common sense, Matt and I proceeded to strip down to our swimsuits and walk upstream. Paul Gretch kept valiant watch, ready to summon lifeguards or, perhaps, a St. Bernhard with a defibrillator around his neck. In the end, Matt and I managed only two trips down the river, emerging exhilarated, barely alive, and nearly purple.

What lessons can we draw from these two trips to Switzerland? We can certainly confirm the trenchant observation of the Greek philosopher Heraclitus that “you never step into the same river twice.” By golly you don’t, and we most certainly didn’t. We can also confirm that Winston Churchill was on the mark when he said that “to improve is to change.” This truth was borne out in our aviation relations with Switzerland: we altered the dynamic of our negotiations, we focused on a much bigger canvas of opportunities, and we improved immeasurably the benefits for our two countries.

Yet I am troubled. Having long considered axiomatic the proverb that “with age comes wisdom,” I fear that my decision to plunge into the Aare River last summer raises some serious doubts. I must, I think, leave it to you to ponder whether, in fact, there is any moral to this story.

My second story takes place in Moscow. It is also a story of change and constancy.

I first travelled to Moscow in November 1985. Dispatched by President Reagan in conjunction with the first warming of relations with the Soviet Union under Gorbachev, the U.S. delegation had explicit instruction to strive for an agreement to restart flights between our countries. This was again a negotiation where we worked day and night. We caught, at most, a few hours of sleep each night at the Ukraine hotel, an institution described on the web today as a “unique mixture of Stalinist architecture and Renaissance finery.” My own impression was one of indelible seediness, a blend of squat Russian babushkas on each floor, drinking their tea and minding our comings and goings, and a raucous dining hall with greyish food and red-lipsticked ladies on the prowl for Eastern European and African businessmen, the hotel’s usual clientele. In the long run, however, what mattered most to me was the opportunity, only months into my first job in aviation, to work side-by-side with Susan McDermott. We tackled one drafting problem after another. Out of our vigorous discussions and hard, hard work came a friendship that has lasted a quarter century and that will, I know, continue into the future.

The professional achievement at the negotiation in 1985 was an agreement that allowed both Pan Am and Aeroflot to resume flights with an absolutely quirky provision that gave Pan Am the assurances it needed to operate in a totally regulated, communist economy. It was an agreement that was over the top with regulation.

In more recent years, we have built a strong aviation relationship with Russia, step by step. Our agreement remains a far cry from Open Skies, but it is a market- oriented accord that meets the critical needs of both sides’ airlines. The relationships we’ve built with a succession of Russian officials—Sergey Seskutov, Pavel Rozhkov, Vitaliy Pavliuk, Sergey Vasiliev, Natalia Kirilova, Gennady Loschenov, Vladimir Tasun, and Oleg Demidov—have helped us, repeatedly, to solve problems. And, by the way, we’ve never returned to the Ukraine hotel and have instead stayed in some absolutely wonderful places, including the National Hotel (where Lenin lived, by the way) and the Metropol (with its fantastic dining room and stained glass ceiling).

If the Moscow story I’ve told so far is one of change, there is one constant I would like to mention. That constant is the conference room at the headquarters of the then-Soviet and today Russian aviation authorities on Leningradskiy Prospekt.
We’ve used that conference room during all of our negotiations. Back in 1985, as the two delegations sat across from one another, we were separated by about two yards of space occupied by a virtual jungle of lush, dark green, slightly dusty plastic plants. Those plants just didn’t look right. Suspicious of everything in the Soviet era, the U.S. delegation chose to huddle for internal discussions outside in the bitter November cold rather than risk having our whispers overheard.

About 20 years later, the U.S. delegation arrived at the office building on Leningradskiy Prospekt to find that our accustomed conference room was in the final stages of renovation. There, in the space between the two sides of the table, we saw not a rampant jungle of plastic vegetation but instead a set of at least a half dozen pipes and wires running up from the floor. I smiled at Mary Street, we both laughed, and we knew that “plus ça change, plus c’est la meme chose.”

Well, enough of these stories with ambiguous moral lessons. Let me be a bit more serious now. Since the inception of Open Skies in 1992, we have accomplished so much: so much that matters, so much that is good. Nevertheless, we are by no means at the end of history in international aviation. When Kris Urs—one of the most talented Foreign Service Officers I know—takes over as Deputy Assistant Secretary on November 1, he will not have an empty in-box. Kris and the wonderful team at State, at DOT and Commerce, and throughout the aviation industry will confront big challenges. With challenges, however, come opportunities. I’d like to mention three challenges that I believe merit honest, careful, and earnest attention.

The first is aviation and the environment. We should all applaud the ICAO Assembly for hammering out a resolution earlier this month that addresses aviation
greenhouse gas emissions. We need a global plan and a global solution for the global problem of climate change. Civil aviation must do its fair share, but at the same time not be bullied, scapegoated, or double or triple-charged. ICAO, not the UNFCCC, is the place to devise a plan of action appropriate for international aviation. A plan that is rational and fair. The resolution adopted by the Assembly builds on the extraordinary work of industry. Unsurpassed by any other economic sector, the aviation community—airlines, airports, manufacturers, and air traffic service providers—offered concrete proposals to address CO2 emissions. In endorsing this valuable contribution by industry, the Assembly took an important and essential step forward.

It does not detract from the progress that was made in ICAO to note that the text of the resolution is ambiguous in some areas, masking points of continuing and, in some cases, fundamental disagreement, including on the issue of market-based measures such as emissions trading and taxes. More work must therefore follow. In my view, that work should proceed in ICAO but can also be supplemented in other fora. With Europe, for example, we can turn to the U.S.-EU Joint Committee. The second-stage agreement signed in June authorizes the Joint Committee, assisted by experts, to examine how market-based measures are to be applied, reconciled, and potentially adjusted or changed. It will be essential to look at the entire picture, including the plethora of new fees on passengers and airlines that falsely masquerade as environmental charges. I won’t prejudge the results of work that is yet to come. Others will now need to answer Lenin’s question, “what is to be done?” What I can state with confidence, however, is that the United States will field a stellar team to tackle the challenge, with people like Julie Oettinger, Carl Burleson, Kurt Edwards, John Kiser, Megan Walklet-Tighe, and the incomparable Nancy Young.

A second issue is the state of management-labor relations at our airlines. A couple months ago, Kevin Henry of the Southwest Airlines Pilots’ Association came to see us at the State Department. What was interesting is that Kevin invited Karen Lewis, a vice-president of Southwest, to join him. I was struck by how both Kevin and Karen—union representative, management executive–seemed so clearly in synch on the big picture. They understood “we’re in this together”; “we won’t always see eye-to-eye, but united we stand, divided we fall.”

Joint meetings with an airline’s management and labor have been quite a rarity in my experience at State. It’s troubling that this meeting with Kevin and Karen involved an airline that doesn’t fly to a single foreign destination. Maybe I’m the problem!

Seriously, what we witness in relations between airline labor and airline management is a level of tension and conflict that can leave all stakeholders worse off. We were lucky over the past decade to have enjoyed the consensus support of both management and labor for Open Skies. That consensus, however, shows signs of disintegrating.

What is to be done? Again, I don’t claim to know all the answers. It’s clear, however, that international air service will remain the greatest opportunity for U.S. airlines to expand and succeed in the future. All of us—government, management, labor—need to be lashed together and focused on taking robust advantage of opportunities abroad. If we can “grow the pie,” we can all come out ahead.

Which brings me to a third and final challenge, the hardy perennial of restrictions on airline ownership and control. Few topics have generated more debate, more posturing, more heat than light in the myriad of conferences, seminars, symposia, and aviation club lunches that are part of our lives. If I have one big regret during my tenure as Deputy Assistant Secretary, it is that, despite all the talk, we really have not had the sort of meaningful, respectful, future-oriented conversation that’s needed on this important and difficult subject. Routinely, various of us—me included—has trotted out the party line of his or her organization. In the case of the U.S. Government, this has usually meant dodging the question rather than grappling with it. Looking back with the great benefit of hindsight, one can see the unhappy history of the failed DOT rulemaking on “actual control” as a failure of resolve by an Administration that, in its heart of hearts, favored change. Rather than go to Congress with a proposal to amend the law and seek out an open discussion of the pros and cons, President Bush’s Administration concluded that the odds of success were too low, heard the clock of the EU negotiations ticking, and opted for a much diluted second-best—the infamous NPRM. In the end, the Bush Administration came up much bruised and empty-handed. The United States subsequently sidestepped real engagement on the issue during the second-stage negotiations with the European Union, where we were working against a tight timeline—November of this year—and where there was no prospect that either the Administration of President Obama or Congress would be prepared to take any action quickly, if at all.

What is to be done? Let me offer three suggestions, all focused on process:
• First, this meaningful, respectful, and future-oriented conversation should begin, not with a focus on the political difficulty of changing the existing
restrictions, but instead with a fundamental question: does a permanent and exception-less ban on all foreign control of every U.S. air carrier posture our country’s airlines, their dedicated employees, and the airports and communities they serve for long-term success as part of a global economy?
• Second, if the answer is “no” or even just “maybe not,” the discussion should focus on finding solutions to the well-rehearsed list of concerns, including the protection of our national and homeland security, the need to assure reciprocal investment opportunities for U.S. citizens, the preservation of traffic rights in foreign markets governed by the traditional “nationality clause,” and the understandable concerns of airline workers that statutory change could unfairly tilt the balance in labor-management relations, given the fractured state of international labor law.
• Third, and last, this conversation is ultimately one for Americans to have among themselves. Any change in our law and policy should be made because we decide it is right for us. It should not be a concession we make to foreign partners. Perhaps, by completing the second-stage of negotiations with the European Union, we’ve usefully cleared the decks for this domestic American discussion.

Those were the three challenges that I wanted to mention—aviation and the environment, labor-management relations, and airline ownership and control. I wish that I could say with precision, in each case, what is to be done, but I can’t. However, because I know the collective talent assembled here in this room, I am confident that you will find the right answers.

Now comes the hard part: wrapping up. As I look back at my work in aviation over the past quarter century, there were so many special moments, memories, and experiences. Let me share a few:

Attending my first IAC lunch, back about 1986, at the invitation of Ken Briggs, a wonderful and gentle man who told marvelous stories about his work in Addis Ababa for TWA, helping to build one of the finest carriers in all of Africa, Ethiopian Airlines;
• Enjoying a Grey Goose martini with Dick Carlson in his luxurious digs at the Conrad Hotel in Brussels;
• Listening, during round after round of talks with the United Kingdom, to Paul Gretch and Tony Baker hold forth on the London theater;
• Learning the “body language method” of communication from Daniel Calleja;
• Smiling as Cecilia Bethke steered me to another scotch (or another lamb chop) at those wonderful receptions at the Willard;
• Visiting Kevin Montgomery at the hospital in Tokyo as he began a remarkable recovery from a life-threatening stroke;
• Trembling, early in my career, when I received a call from that big bear of a man, Ed Driscoll, with his encyclopedic knowledge of aviation;
• Admiring the intense loyalty to American Airlines of Mary Kennedy;
• Learning so much from Carolyn Coldren about the importance of knowing
the people on the other side of the table, what makes them tick, and how we
might partner our way to solutions;
• Sharing beer and barbecued chicken with the U.S. delegation at a beachside
restaurant in Copacabana and, in particular, listening to Whit Witteman tell us that, even though the chicken was incredibly good, the cook had violated
all the rules of his alma mater, the Cornell School of Hotel Management;
• Stepping into the serene calm of the Okura hotel, our home away from home
for so many, many rounds of negotiations with Japan;
• On bad days—luckily, there weren’t many—relishing the hot tea that Tucker
would make for us in the office;
• Meeting, every December, at Diane Peterson’s invitation with
representatives from airports all over our country and witnessing, each time,
the truth that Washington has no monopoly on either knowledge or insight;
• Having dinner with the U.S. delegation after a hard day of talks, preferably
at a restaurant picked by Paul Gretch;
• Marveling at the ability of Russ Bailey to explain some obscure corner of the
Railway Labor Act in a way that a mere mortal could understand;
• Evacuating the State Department on the morning of September 11, 2001,
with Susan Parson and Judy Bridges, making our way north to K Street, and ultimately taking up Will Ris’s kind offer to let us use some space and telephone lines at American’s offices;
• Being greeted in Moscow as “Mr. John” by Sergey Vasiliev;
• Memorizing, with Mary Street, some strange place names on the old Soviet
air navigation charts that Sergey would place on the conference table:
places like Revki, Sarin, Gopto, Kamud, and Baevo;
• Also adding to my vocabulary that wonderful Spanish term, “los flecos”;
• Learning that “NPRM” is a four-letter word;
• Realizing that I was over the hill when, upon completion of Open Skies
negotiations with France at the Quay d’Orsay, I gravitated toward the
– 15 –
glorious buffet while every other male on the U.S. delegation gravitated
toward the equally glorious Miss Tahiti on the French delegation;
• Eating a bite of humble pie when Shibata-san—in Washington to protest
those FedEx Cessnas flying to Narita—instructed the U.S. delegation that he wished to hear from only one American official and that official would be Ms. Susan McDermott;
• Taking a call from Roz Ellingsworth and asking Tucker to clear my calendar for the next 90 minutes;
• Surviving, just barely, on three hours of sleep over a 53-hour period of negotiations with Hong Kong in 2002;
• Staying up to the wee hours of the morning in both Memphis and Louisville to witness the miracle of express delivery come alive at the FedEx and UPS hubs;
• Sleeping from 3 to 5 a.m. on the couch in my office the night before we initialed the equally miraculous Open Skies agreement with Japan;
• Experiencing Michel Ayral’s extraordinary intellect and his supernatural capacity for work, even as he struggled with the impossible hand dealt to him by the European member states;
• Counting Daniel Calleja as one of my best friends even if I still can’t properly pronounce his last name;
• And last—because there must be a last at some point—when it was time to celebrate, whether a birthday or a negotiating success, receiving one of Tucker’s wonderful poems.

It would be easy for me to spend another half-hour going around this room and recognizing you individually for all you’ve done to help, and guide, and encourage
– 16 –
me. I won’t do that. Instead, in closing, let me say, to everyone here, thank you for today’s luncheon, thank you for your patience in putting up with my meandering speech, and thank you for your abiding friendship.

Thank you for such a warm welcome, and the opportunity to address this esteemed gathering of leaders of our industry. Looking back through the highly respected previous speakers, I am also extremely honoured and grateful to join John and his predecessor, Duane Worth as the only speakers recently who represent those professional people who deliver the fantastically safe and reliable transport system, which is our industry.

In the next 10 minutes, I would like to suggest to you that as successful and groundbreaking as the EU- US Stage 1 and 2 agreements are, they are not complete and will eventually fail unless we follow up with complementary regulatory changes.

Forgive me for stating the obvious, but the main purpose of the vast majority of aviation is to transport people and things around our economies. It is true that some people fly for military or private purposes, but this group above all, does not need to be told that civil aviation is an infrastructure industry, and no developed economy of any size around the world can survive long without us.

So within our industry, what is the role of an air transport agreement? Do ATAs ‘enable’ aviation as the press releases following a successful negotiation normally claim? Mr. Bisignani, here at your table just a few months ago, scoffed at the notion that ATAs did anything other than stifle the industry. Are they to regulate and improve safety, security, competition, etc.? Although there is an element of these topics addressed by ATAs, these are national responsibilities and so not the prime function, which I suggest is the protection of a population’s access to that vital infrastructure. Economies which are not supported by strong communications infrastructure, both telecommunications and physical roads, railways, maritime and civil aviation infrastructure are seriously handicapped and do not serve their populations as well as those which are.

From the Chicago Convention of 1944 to the creation of the EU single aviation market in 1997, aviation was, with a small number of exceptions, very much a nationally regulated industry. This meant that it was clear which regulations applied on safety, competition, tax, consumer protection, employment and the environment, etc.. Since 1997, we have started to tear up that template and de-regulate, or liberalise our industry.

In some respects, this has lead to clear improvements – the EU for example, has seen more services, at more competitive prices, from a greater variety of business models. Real, tangible improvements for the EU consumer. However, we are still experimenting with this new template and I would like to suggest some areas where it not serving us well.

If we acknowledge that we provide not just a discretionary product – such as an electronic appliance or motor car, where if one supplier fails to provide what the market wants, another can easily do so – but that we are part of the economy’s infrastructure. If we acknowledge that civil aviation enables the rest of the economy to communicate and trade, then we must acknowledge that our market must be regulated to ensure best service to the wider economy. All national civil aviation systems had national civil aviation safety regulators; all had competition regulators, tax regimes, consumer protection, environmental and employment regulations. One of the assumptions which was true before 1997, but is no longer true is that airlines, in particular, would know which regulations would apply to them and could plan their businesses accordingly.

So the unique challenge offered to the negotiators of the EU-US ‘open skies’ agreements since 2002 has been to recognise the vital role played by the various market regulators in ensuring that the populations they served continued to have access to safe, secure, fair airline infrastructure as they removed the barriers which assured this through national provision.

I would argue that the new pattern of liberalised agreements has not yet secured what our populations would want. Consequently, I would argue the current situation favours the cowboy operators over reputable airlines as they play one tax system off against another, set one regulator off against another, promote a race to the bottom when it comes to consumer and employment protection and therefore start to undo all that has underpinned the development of our two great continents, which have lead the world in developing democratic, stable, free societies based on trade.

In the context of the 2 recent EU-US agreements, there is some light – albeit some way down the tunnel. I would like to publically applaud the vision and courage of John Byerly of the US Department of State and Daniel Calleja of the European Commission, who lead those negotiations to difficult but ultimately successful conclusions. In terms of developing market opportunities, whilst some will still complain, they lead teams which have achieved a great deal in the face of significant political obstacles. In particular they understood and addressed some of the areas I have been speaking of in quite novel and groundbreaking ways. Articles on safety and security cooperation go a long way towards rationalising the potentially expensive and futile path of different answers to the same problems. Articles on competition and consumer protection seek to ensure high – but not conflicting – levels of protection for passengers and shippers. And particularly unique and innovative were the articles on employment and social regulation, which seek to ensure that growth flowing from the agreements benefits employees as well as the consumer, rather than destroying their livelihoods and the professions they serve.

In Europe the conflict between a single market for aviation and 30 or more different employment regimes has begun to create significant problems. Safety is called into question when the safety authority of one member state is asked to regulate an airline which operates, not just into, but from many member states; tax is being avoided by employment through one tax area whilst the services which the taxes are raised to pay for, are delivered by another; and the benefits of a coherent framework for managing a mobile workforce is denied; with cowboy employers exploiting this lack of provision and reputable airlines forced to adopt multiple, sometimes conflicting employment models with all the inflexibility and cost of duplication that entails.

The Trans Atlantic agreements of the last decade have recognised this and have set a path to start to address it. The European Commission has publically recognised the challenges which lie within the EU and have promised to report back to the EU-US Joint Committee on its progress in addressing those shortcomings. The joint committee itself is charged with ensuring that the greater opportunities afforded by the wider freedoms encompassed by the agreements benefit all stakeholders, specifically including those professional people John and I represent.

So, in conclusion, my call to those who take on the negotiations to liberalise air transport agreements between national systems; as well as to those administering the current supra national markets, is to address the need for appropriate tools. Tools which allow reputable airlines to operate to a clear, unduplicated set of rules on security, safety, competition environmental and consumer laws and deny the cowboys the ability to slide, anti-competitively between the cracks. Tools to allow good employers to have a clear, balanced ability to negotiate and agree changes to terms and conditions for employees which allow the airline and its shareholders, passengers AND employees all to benefit from the improved market access.

In a multinational market place, national employment law will not do – particularly for an industry which is by definition, mobile. The Second Stage agreement, and the European Commission in particular, has explicitly recognised this and we must now work together to create a structure which delivers the best tools for managing the people crucial to the success of our industry. The most powerful trading blocks in the world have been built on benefits of trading being shared between all stakeholders; owners, managers, customers and employees. Good companies which seek to uphold these principles are being undermined by those who seek to operate in the shadows, avoiding tax whilst benefiting from the protections it buys, avoiding regulation yet trading in the regulated marketplace and in particular exploiting differences in employment regulation. If we are not to go back to the destructive industrial relations of the end of the 19th century, with employees then pitted sometimes violently against employers – then we need to provide the modern and effective people management tools for our dynamic, vibrant and successful industry to fill the void which currently exists.

Thank you

Good afternoon. It is a pleasure to be here.

International aviation services are once again the main source of new growth and revenue opportunities for U.S. airlines. Many of those opportunities have been created by ongoing efforts of the U.S. government to open up new markets with its trading partners.

I would like to address two subjects related to those efforts today. First, I will follow up on Martin’s remarks about the U.S.–EU Air Transport Agreement. Then I will discuss some of the concerns that ALPA has about how antitrust-immunized revenue-sharing arrangements might affect U.S. airline employees. Because the U.S. government is seeking an open skies agreement with China and is suggesting to that country that its airlines might benefit by participating in immunized alliances with U.S. airlines, I will use such a hypothetical alliance to highlight our concerns.

We greatly appreciate the work that the U.S. and the EU negotiators put into exploring, and attempting to be responsive to, labor’s concerns before and during the “second stage” negotiations. In particular, the EU side is to be commended for holding two labor forums to examine labor questions posed by the negotiations and then appointing the former chief-of-staff of the Aviation Directorate, Claude Chêne, to look into possible responses to those questions.

As Mr. Chêne concluded, the steps that would have to be taken to truly address the labor issues presented by an elimination of the ownership and control rules would be politically impractical. As it turned out, the stage two amendments proposed neither a change in the ownership and control rules nor a change in the labor laws that would be necessary to accommodate such a change.

For the first time ever, the two sides did agree to include in the amendments a provision specifically devoted to labor matters. That provision states that the two sides “recognize the importance of the social dimension of the benefits that arise when open markets are accompanied by high labor standards.” It also states that “the opportunities created by the Agreement are not intended to undermine labour-related rights and principles contained in the Parties’ respective laws.”

How this provision will be applied in practice remains to be seen, and Martin has indicated that there are developments that may soon test its meaning. We do view it as a promising and meaningful development. We also see it as a provision that should serve as the model for similar provisions that should be included in other air service agreements where appropriate.

The other new provision in the air services agreement I would like to mention is the amended Article 21 – “Further Expansion of Opportunities.” In this provision, the two sides set up a process for addressing the possibility of removing market-access barriers. This provision replaced the suspension or claw-back provision in the stage one agreement and establishes a welcome stability to aviation relationship between the two sides. It also allows for careful consideration of the implications of further removal of market-access barriers and the kinds of changes to labor and other laws that would be necessary before airline workers could support any such statutory or regulatory changes.

With respect to international airline alliances, ALPA has generally supported them, including several that have received antitrust immunity. What we have looked at is whether the airline business arrangement has been likely to improve the U.S. airline’s financial position and create jobs for U.S. airline workers. But the recent wave of requests for ATI for joint venture revenue/profit-sharing arrangements raises a serious question for us.

In these so-called “metal-neutral” arrangements, the revenues generated by the international routes that are subject to the JVs are so fully shared that the airlines have little economic incentive to book passengers on their own aircraft. This makes them different in a key respect from the types of code-share alliance arrangements that were prevalent until recently.

In these metal-neutral joint ventures, an airline might decide to participate in the revenue- sharing arrangement not by doing any of the flying but by providing other services, such as marketing. This is just what United Airlines is doing in its revenue-sharing arrangement with Aer Lingus: United receives about half of the revenues generated by the arrangement, but does none of the flying.

While this arrangement is fairly limited and I have addressed my deep concerns with CEOs Tilton and Smizek, the two carriers publicly stated their intent to expand it. In fact, Aer Lingus chief executive Christof Mueller just last week again expressed his desire to do that. Meanwhile, hundreds of United employees remain laid off. This is not a situation that will remain unresolved.

DOT has been an active proponent of metal-neutral arrangements. In fact, the Department seems to be pressing carriers to integrate their JV operations as much as possible.

And, as I mentioned at the outset, the U.S. government has also been seeking an open skies agreement with China and suggesting to that country that its carriers might benefit from entering into immunized alliances with U.S. carriers.

So, what would it mean for U.S. airline employees if their airlines were to enter into immunized revenue-, profit-, or cost-sharing arrangements with a Chinese airline? China’s big three – Air China, China Eastern, and China Southern – are state-owned, state-managed. China has placed orders for hundreds of aircraft, which it will make available to these airlines over the next few years. China has also provided billions of dollars of subsidies to these carriers in recent years. Their costs, including their labor costs, are opaque. Their employees have no right to collectively bargain or even to select representatives to represent them in labor-management matters. In the case of pilots, at least, there is little ability to leave and seek a piloting job elsewhere.

In these circumstances, it is hard to see how a revenue/profit/cost-sharing alliance between a U.S. and Chinese airline – which China would surely expect to flow from an open skies agreement – would be beneficial to U.S. airline workers.

The U.S. unemployment rate is remaining stubbornly high, and the already tenuous economic recovery seems to be sputtering. It is therefore essential to ensure that prime middle- class jobs are not unnecessarily lost in misguided sacrifice to a trade theory that does not fit the circumstances presented here.

For these reasons, ALPA would expect that because of the potential for job losses presented by JVs between U.S. and Chinese carriers, the U.S. would conduct a study on the potential impact of an open skies agreement with China. We would also expect that the U.S. government would be looking at ways to ensure that U.S. airlines (and thus their workers) perform a portion of any alliance flying that bears a close relationship to the proportion of the revenue the U.S. airline derives from the alliance.

Again, the international realm once again is offering U.S. airlines their best opportunities for route and revenue growth. It is important to make sure that the regulatory framework and negotiating goals encourage U.S. carriers to take advantage of these opportunities in a way that benefits not only their shareholders and customers, but their employees as well.

Thank you



Making a profit playing in the premier league

Good afternoon Mr. Ambassador, honourable guests, ladies and gentlemen.

It’s an honour to be here today, and to have the opportunity to address such a distinguished aviation audience in Washington.

This morning, I had a meeting with Secretary LaHood. It was an open exchange on several issues and a contribution to the good relations between the US and Switzerland.

The title of my speech says “playing” in the premier league – but flying is not an easy game. It’s a serious and tough business and I would like to talk to you about the experience of a small carrier which still is at the top, although we are just recovering from a most severe economic crisis and had a rocky start into 2010, dealing with tiny bits of rocks, also known as volcanic ashes – a European drama. But before I turn to Swiss aviation I just have to mention that playing in a top league is the talk around the globe as the Football World Championship is taking place: We are quite proud that a small country like Switzerland not only made it to the final round in South Africa – we are even able to beat one of the favourites, Spain, a fantastic start. Hopp Schwiiz! Sometimes, small is beautiful.

But let me now turn to the business that brought all the soccer players to the location of the World Championship in South Africa, as except for the hosts no single team got there just by walking, driving or sailing – they took a plane. Aviation is part of the game and we are too. We are proud about this – all of us.

Two weeks ago, airlines’ CEO’s gathered in Berlin at the IATA AGM and there was record attendance. I had the impression that many of us were aware that we had to discuss so many issues which were beyond the business decision an airline CEO normally deliberates. There were several events and developments in the past 12 months which showed us that playing in the premier league not only depends on how many hours you sweat in the exercise room but also on how the rules of the entire game are defined by others.

In the three days industry leaders were meeting in Berlin at the IATA Meeting everything that characterizes this industry was put in a nutshell: As Giovanni Bisignani once again eloquently talked about the state of the industry, demonstrated that at least in certain parts of the world there is silver lining on the horizon. We were at the same time confronted with the hard fact that the centre of gravity of the aviation world is shifting – right now: while Asia, the Middle East, Latin America and Africa are doing well, the US is just about going by and Europe is doing poorly. The competitiveness of European aviation is not something we can take for granted any more. As if we needed it, the very same day the industry was trying to define how we will cope with the difficult days ahead, the German government some blocks away from the venue of the IATA AGM decided that it would generate one billion EUR extra per year through an air passenger tax. Some hours later, one of the Middle Eastern carriers announced at the ILA in Berlin it would add another 32 A- 380’s to its fleet, making it a total of almost 90 in its fleet, operating out of a country with about 1.8 million inhabitants. Compared to Switzerland with 7.5 million inhabitants, it would mean that Swiss should have 400 A-380’s on order. But actually we are now just looking for 5 additional A-330’s.

Given such developments, playing in the premier league in aviation certainly means more than having the best cutlery in First Class. The actual crisis has pushed the structural change in our industry further and this process is continuing and accelerated. But as we are thinking about all these changes I think we should get back to the basics of our business:

We are carrying people and cargo from the point of departure to a destination. We call this person a passenger – or better: customer – and we want to offer him or her a tailor made product: Those with a lot of time and flexibility and little money can have a low fare, extend their itinerary, pay only for the services they want. Or we have those with more money and little time and flexibility, selling them a comprehensive product including many services and convenience, a flat bed and we tuck him in when he wants to sleep. This broad range of services is not only within SWISS, it is also a concept within the Lufthansa Group: As it has integrated five passenger airlines from different countries (LH, OS, SN, BMI, LX), it wants to preserve not only the brands but also the distinctive products and marketing mix, and the passenger can choose which member of the family will carry him and with what kind of service. As basic as this notion may seem – it is no longer self evident if we look at the fact that more and more, governments and not our product managers are defining the kind of service we have to provide.

Shaping our product, we have to consider from where our customer is coming: He is most likely among the 60 percent of our passengers who are private consumers,travelling for a private reason like visiting friends or family or going on holidays. He is affected by the financial crisis and reacts to the realities of the economic down turn. Unemployment, higher taxes, lower real estate values are shrinking his spending. He still likes to fly, but he is unable or unwilling to pay anything he considers too much. That is also true for our customers travelling for business – who are controlled by the travel managers. We can see these developments in our numbers: Our yields have deteriorated and we were not able to recover them even as the most difficult phase of the crisis may be over..

What can we do facing this situation? If I say “we” in this context, I first and foremost mean the airline industry. Looking at our industry in comparison with others, we are neither making a profit nor are we playing in the premium league. Over the years, this industry has not earned the cost of capital. At SWISS we have learned some very difficult lessons and were able to post a profit even in 2009. Thanks to tough cost management, focussing on our customers and a fleet investment we expect to stay successful also in 2010, despite the difficult start. I am very proud that we were just named by Skytrack best European airline. This is a vote of confidence of highest importance to us.

But let us look again at our passenger; while we invest millions in customer service, like new seats or e-servicing, some governments see our passenger as a source to fill their empty coffers with their money. The new tax the German government wants to introduce as an air passenger environmental tax. It will be on top of existing airport, ATC and other charges. Even as it is labelled “environmental”, it remains a fact that the only aim of the tax is to reduce the German deficit by one billion EUR per year and not the CO2 level. So there goes our trusted and valued customer, becoming a valued tax subject.

Infrastructure in developed and emerging markets

Our trusted customer of course does not just sit in our planes – he or she goes through airports. In the Lufthansa Group – and SWISS is part of this group since 2005 – we are focusing on a multi hub strategy because in Europe, infrastructure is suffering from severe restraints and if we want to be able to grow with the market, we need to put to use not only Frankfurt and Munich, but equally our other hubs in Zurich, Brussels, Vienna and London.

This sounds like a nice choice – but if we look at the global map, the picture is not as pretty. We are used to divide the world in developed and emerging markets and associate a certain level of infrastructure and service with the distinction. We used to think that airports in the developed world were first in class quality facilities and also efficient. We associated trips to developing countries with a shabby airport lacking the “normal” standard. This has changed: Anyone travelling to the Middle East, Asia and South America knows that today’s first rate airports are built there and neither in Europe nor in the US. Just look at how the world has changed: Among the 15 airports with the top growth rate is no European nor US airport while in the list of the 15 airports with the greatest loss of passengers are more than half in Europe and in addition quite a number of US airports. We better learn fast from these sobering facts. We may not only play in the inferior league – we risk becoming spectators. For SWISS and its management team this means we need a strategy on order to ensure our long term future.

If we turn back to our valued customer using airport infrastructure, there are some other developments on which I would like to comment: SWISS alone has nearly 70 flights to the US each week thanks to an Open Skies Agreement – since last week also to SFO. US airlines operate a further 35 flights a week to Switzerland. When the passenger travels to the US, he is due for a new role. He is at centre stage of a new legislation which aims at protecting the passenger through penalizing airlines. He becomes a consumer who needs protection from airlines! This is hard to understand and somehow the world seems to be upside down. In the future, airlines could be fined (up to 27’500 USD) if they keep passengers on the ground for more than a certain time. We are in the business of flying and if we are kept on the ground, it is not because we want this, but because someone or something is keeping us from getting in the air. Of course it is indispensable that airlines do everything in their power to accommodate the needs of the passengers and if they don’t there may be a necessity for regulation, but it needs to be adequate. If insufficient airport or ATC infrastructure is the cause for delay, the problem has to be solved at its roots. Too many airports are well designed for nice weather operations and fancy shopping centres, but if the weather is not so nice, delays occur. If passengers have to sit in blocked airplanes because of a snow storm or because of air traffic delays, the adequate reaction to this is not a new regulation fining airlines for such an occurrence. All this is unacceptable. The adequate reaction would be to improve the airport infrastructure and ATC and to make it weather-proof. This would be the real protection of consumer rights – getting our customers to their destination at the scheduled time and helping us to be competitive in the global market.

Environment

There is another topic where our customers are in the middle of a public discussion- the environment. SWISS, like most other airlines, has committed itself to reduce CO2 emissions and to de-carbonize aviation. Our customers expect us do to so and we are doing our homework. SWISS is the launching customer for the new Bombardier C-Series aircraft which will reduce the fuel consumption about 20 to 30 % (believing the manufacturers!) and I trust the manufacturers of the B737 and A- 320 will come up with a similar innovative product soon. This will convince our customers that flying and a sound environmental policy do not preclude each other and that the entire industry is responsible to reach this goal. In this context it is interesting to note that our customers clearly expect us to take the lead. SWISS – as other airlines – has been offering to passengers the possibility to compensate CO2 emissions in the booking process. So far, only a tiny fraction of passengers (0.1 %) is doing so and it is not a real contribution to solving the problem of CO2. That is also a clear message: it is our responsibility to take care of the environment. The airline industry is the only one who in the course of the current climate debate has committed itself to dramatically reduce CO2 emissions. We do this in order to ensure that we will have a global solution for aviation and can prevent the governments from implementing regional environmental measures such as the EU- Emission Trading. We must equally reject new taxes under the label “environmental” which at the end of the day are designed to fill up the holes in the public
households and at the same time is taking away money from airlines – as the German tax I mentioned at the beginning of my speech. Yes, such taxes may lead to a reduction, but not in terms of CO2, but in terms of funds necessary to finance new technology and to fund research on sustainable bio fuel. I sincerely hope the US government will take a lead to find such a global solution at the upcoming ICAO meeting in September and at the COP16 in Cancun this coming December. The Swiss government is more than willing to offer its good services to facilitate such a global solution while balancing the interests between the first and the third worlds. This would also imply finding a global mechanism to finance the measures necessary to combat the consequences of climate change. The positive signs coming out of the talks in Bonn last week are at least encouraging.

Safety and Security

There is one last topic which is both an issue for our passengers and the political scene: safety and security. It is interesting that in my mother tongue, safety and security are the same word: Sicherheit. We don’t distinguish between safety and security – it’s all the same. And despite the distinction you are making in the English language, the aim of security and safety is also one and the same: bringing the passenger safely to his destination. But what a difference in handling the two issues! In terms of safety, the industry has an incredible record. Less than 1000 persons loose their life each year in aviation accidents involving commercial Western built jets and 2009 was the second best in aviation history. Aviation is and remains the safest form of transportation. This record is no coincidence. It is the result of a decade long coordination between operators and oversight authorities and a mutual learning from mistakes. It is an internationally coordinated approach acknowledging that the AOC holder is responsible for safety, together with its postholders, ensuring safety every day. We as airlines are just recovering from the worst showcase of what happens when this well proven sharing of responsibilities gets mixed up: The volcanic ash crisis. We all know by now that the unproven application of a non-calibrated simulation model to the real world of decision making lead to an unjustified closure of European air space. But what was the hardest part to understand in the course of the crisis from an airline point of view was the fact that in some countries authorities started to claim that they were the only ones taking charge of the safety of the passengers, ignoring the fact that – as mentioned before – it is and has always been a shared responsibility between operators and authorities. Ultimately, the pilot decides based on his company’s rules how the plane will fly through difficult zones, be it a thunderstorm, heavy rain, snow – or ashes. It is very unfortunate that European authorities not only disregarded this fact for too long but also failed to adapt the solutions US and other non-European authorities apply in case of volcanic eruptions. We are very grateful for the patient support the US authorities gave their European colleagues during those difficult times. They were instrumental in convincing the Europeans that sharing the operational responsibility in the usual way with the operator was a sensible way forward.

Now let me turn to the other part of “Sicherheit”, the world of security. Such measures are totally different, although we are dealing with exactly the same issue of carrying our passengers safely. We airlines are collecting vast amounts of data from our passengers at high cost and it is critically important that they are adequately used. At beginning of 2010, following the incident with the so called “Christmas bomber”, Secretary Napolitano invited representatives from airlines for an exchange of ideas on how to improve the situation. An industry that brings more than 2 billion people on board aircraft each year must face the facts. The risk is still there that there will be another attack. We have to think in these quiet times about how to react without ending in a complex mode of national measures in an industry which is acting globally. We need to coordinate internationally the issue of security the same way we have been coordinating the issue of safety. In this respect both, airlines and authorities, have an undivided interest of avoiding unnecessary and ineffective hassles and costs for their customers – the passenger – and citizen. SWISS provides a maximum standard of safety and security – at high cost, because the multinational rules are complex to manage. We will have to simplify this complexity.

Consolidation

Finally, let me turn to one more issue that greatly affects our customers: consolidation. SWISS was the first international company to become part of LH Group. Legally speaking, it was a takeover or full acquisition, as LH acquired step by step 100% of the shares of a Swiss holding company which ultimately owns the shares of the airline SWISS. But this legal structure is not the blueprint for the commercial, financial and operational relationship between Lufthansa and SWISS. The aim of this group is not to have one mother company with a lot of subsidiaries. The aim is to be present in the market with several companies and brands, with their distinctive products and to cooperate internally where it makes economic sense in terms of win/win participation. After five years of this kind of marriage between LH and SWISS, I am proud to say that the model works. It is not an easy task and remains a continuous challenge to define this cooperation in daily life. But SWISS has become a role model for LH, namely as we manage to have a competitive cost structure and a high standard of quality at the same time. Turning our company around required tough and radical action. We had to substantially raise our productivity. And the only way we could do so was by restructuring, concluding new collective labour agreements, negotiating new terms with our suppliers, revising our network, restructure our fleet, modernizing our revenue management and – last but by no means least – drastically reducing our overhead costs.

At the same time, our customers know that they can choose from a variety of premium products when they travel with a company from the LH group. I am convinced that the regulatory framework needs to allow this kind of cooperation, because we will have to overcome the fragmentation of the industry. In the next few years consolidation will also be the kind of cooperation which will enable us to strengthen the ties between the US and European industries. This is necessary: yes, for the time being, traffic between Europe and the US in terms of Scheduled RPK is still the highest in the world, but other regions are catching up fast.

Outlook
The past few months, and especially the volcanic ash crisis, were a clear indication how intensively the economy and the aviation industry depend on the regulatory environment. It remains a constant task to define it, taking into account that we are dealing with a global industry which needs a level playing field. The ultimate task though remains the same: bringing the passenger and cargo to the destination and make travel by air enjoyable again. In the cabin, SWISS does everything to offer a first class product even to those travelling in the back of the aircraft. Everyone in our industry needs to consider how we can make air travel a pleasure once again. Our passengers are essentially well-paying guests and they need to be treated as such. I do think, however, that we need to see the nature and the intentions of the vast majority of the travelling public in this largely positive perspective. Ultimately, I would like to see the smiles on the faces of our customers not only when we distribute our chocolates on the airplane but also when they go through the airport and when they wait for the security check. I know this is no small effort. In case anyone needs help selecting the chocolate you could give airline customers standing in the lane at an airport, we suggest using this little chocolate ball we are currently distributing on our aircraft and which you find on your tables. It could be taken as a reminder that we all want to play in the premier league- like the Swiss team at the Championship in South Africa.

Thank you for your attention.