On April 15, 2016, the U.S. Department of Transportation (DOT) issued an Order to Show Cause1 finding that Norwegian Air International Limited (NAI) should be granted a foreign air carrier permit to operate flights between the United States, the EU, and points beyond pursuant to the U.S.-EU-Norway-Iceland Air Transport Agreement of June 21, 2011, commonly known as the “U.S.-EU Open Skies Agreement.”
The provisional approval, which was issued after over two years of consideration by the DOT, is highly controversial. NAI, a low-cost subsidiary of Norwegian Air Shuttle, was incorporated in Ireland in March 2013. NAI filed its initial application on December 2, 2013 seeking both a foreign air carrier permit and exemption authority to operate flights to the United States. Since its filing, the application has been strongly opposed by U.S. and European carriers, industry groups and labor organizations, including Delta Air Lines, United Airlines, American Airlines, US Airways, Deutsche Lufthansa AG, Scandinavian Airlines System, Air France/KLM, the U.S. Air Line Pilots Association, Allied Pilots Association, Southwest Airlines Pilots’ Association, the European Cockpit Association, European Transport Workers’ Federation, and the Norwegian trade union Parat. The application was also opposed by the Signatories to the Joint Declaration Against EU-Based Flags of Convenience in Aviation as Endorsed on 5 June 2014 by the Air Crew Working Group of the Sectoral Dialogue Committee.
The application was supported by FedEx, Atlas Air, Inc., the American Society of Travel Agents, and European Low Fares Airlines Association, among others.
The parties opposing NAI’s application share the common objection that NAI is using Ireland as a “flag of convenience” by which its parent company, Norwegian Air Shuttle, has established a subsidiary in Ireland for the purpose of evading the labor laws of Norway to lower the wages and working conditions of its air crew. Under NAI’s proposed business plan, the carrier could take advantage of Irish labor laws permitting it to hire pilots and crew through a third-party personnel company domiciled in Singapore. The crews would then be under NAI’s direction and control, but would have to resolve any employment disputes through the third-party personnel company. According to the objectors, this practice raises competition and safety concerns, and could set a precedent encouraging other carriers to incorporate strategically to avoid national labor laws.
The objectors’ primary legal argument was that approval of the application would violate Article 17 bis of the U.S.-EU Open Skies Agreement, which states that “The opportunities created by the Agreement are not intended to undermine labor standards or the labor-related rights and principles contained in the Parties’ respective laws.” To assist in interpreting the Agreement, the DOT solicited opinions from its General Counsel, the U.S. Department of Justice’s Office of Legal Counsel, and the U.S. State Department. All three concluded that Article 17 bis does not provide an independent basis for rejecting an airline’s permit application under the Agreement.
The objectors also argued that granting the application would be inconsistent with the DOT’s statutory obligation to act in the “public interest.” See 49 U.S.C. §§ 40105; 40101 (listing public interest considerations including the promotion of “fair wages and working conditions”). The DOT concluded that under 49 U.S.C. § 41302, it must grant a foreign air carrier a permit if it is “fit, willing, and able” to provide transportation and “has been designated by the government of its country to provide foreign air transportation under an agreement with the United States Government.” Id. at § 41302(1); (2)(A). When those two conditions are met, i.e., when a carrier is qualified for foreign transportation in a country that is a party to the U.S.-EU Open Skies Agreement, no additional public interest analysis is permitted.
Ultimately, the DOT concluded that NAI has shown it is “fit, willing, and able properly to perform foreign air transportation” and that is owned and effectively controlled in a manner consistent with the provisions of the U.S.-EU Open Skies Agreement. It has recommended granting NAI a permit to operate foreign scheduled and charter air transportation of persons, property, and mail from any point or points behind any Member State of the EU, via any point or points in any Member State and via intermediate points to any point or points in the U.S. and beyond.
In its Order to Show Cause, the DOT acknowledges that the objectors to NAI’s application have raised significant concerns that NAI’s hiring and wage practices could lead to unfair wages and working conditions. The DOT’s conclusion that it lacks authority under the U.S.-EU Open Skies Agreement and U.S. aviation laws to deny an application based solely on such labor concerns raises the possibility that future carriers may seek to gain a similar competitive advantage by incorporating in jurisdictions with less robust labor protections.
Unsurprisingly, the DOT’s action has met with strong opposition. U.S. labor organizations, along with several U.S. Senators and Representatives, have issued statements denouncing the DOT’s action as permitting a “flag of convenience” model for carriers that will harm the U.S. aviation industry and weaken labor standards. On April 28, a bipartisan group of four U.S. Congress members introduced legislation that would require the DOT to find a carrier’s permit application is “consistent with” Article 17 bis of the U.S.-EU Open Skies Agreement as an additional condition for approval.2
Objections to the DOT’s April 15 Order to Show Cause may be filed until May 6, 2016. To date, several of the original objectors to the application have filed applications for extensions of the deadline to object to the Order. When and if their objections are resolved, the DOT’s findings will be presented to the President for final approval within 60 days.
1 Order 2016-4-12; see Docket DOT-OST-2013-0204.
2 Further information about the bill is available at https://www.congress.gov/bill/114th-congress/house-bill/5090.