Norwegian Air causes turbulence for US-EU trade relations

Dispute on planned low-cost transatlantic service based in Ireland moves to arbitration

Bjorn Kjos, chief executive of Norwegian Air Shuttle, parent company of Norwegian Air International which  has been attempting to  launch a transatlantic flights service from Ireland since 2014.

Bjorn Kjos, chief executive of Norwegian Air Shuttle, parent company of Norwegian Air International which has been attempting to launch a transatlantic flights service from Ireland since 2014.

 

The row over Irish-registered Norwegian Air International’s bid for a US foreign carrier’s permit intensified last week when the European Union moved the dispute to arbitration and its commissioner for transport commissioner, Violeta Bulc, warned Washington that the affair could damage transatlantic trade.

Brussels and Washington have been at loggerheads over the issue since 2014, when the airline first applied for permission to fly to the United States as part of its plans to offer cheap flights from Europe to North America and Asia. These include proposed services from Cork and Shannon to Boston.

Its parent, Norwegian Air Shuttle, based the subsidiary in the Republic so that it would benefit from the Open Skies treaty that allows EU-registered airlines to fly from anywhere in Europe to the United States. However, Washington’s department of transportation has yet to grant it a foreign carrier’s permit, without which it cannot fly there.

This prompted claims from the EU and the Irish Government that Washington is in breach of the EU-US air transport treaty. In April, the US department of transportation did “tentatively” approve the application. But this merely stalled an actual decision and there has been no development since.

Now, the EU says it wants the issue to go to arbitration, the formal mechanism for resolving disputes under the treaty. Informing her US counterpart, Anthony Foxx, Bulc warned the row could have consequences for overall transatlantic trade relations.

“At a time when closer bilateral ties are being put into question by many sectors of our societies, we should carefully consider the implications that this long and protracted dispute could have, for example, in the Transatlantic Trade and Investment Partnership negotiations after both sides’ legal teams share the assessment of the case,” Bulc said in a letter to Foxx.

That letter also points out that legal opinion sought by three other US government departments supports the EU position that Norwegian should be granted its permit.

Procedure

This latest development could delay the launch of the carrier’s proposed services from Cork and Shannon to the US until next year. The first Boston flights were meant to take off last April. Had they been successful, the airline intended adding New York to its roster.

As this is the first time that either the EU or US has called on the arbitration clause, no one really knows how long it will take. The procedure itself looks straightforward. Each side appoints their own arbitrator, they then choose a third, independent, member to make up the full panel. Both sides make submissions and responses. The panel rules and then there is a period to allow both sides to respond.

The timeline in the treaty allows for about seven months from the formal start of the process, which in this case will be in September. However, a spokesman for the European Commission’s transport directorate conceded that it is not possible to say how long it could ultimately take.

It is still open to the US to grant the permit, but the department of transportation has been under enormous pressure no to do so. By last April, it had received more than 250 communications on the application.

Aviation trades unions and airlines led the opposition. They made multiple submissions claiming that Norwegian is using the Republic as a flag of convenience to skirt labour laws and hire low-paid pilots and crew through companies based in the Far East.

They argue this will damage overall working conditions and labour protections in European and US aviation, with serious implications for safety. They also claim this is contrary to the US-EU treaty, which bans flags of convenience and structures designed to avoid labour and other regulations.

In one of its responses, the US Air Line Pilots’ Association (ALPA) says that “the effort to move to Ireland directly undermines Norwegian labour standards and the labour-related rights and principles contained in Norway’s laws”, which the union says violates the US-EU Air Transport agreement.

The ALPA also alleges that Norwegian intends to hire pilots through a company in Singapore, which means their contracts would be governed by that country’s employment laws.

A joint submission by a number of labour organisations, including the ALPA, US union federation AFLCIO, European Cockpit Association (ECA) and groups representing cabin crew, challenges Norwegian chief executive Bjorn Kjos’s assertion that only EU and US citizens will crew its transatlantic flights.

They argue that citizenship is not an issue, but that both pilots and crew are employed by Singapore companies.

“The laws, terms and conditions of employment that apply to them are unclear,” the document says.

The Southwest Airline Pilots’ Association (SWAPA), in a 2013 letter to the department, stated that Norwegian Air set up its subsidiary and applied for an Air Operator Certificate in Ireland “which has been criticised for lax labour regulation”. In its most recent submission, the association quotes an EU study which warns that the use of “atypical” employment contracts in air transport raises urgent concerns about flight safety.

Complex structure

The Irish Airline Pilots’ Association and the ECA back these views. At a conference in Oslo in 2014, ECA president Nico Voorbach accused Norwegian of attempting to tilt the playing field in its favour.

“The deliberately complex structure will allow the airline to exploit legal and regulatory loopholes and gain an unfair competitive advantage,” he said.

Norwegian’s competitors – US airlines Delta, United and American – made a joint submission in January 2014 repeating the claim that the carrier is trying to avoid its own country’s labour laws.

“If Norwegian Air Shuttle and Norwegian Air International are allowed to exploit the US-EU agreement to avoid otherwise applicable labour laws, Norwegian Air International will have achieved an unfair competitive advantage over US carriers in the transatlantic marketplace,” they say.

The airline’s oldest rival, Scandinavian carrier SAS joined forces with Lufthansa to warn the US department of transportation in 2014 that granting Norwegian a permit would spark a race to the bottom.

“The unfair labour cost advantage this will give the new entrant may benefit consumers in the short run with cut-rate fares but at the expense of the long-term survival of established US and EU carriers (and the service options they offer to the travelling public) and the employment conditions enjoyed by their pilots and cabin crews,” the airlines’ submission says.

Earlier this year, US presidential hopefuls Bernie Sanders and Hillary Clinton joined the fray. Clinton’s campaign urged the Obama administration against giving final approval. “Too many questions have been raised about Norwegian Air International’s practices and plans,” she said.

Norwegian, the Irish Aviation Authority (IAA) and those supporting the plan have rubbished these claims, saying that they are wrong and, in some cases, malicious. Along with the formal commitment on employing US and EU citizens, Kjos and the airline have said publicly and in submissions to the department of transportation that, as the company is based in the Republic, workers will have the protection of Irish labour laws.

The IAA is responsible for safety regulation. Its most recent response to the US authorities states bluntly that “there is no flag of convenience”. That document describes the SWAPA’s claim that Norwegian’s work practices will undermine safety as false and highly misleading.

It states the airline is an Irish business with those accountable for safety based in the Republic and with a significant number of staff in its office in Dublin Airport.

“As is the case with every Irish airline, Norwegian Air International is subject to rigorous safety oversight in accordance with European regulations,” the IAA says. It adds that both the US Federal Aviation Administration and the International Civil Aviation Organisation recognise that the authority applies the highest safety standards.

More recently, the authority’s chief executive, Eamonn Brennan, pointed out that a small group of operators and alliances control 82 per cent of transatlantic traffic and they fear the impact that a cheaper rival could have on that.

“What it’s really about is Delta and United,” he said. “They don’t want any competition on the north Atlantic, and that’s really simply what it is all about.”

Brennan, along with a group that included Ryanair’s Michael O’Leary, Fáilte Ireland chairman Michael Cawley and European Parliament member Deirdre Clune, signed a letter to congressmen stating that Norwegian’s opponents have “repeatedly and maliciously impugned Ireland’s aviation safety oversight, regulatory structures and labour protections”.

Most in the airline industry agree that the delay is political. They point out that, with the race to the White House now reaching a crucial turn, the department of transportation may hold off on making any decision and allow the arbitration to run its course into next year. Kjos has always said that his airline is in it for the long haul. The next few months look likely to test that resolution.

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