Aviation Law Prof Blog
Commercial Space Transport: A New Regulatory Challenge
By Aviation LawProf
Now that Sir Richard Branson's Virgin Galactic has unveiled the world's first commercial spacecraft, see John Johnson, Jr., Rutan and Branson Make Giant Leap for Space Tourism, L.A. Times, Dec. 8, 2009 (available here), regulators in Washington will have to decide how to handle this new commercial phenomenon. In a report issued last week, the U.S. Government Accountability Office discussed a number of safety oversight issues which will have to be addressed. See Commercial Space Transportation: Development of the Commercial Space Launch Industry Presents Safety Oversight Challenges for FAA and Raises Issues Affecting Federal Roles, GAO-10-286T (Dec. 2, 2009) (available here). From the abstract:
Since the Government Accountability Office (GAO) reported on the commercial space launch industry in 2006, the industry has evolved and moved further toward space tourism. Commercial space tourism promises to make human space travel available to the public for the first time. The Federal Aviation Administration (FAA) oversees the safety of commercial space launches, licensing and monitoring the safety of such launches and of spaceports (sites for launching spacecraft), and FAA promotes the industry. FAA is also responsible for overseeing the safety of space tourism, but it may not regulate crew and passenger safety before 2012 except in response to high-risk incidents, serious injuries, or fatalities. This testimony addresses (1) recent trends in the commercial space launch industry, (2) challenges that FAA faces in overseeing the industry, and (3) emerging issues that will affect the federal role. This statement is based on GAO's October 2006 report on commercial space launches, updated with information GAO gathered from FAA, the Department of Commerce, and industry experts in November 2009 on industry trends and recent FAA actions. In past work, GAO recommended that FAA take several actions to improve its oversight of commercial space launches, including assessing its future resource needs. FAA has taken some steps to address the recommendations.
Recent Trends: Historically, the commercial space launch industry focused primarily on putting payloads, such as satellites, into orbit, using launch vehicles that did not return to earth. Such launches have, however, dropped off, and the industry is increasing its focus on space tourism. Since five manned commercial flights demonstrated the potential for commercial space tourism in 2004, companies have pursued research and development and are further developing reusable vehicles for manned flights. Concurrently, companies and states are developing additional spaceports to accommodate anticipated increases in commercial space launches. States have provided economic incentives, and FAA has provided some funding for development. Oversight Challenges: In overseeing the commercial space launch industry, including the safety of space tourism, FAA faces several challenges. These include maintaining a sufficient number of staff with the necessary expertise to oversee the safety of launches and spaceport operations; determining whether FAA's current safety regulations are appropriate for all types of commercial space vehicles, operations, and launch sites; developing information to help FAA decide when to regulate crew and passenger safety after 2012; and continuing to avoid conflicts between FAA's regulatory and promotional roles. Emerging Issues: The U.S. commercial space launch industry is expected to expand as space tourism develops and the National Aeronautics and Space Administration starts to rely on the commercial sector for space transportation. This expansion will affect the federal role. For example, FAA will face increases in its licensing and regulatory workload, and federal agencies and Congress will face decisions about whether to support the U.S. industry by continuing to provide liability indemnification to lower its costs. Additionally, FAA will face policy and procedural issues when it integrates the operations of spacecraft into its next generation air transportation system. Finally, coordinating the federal response to the commercial space industry's expansion is an issue for the federal government in the absence of a national space launch strategy for setting priorities and establishing federal agency roles.
December 8, 2009 | Permalink
Productivity Growth in Canadian and U.S. Regulated Industries
While a comparative analysis of U.S. and Canadian aviation sectors makes up only one part of the paper, Wulong Gu and Amelie Lafrance's Productivity Growth in Canadian and U.S. Regulated Industries (Canadian Productivity Review Research Paper No. 20, Nov. 26, 2008) (available from SSRN here), contains some insightful crossborder air transport analysis. From the abstract:
This paper compares the productivity growth of a set of Canadian and U.S. regulated industries. Using data from Statistics Canada's KLEMS database and the U.S. Bureau of Economic Analysis, the paper examines productivity growth in transportation services (which includes air and rail), broadcasting and telecommunications, and financial services (which includes financial intermediation and insurance), over the period from 1977 to 2003. The majority of these provide the foundational networks on which other industries rely. These sectors were quite heavily regulated in Canada at the beginning of the period of study (1977), experienced partial deregulation during the period and still faced various types of regulation at the end (2003). Deregulation also occurred in the United States, but regulation has generally been less restrictive there over most of the period.The evidence shows that many of the Canadian industries that underwent deregulation experienced faster labour productivity growth and multifactor productivity growth than did the aggregate Canadian business sector and had similar or higher productivity growth than did their counterparts in the United States over the 1977-to-2003 period. Those industries include rail transportation, broadcasting and telecommunications, financial intermediation and insurance carriers. The airline industry had slower productivity growth in Canada than in the United States over the 1977 to 2003 period. December 4, 2009 | Permalink
Low Cost Airlines in Columbia?
Blog readers fluent in Spanish and interested in Latin America's aviation sector may wish to read Carlos Alberto Mantilla's Low Cost Airlines in Columbia, available from SSRN here. From the abstract:
The opening up of the market in Colombia saw increased competition with the entry of new operators offering more flexible tariffs. The competitive advantage of each airline is vital and all are working to maximize benefits and minimize costs, and thus survive the negative effects of September 11. Both airlines and travel agents must overcome the problem of price competition. This has given the airlines the opportunity to commercialize low cost services that are favorable to both the business itself and its customers. December 4, 2009 | Permalink
Case Study Evidence from the "Crash" of an Airline
While not directly on point with aviation law, Ann Jorissen and David Otley's The Management of Accounting Numbers: Case Study Evidence from the "Crash" of an Airline (Dec. 2, 2009) (available from SSRN here), may be of interest to blog readers. From the abstract:
Financial misrepresentation has usually been analysed by large-scale empirical research. However the generality gained from such an approach is at the cost of understanding the rich and complex nature of financial misrepresentation in real organizations. We adopt a case study approach to gain more insight into the incentives, embedded in contracts, which trigger decisions to engage in financial misrepresentation and the underlying elements of discretion in these processes. In particular, we examine whether contractual incentives should be considered as endogenous or exogenous and we take a more integrated and dynamic perspective than is typical. Our findings demonstrate that in order to understand the decision processes of real managers it is necessary to distinguish between negotiable and non-negotiable contracts of the firm. Using a multi-theory perspective we observe that the direction of the causation assumed in the agency framework (i.e. contracts influence behaviour) is often reversed in case of negotiable contracts (i.e. managers influence contracts). The case findings also provide insights into a number of additional variables which enlarge the discretion of a senior manager to engage in financial misrepresentation. The manipulation of accounting numbers can be achieved by many mechanisms which traditional methods based on accruals would not detect. The use of a wider range of research methods is therefore desirable.
Aviation Week has a good story up concerning lineup shifts in the European Commission and how it could "open the door for airlines to build a more constructive relationship with Brussels." See Robert Wall, New EC Lineup Could Affect Aviation, Aviation Wk., Dec. 4, 2009 (available here). From the story:
What the impact will be from having a new face heading the European Commission's transport directorate, where Estonian Siim Kallas is replacing Italian Antonio Tajani, remains uncertain. Kallas has no immediate background in air transport issues and comes with trade union ties, but a change is being widely welcomed in an area where airlines often were at odds with Brussels. Airline officials look to the transport commissioner to help defend their interests in battles with others, such as the environment directorate, and feel support was lacking.
Other changes at the Commission, including replacement of Competition Commissioner Neelie Kroes, also are largely seen as a positive. The Commission has taken a skeptical view of airline consolidation and is also taking a close look at antitrust implications of alliances. The European Parliament is set to vote on the new commissioners in January; they would serve a five-year term.
U.S./Japan Open Skies Coming Soon?
After failing to secure an open skies deal at the end of October, see "No Japan/U.S. Open Skies?," there is news out that both sides believe a deal will be reached by the end of the year. See Ann Keeton, US-Japan Aviation Pact Ready By Year-End, Dow Jones Newswire, Dec. 1, 2009 (available here). This would certainly be good news for the airline alliances, all of which are seeking to fully integrate with Japan's international carriers. Presumably, ANA, which has a standing relationship with United Airlines, will apply for antitrust immunity to deepen its participation in the Star Alliance. The future of JAL remains uncertain. Both Americna Airlines and Delta Air Lines are trying to court Japan's financially fragile carrier into their respective alliances with promises of capital infusions and substantial profits from an alliance arrangement. As discussed previously on the blog, the last round of U.S./Japan open skies negotiations revealed Japan's sdesire to limit U.S. airline access to slots at Tokyo's airports. Slot restrictions go directly against the liberal open gateway policy of the open skies template. Is the U.S. willing to pass this matter by in the hopes of securing a more liberal arrangement with Japan than what currently stands? December 2, 2009 | Permalink
Slot Swap Opposed
US Airways' pilot union has announced that it is opposing the carrier's proposed slot swap deal with Delta Air Lines. See US Air Pilots Union Wants Probe of Slot Swap, Assoc. Press, Dec. 1, 2009 (available here). From the story:
US Airways' pilots union said Monday it is concerned a deal with Delta Air Lines to swap takeoff and landing slots could lead to higher fares and a reduction in service to smaller communities.
The US Airline Pilots Association said it sent a letter to the Justice Department seeking a full investigation on the impact of the proposed transaction between US Airways and Delta at New York's LaGuardia and Washington's Reagan National airports.
Despite its publicly stated concern for consumers, the US Airways union is certainly interested in a potential loss in piloting jobs. However, the slot swap deal is supposed to generate up to $75 million in profits for US Airways--an airline which has been no stranger to bankruptcy in the past. See Impact of Delta-US Airways Slot Swap Will Be Far-Reaching, Today in the Sky Blog (Aug. 14, 2009) (available here). Given the tough operating environment for the airlines, US Airways' union may be charting an imprudent course.
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Brian F. Havel
Distinguished Research Professor of Law
Director, Intern'l Aviation Law Institute
DePaul Univ. College of Law
John Q. Mulligan
FedEx/United Airlines Resident Research Fellow
Intern'l Aviation Law Institute