Brussels, 18.7.2006

COM(2006) 396 final

2006/0130 (COD)

 

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on common rules for the operation of air transport services in the Community
(recast)

(presented by the Commission)

{SEC(2006) 943}
{SEC(2006) 976}

 

 

EXPLANATORY MEMORANDUM

1)      Context of the proposal
110	·        Grounds for and objectives of the proposal The framework of liberalisation set by the regulations (EEC) No 2407/92, 2408/92 and 2409/92 - the "third package" of the internal aviation market - has favoured the transformation of air transport services into more efficient and affordable services. But the experience of the last decade has shown that some measures of the third package are either poorly applied or need to be clarified or revised. Divergent application and interpretation of the three regulations in the Member States and the need for clarification require a revision of the regulations in order to ensure the establishment of a true level playing field for all EU airlines. The revision of the third package aims to increase market efficiency, to enhance the safety of air services and to improve passenger protection.
120	·        General context On 23 July 1992 the final stage in the liberalisation of air transport in the Community was reached with the adoption of the three Council Regulations - No 2407/92, 2408/92 and 2409/92 - known as the "third package". This followed up the "first package", adopted in December 1987, and the "second package" of June 1990. More than ten years after the entry into force the third package has largely played its role, allowing the unprecedented expansion of air transport in Europe. Old monopolies have been swept away, intra-Community cabotage has been introduced, and competition in all markets has intensified to the benefit of consumers. Despite this success, most of the Community's airlines continue to suffer from overcapacity and from the excessive fragmentation of the market. The inconsistent application of the third package across the Member States and the lingering restrictions on intra-Community air services translate into the following effects: o          Absence of a level-playing field: market efficiency is affected by competition distortions (e.g. varying application with regard to the requirements of the operating licence; discrimination between EU carriers on the basis of nationality; discriminatory treatment concerning routes to third countries; etc.); o          Inconsistent application of rules governing the leasing of aircraft from third countries with crew, with consequent distortions of competition and social implications; o          Passengers not reaping the full benefits of the internal market because of the lack of price transparency or discriminatory practices on the basis of the place of residence.
130	·        Existing provisions in the area of the proposal The proposal aims at revising and consolidating the regulations (EEC) No 2407/92, 2408/92 and 2409/92.
140	·        Consistency with the other policies and objectives of the Union The proposal reinforces the internal market by promoting market consolidation and thereby creating a more competitive environment with European air carriers capable of taking on their international competitors. It contributes to the objectives of the Lisbon strategy for increasing Europe's competitiveness. Special attention has been devoted to the simplification and the consolidation of the content of the regulations (EEC) No 2407/92, 2408/92 and 2409/92. This is done in accordance with the Commission's commitment to simplify the content of the acquis, to up-date it and to reduce its volume. Some of the proposed changes may have an environmental impact. It must be recalled that the environmental impact is already being addressed by distinct Commission initiatives in the framework of the Sustainable Development Strategy and the European Climate Change Programme (see also “reducing the Climate Change Impact of Aviation”, Communication from the Commission to the Council, the European Parliament and Social Committee and the Committee of the Regions, COM(2005)459 of 27 September 2005).
2)      Consultation of interested parties and impact assessment
	·        Consultation of interested parties
211	Consultation methods, main sectors targeted and general profile of respondents The preparation of this proposal has been preceded by a public consultation in order to gather as many comments and suggestions as possible from the individuals and bodies concerned. The Commission received 56 contributions from national authorities, international organisations, air carriers and their representative bodies, airports and organisations representing air transport workers or air transport users. On 26 February 2004 a consultation meeting with stakeholders was held in Brussels. Delegations from 11 Member States and from 11 organisations representing airlines, airports, tourism operators and the air sector's employees and workers were present.
212	Summary of responses and how they have been taken into account The majority of the respondents are satisfied with the current regulations, but agree to the need for a few adjustments and an effort to harmonise which could be made by adding more detail in the texts or drafting guidelines. There is support for the modernisation and simplification of the texts and the suppression of provisions that were needed in 1992 but that are outdated today. As regards Regulation (EEC) No 2407/92, there is a need for more detail for tightening the monitoring of air carriers' financial viability and for stricter requirements for the leasing of aircraft. As regards Regulation (EEC) No 2408/92, most respondents stress that relations with third countries must be the subject of specific agreements and regulations. There is broad agreement on the need to simplify the procedure for fulfilling public service obligations, but a significant number of the air carriers stress the risk of distortion of competition that could arise from the excessive use of public service obligations. Most respondents were in favour of clarifying the rules concerning traffic distribution between airports and the fixing of objective criteria. As regards Regulation (EEC) No 2409/92, air carriers are opposed to anything that might jeopardise the freedom to set fares, as presently enshrined in the competition law and safeguard rules of Regulation 2409/92. However, some national and regional authorities and user organisations appear to be willing to act to ensure greater transparency and genuine accessibility for all Europeans to the air fares offered in the Union. All the comments expressed during the consultation process have been carefully examined in the preparation of the proposed revision. The results from the consultation have been fed into the impact assessment. The latter was supported by a contract with an external consultant that was carried out between December 2004 and October 2005.
213	An open consultation was conducted over the internet from 17/03/2003 to 30/09/2003. The Commission received 56 response(s). The results are available on http://europa.eu.int/comm/transport/air/rules/package_3_en.htm.
	·        Collection and use of expertise
229	There was no need for external expertise.
230	·        Impact assessment The revision of the third package does not intend to radically change the legal framework, but rather to make a series of adjustments in order to address the identified problems. Any options that move too far away from the existing legal framework – such as the creation of a Community licensing authority - have already been excluded through the consultation process. Therefore, we compared a 'no change' option and a 'change' option where the latter consists of a series of measures addressing directly each of the problems identified in the analysis of the third package: 1. The 'No change' option leaves unaltered the present three regulations composing the third package of the internal aviation market. The previously mentioned problems arising from the inconsistent application of the third package regulations are expected to continue or even worsen if the legislation is left unchanged. 2. The 'change' option includes a series of changes to the third package in order to ensure the homogenous and effective application of its rules. The impact assessment showed that these measures meet well the objectives, that their economic and social impact is positive, at a quite limited environmental cost.
231	The Commission carried out an impact assessment listed in the Work Programme, which accompanies the present proposal.

3)      Legal elements of the proposal
305	·        Summary of the proposed action The draft regulation will ensure an efficient and homogeneous application of Community legislation for the internal aviation market via stricter and more precise application criteria (e.g. for operating licences, leasing of aircraft, public service obligations and traffic distribution rules). It also reinforces the internal market by lifting still existing restrictions on the provision of air services stemming from old bilateral agreements between Member States and by conferring to the Community the right to negotiate intra-Community traffic rights with third countries. It enhances consumer rights by promoting price transparency and non-discrimination. The proposal simplifies and consolidates the legislation as it removes obsolescent parts of the third package and clarifies the text where needed. The three existing regulations of the third package will be consolidated into a single text.
310	·        Legal basis This draft regulation that repeals regulations (EEC) No 2407/92, 2408/92 and 2409/92 is based on article 80 (2) of the Treaty establishing the European Community.
320	·        Subsidiarity principle The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the Community.
	The objectives of the proposal cannot be sufficiently achieved by the Member States for the following reason(s).
321	- The experience with the third package on the internal aviation market has shown that the legislation is not interpreted and applied in a uniform way across Member States. This situation hinders the existence of a true level-playing field between Community air carriers. Given the international nature of aviation, these problems cannot be resolved at Member State level.
323	- The non-homogenous application of the third package leads to competition distortions in the internal aviation market as air carriers from different Member States do not operate under the same conditions.
	Community action will better achieve the objectives of the proposal for the following reason(s).
324	- More homogeneous application of the third package can best be achieved by clarifying and specifying its rules on a Community level.
325	- Some impediments to the free provision of air services need to be removed from the Community legislation.
327	- The identified problems can only be addressed at a Union level given their trans-national character.
	The proposal therefore complies with the subsidiarity principle.
	·        Proportionality principle The proposal complies with the proportionality principle for the following reason(s).
331	- The proposed revision of the third package leaves the scope for national decisions mostly unchanged but helps to ensure a homogeneous interpretation of the Community legislation. Only in precise cases, where the potential of market distortions arising from national decisions is highest, have the possibilities for Community intervention been enhanced.
332	- The administrative burden on national authorities may increase for some Member States in the area of the supervision of the operating licences as the proposal involves a more stringent supervision. However, in other areas of the proposal, the administrative burden should remain unchanged or decrease (e.g. public service obligations).
	·        Choice of instruments
341	Proposed instruments: regulation.
342	Other means would not be adequate for the following reason(s). A regulation is the most appropriate instrument as: - the proposal concerns the revision of three existing regulations; - the objective is to ensure a more homogeneous application of Community legislation on the internal aviation market.
4)      Budgetary implication
409	The proposal has no implication for the Community budget.
5)      Additional information
510	·        Simplification
511	The proposal provides for simplification of legislation.
512	In this proposal, obsolete measures have been removed and - where possible - the content, the presentation and the wording of the regulations have been revised in order to improve their understanding and to avoid ambiguous interpretations. In addition, given the now simplified structure of the regulations, they have been consolidated into one single text.
515	The proposal is included in the Commission's rolling programme for up-date and simplification of the acquis communautaire and its Work and Legislative Programme under the reference 2002/TREN/28.

520	·        Repeal of existing legislation The adoption of the proposal will lead to the repeal of existing legislation.
560	·        European Economic Area The proposed act concerns an EEA matter and should therefore extend to the European Economic Area.
570	·        Detailed explanation of the proposal 1. Reinforcement of the requirements for the granting and revoking of an operating licence The financial health of the airlines is being checked with different degrees of severity depending on the Member State that issued the licence. Therefore, a real level-playing field between airlines from different Member States is not always assured and consolidation of the market is slowed down. Furthermore, the continued operation of financially fragile air companies involves safety risks, in addition to the financial risks incurred by customers in the case of bankruptcy of an air carrier. The proposal requires Member States to reinforce the supervision of the operating licences and to suspend or revoke it when the requirements of the regulation are no longer met (articles 5 to 10). In order to avoid inaction of a Member State, the proposal confers the right to the Commission to revoke the operating licence (article 14). The proposal has been drafted such as to take allow for the possibility of a future extension of the competencies of the European Aviation Safety Agency (EASA) for safety oversight and/or licensing such as to ensure the most efficient and consistent supervision of the air carriers. 2. The proposal strengthens the requirements for the leasing of aircraft (article 13) Wet-leasing of aircraft from third countries provides EU airlines with important flexibility which thereby enhances the economic efficiency of the EU airline industry to the benefit of consumers. However, the application of the present provisions of regulation (EEC) No 2407/92 raise social and safety concerns. Rules and practice with regard to leasing (especially wet-leasing i.e. leasing of aircraft with crew) differ between Member States. The safety assessment of leased aircraft from third countries is not pursued with the same rigour in all Member States, creating concerns about safety levels. The sometimes regular recourse to wet-leasing from third countries spurs concern about potentially adverse social consequences. The proposal introduces stricter requirements in order to minimize the risk of adverse social consequences and to enhance safety. The proposal emphasizes that, in order to agree with leasing agreements, the competent licensing authority must confirm that safety standards equivalent to the Community safety requirements are met. Concerning the leasing of aircraft registered in third countries, they will only be allowed in exceptional circumstances for a maximum duration of six months and renewable only once in a second non-consecutive period of up to six months. 3. The proposal clarifies the rules applicable to public service obligations (PSO) (articles 16, 17 and 18) The rules applicable to public service obligations have been revised in order to lighten the administrative burden, to avoid excessive recourse to PSO and to attract more competitors in the tender procedures. The publication obligations have been modified by limiting the publication in the Official Journal of the European Union to a shortened notice. To avoid excessive recourse to PSO, the Commission may require in individual cases the production of an economic report explaining the context of the PSO and the assessment of their adequacy should be performed with particular care when they are intended to be imposed on routes that are already been served by rail services with a travel time of less than three hours. The tender procedures have been modified by extending the maximum concession period from three to four years (and five years in the case of ultra-peripheral regions).The tender procedure for the renewal of a concession must be launched at least six months in advance in order to allow a careful assessment of the continued necessity of the restricted access to the route. Furthermore, an urgency procedure has been introduced to cope with sudden interruptions of service on routes with a PSO. If the proposed regulation, once adopted, retains guarantees of transparency, non-discrimination and proportionality equivalent to those proposed by the Commission in its proposal concerning the determination and award of public service compensations, and in order to give operators legal certainty regarding compensation paid for the execution of PSOs awarded in accordance with this regulation, the Commission intends to adopt, at the latest at the time of the entry into force of the regulation, a binding act based on art. 86(3) declaring compatible and exempting of notification compensation granted in conformity with the regulation insofar as this may constitute State aid. This act could take the form of an update of Commission decision of 28 November 2005 (OJ L312 of 29.11.2005) inserting a reference to this new regulation and extending its scope to any PSO compensation granted to airlines in conformity with this regulation. 4. The proposal removes inconsistencies between the internal aviation market and services to third countries (articles 15 and 22) Taking account of the opinions expressed during the consultation process, the proposal addresses relations with third countries only insofar as there is a direct link with provisions contained in the third package. To ensure coherence between the internal market and its external aspects, including those of the Single European Sky, access by airlines of third countries to the intra-Community market should be managed in a coherent manner through negotiations at Community level. Therefore, the European Communities will be responsible for negotiating intra-Community traffic rights with third countries. Remaining restrictions from existing bilateral agreements between Member States will be lifted, ensuring non-discrimination in respect of code sharing and pricing by Community air carriers on routes to third countries involving points in Member States other than their own. 5. The proposal clarifies the rules applicable to traffic distribution between airports (article 19) The present two-step procedure - first establishment of an airport system and then definition of the traffic distribution rules - is replaced by a one-step procedure where the concept of an "airport system" is abandoned: Member States may introduce traffic distribution rules on airports serving the same city or conurbation, but the prior approval of the Commission is required (after consultation of the appropriate committee). It adds that the airports in question should be served by an adequate transport infrastructure and the airports and the city or conurbation they shall serve should be linked by frequent, reliable and efficient public transport services. The proposal states that the traffic distribution rules shall respect the principles of proportionality and transparency, and shall be based on objective criteria. This rule confirms that traffic distribution rules may not be abused in order to discriminate between air carriers. 6. The proposal promotes price transparency for passengers and fair price behaviour The publication of fares that exclude taxes, charges and even fuel surcharges has become a widespread practice that hampers price transparency. Insufficient price transparency leads to distortions of competition and therefore consumers face on average higher fares. The Commission also still observes cases of discrimination on the basis of the place of residence of the passenger. In the proposal, air fares have to include all applicable taxes, charges and fees and air carriers shall provide the general public with comprehensive information on their air fares and rates and the conditions attached (articles 2(18) and 24(1). Air fares shall be set without discrimination on the basis of place of residence or the nationality of the passenger within the Community (article 24(2). Furthermore, for the access to a carrier’s air fares, they may be no discrimination on the basis of the place of establishment of the travel agent. The experience with the application of the third package on air transport liberalisation has shown that there has not been any market failure that would justify maintaining in force specific provisions regulating air fares such as the safeguard measures provided in article 6 of regulation (EEC) No 2409/92. In this context, and in the light of the general competition rules, these sector-specific measures are removed from the regulation.
E-14676

 

2006/0130 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on common rules for the operation of air transport services in the Community

(Text with EEA relevance)

Ö THE EUROPEAN PARLIAMENT AND Õ THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 84(2) Ö 80(2) Õ thereof,

Having regard to the proposal from the Commission[1],

Having regard the opinion of the European Parliament,

Having regard to the opinion of the European Economic and Social Committee[2],

Having regard to the opinion of the Committee of the Regions[3],

Acting in accordance with the procedure laid down in Article 251 of the Treaty[4],

Whereas:

(1)       A number of substantial changes are to be made to Council Regulations (EEC) No 2407/92 of 23 July 1992 on licensing of air carriers[5], (EEC) No 2408/92 of 23 July 1992 on access of Community air carriers to intra-Community air routes[6] and (EEC) No 2409/92 of 23 July 1992 on fares and rates for air services[7]. In the interests of clarity, these Regulations should be recast and consolidated into one single Regulation.

(2)       Through the adoption of those three Regulations air transport in the Community was liberalised. Despite the success of that liberalisation in terms of growth, competition and lower fares, the inconsistent application of those Regulations across the Member States distorts the functioning of the internal aviation market.

(3)       In order to ensure a more efficient and consistent application of Community legislation for the internal aviation market a series of adjustments to the current legal framework are required.

(4)       Recognizing the potential link between the financial health of an air carrier and safety, a more stringent monitoring of the financial situation of the air carriers should be established.

(5)       Given the growing importance of air carriers with operational bases in several Member States and the necessity to ensure the efficient supervision of these air carriers, the same Member State should be responsible for the oversight of the AOC and of the operating licence.

(6)       To ensure a consistent monitoring of the compliance with the requirements of the operating licences of all Community air carriers, licensing authorities should proceed to regular assessments of the air carriers’ financial situation. Therefore, the latter should provide sufficient information on their financial situation, especially in the first two years of their existence as these are particularly critical for the survival of an air carrier on the market.

(7)       To reduce risks to passengers, Community air carriers failing to fulfil the requirements for maintaining a valid operating licence should not be allowed to continue operations. In these cases, the competent licensing authority should revoke or suspend the operating licence. In cases where the competent licensing authority fails to do so, the Commission should be allowed to revoke or suspend the operating licence in order to ensure the homogeneous application of Community legislation.

(8)       In order to avoid the excessive recourse to lease agreements of aircraft registered in third countries, especially with crew (wet lease), these possibilities should only be allowed in exceptional circumstances, such as the lack of adequate aircraft on the Community market, be strictly limited in time and fulfil safety standards equivalent to the safety rules of Community legislation.

(9)       In order to ensure the safe and coherent functioning of the internal aviation market, it is desirable that the Community be responsible for negotiating intra-Community traffic rights with third countries. This would avoid possible inconsistencies between the internal market and individual negotiations by Member States.

(10)     In order to complete the internal aviation market, still existing restrictions applied between Member States, such as restrictions on the code sharing on routes to third countries or on the price setting on routes to third countries with intermediate stop in another Member State (6^th freedom flights) should be lifted.

(11)     The conditions under which public service obligations may be imposed should be defined clearly in a non ambiguous way, while the associated tender procedures should allow a sufficient number of competitors to take part in the tenders. The Commission should be able to obtain as much information as necessary to be able to assess the economic justifications for public service obligations in individual cases.

(12)     The rules in force with regard to traffic distribution between airports serving a same city or conurbation should be clarified and simplified.

(13)     It is appropriate to ensure that Member States have the possibility to react to sudden problems resulting from unforeseeable and unavoidable circumstances, which make it technically or practically very difficult to carry out air services.

(14)     Passengers should have access to the same tariffs for the same flights irrespective of their place of residence within the Community or their nationality and irrespective of the place of establishment of the travel agents within the Community.

(15)     Passengers should be able to effectively compare tariffs between airlines. Therefore published tariffs should indicate the final price to be paid by the passenger, inclusive of all taxes, charges and fees.

(16)     The measures necessary for the implementation of this regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission[8].

(17)     Since the more homogeneous application of the Community legislation with regard to the internal aviation market cannot be sufficiently achieved by the Member States because of the international character of air transport, and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(18)     It is therefore necessary to repeal Regulations (EEC) No 2407/92, 2408/92 and 2409/92,

HAVE ADOPTED THIS REGULATION:

Chapter I: General provisions

Article 1

Subject matter

This Regulation concerns requirements for the granting and maintenance of operating licences by Member States in relation to air carriers established in the Community.

This Regulation concerns access to routes within the Community for scheduled and non-scheduled air services.

This Regulation concerns the criteria and procedures to be applied for the establishment of fares and rates on air services for carriage wholly within the Community.

1.           This Regulation regulates the licensing of Community air carriers, the right of Community air carriers to operate air services within the Community, and the pricing of air services within the Community.

2.           The application of Ö Chapter III of Õ this Regulation to the airport of Gibraltar is understood to be without prejudice to the respective legal positions of the Kingdom of Spain and the United Kingdom with regard to the dispute over sovereignty over the territory in which the airport is situated.

3.           Application of the provisions Ö of Chapter III Õ of this Regulation to Gibraltar airport shall be suspended until the arrangements in the joint declaration made by the Foreign ministers of the Kingdom of Spain and the United Kingdom on 2 December 1987 have come into operation. The Governments of Spain and the United Kingdom will so inform the Council on that date.

Airports in the Greek islands and in the Altantic islands comprising the autonomous region of the Azores shall be exempted from the application of this Regulation until 30 June 1993. Unless otherwise decided by the Council, on a proposal from the Commission, this exemption shall apply for a further period of five years and may be continued for five years thereafter.

Article 2

Definitions

For the purposes of this Regulation, Ö the following definitions shall apply Õ .

(1)               'operating licence' means an authorization granted by the Member State responsible ð competent licensing authority ï to an undertaking, permitting it to carry out carriage by air of passengers, mail and/or cargo, as stated in the operating licence, for remuneration and/or hire;

(2)               ‘competent licensing authority’ means an authority, entitled to grant, refuse, revoke or suspend an operating licence in accordance with Chapter II ;

(3)               'undertaking' means any natural any Ö or Õ legal person, whether profit-making or not, or any official body whether having its own legal personality or not.

(4)               'air service' means a flight or a series of flights carrying passengers, cargo and/or mail for remuneration and/or hire;

(5)               'flight' means a departure from a specified airport towards a specified destination airport;

(6)               'airport' means any area in a Member State which is open for commercial air transport operations;

(7)               'air operator's certificate (AOC)' means a document issued Ö a certificate delivered Õ to an undertaking or a group of undertakings by the competent authorities of the Member States which affirms Ö affirming Õ that the operator in question has the professional ability and organisation to secure the safe operation of aircraft for the aviation activities specified in the certificate, ð as provided in the relevant provisions of Community law. ï

(8)               'effective control' means a relationship constituted by rights, contracts or any other means which, either separately or jointly and having regard to the considerations of fact or law involved, confer the possibility of directly or indirectly exercising a decisive influence on an undertaking, in particular by:

(a)               the right to use all or part of the assets of an undertaking;

(b)               rights or contracts which confer a decisive influence on the composition, voting or decisions of the bodies of an undertaking or otherwise confer a decisive influence on the running of the business of the undertaking;

(9)               'air carrier' means an air transport undertaking with a valid operating licence;

(10)           'Community air carrier' means an air carrier with a valid operating licence issued by a Member State ð granted by a competent licensing authority ï in accordance with Council Regulation 5EEC) No 2407/92 of 23 July 1992 on licensing of air carriers Ö Chapter II Õ ;

(11)           'business plan' means a detailed description of the air carrier's intended commercial activities for the period in question, in particular in relation to the ð expected ï market development and the investments to be carried out, including the financial and economic implications of these activities;

(12)           ‘Intra-Community air service’ means an air service operated within the Community;

(13)           ‘Transit’ means the right to fly across the territory of the Community or of a third country without landing and to land for non-traffic purposes;

(14)           'traffic right' means the right of an air carrier to carry passengers, cargo and/or mail on an air service Ö operate an air service Õ between two Community airports;

(15)           'regional airport' means an airport other than one listed in Annex I as category I airport ð fulfilling at least one of the criteria set out in Annex II ï ;

(16)           ‘seat-only sales’ means the sale of seats, without any other service bundled, such as accommodation, directly to the public by the air carrier or its authorised agent or a charterer;

(17)           'scheduled air service' means a series of flights possessing all the following characteristics:

(a)               it is performed by aircraft for the transport of passengers, cargo and/or mail for remuneration, in such a manner that on each flight seats are available for individual purchase by the public (either directly from the air carrier or from its authorized agents);

(b)               it is operated so as to serve traffic between the same two or more airports, either:

–                    according to a published timetable; or

–                    with flights so regular or frequent that they constitute a recognizably systematic series.

(18)           ‘capacity’ means the number of seats offered to the general public on a scheduled air service over a given period;

(19)           'air fares' means the prices expressed in ecus Ö euros Õ or in local currency to be paid by passengers to air carriers or their agents for the carriage of them Ö those passengers Õ and for the carriage of their baggage on air services and any conditions under which those prices apply, including remuneration and conditions offered to agency and other auxiliary services ð and including all applicable taxes, charges and fees; ï

(20)           ‘cargo Ö air Õ rates’ means the prices expressed in ecus ð euros ï or in local currency to be paid for the carriage of cargo and the conditions under which those prices apply, including remuneration and conditions offered to agency and other auxiliary services ð and including all applicable taxes, charges and fees ï ;

(21)           'Member State(s) concerned' means the Member State(s) between or within which an air service is operated;

(22)           'Member State(s) involved' means the Member State(s) concerned and the Member State(s) where the air carrier(s) operating the air service is (are) licensed;

(23)           ‘Conurbation’ means an urban area comprising a number of cities or towns which, through population growth and expansion, have physically merged to form one continuous built up area;

(24)           'management account' means a detailed statement of income and costs ð of an air carrier ï for the period in question including a breakdown between air-transport-related and other activities as well as between pecuniary and non-pecuniary elements;

‘airport system’ means two or more airports grouped together as serving the same city or conurbation, as indicated in Annex II;

‘standard cargo rates’ means the rates which the air carrier would normally quote including the availability of normal discounts;

‘charter fares’ means the prices expressed in ecus or in local currency to be paid by passengers to charterers for services which constitute or include their carriage and the carriage of their baggage on air services and any conditions under which those prices apply, including remuneration and conditions offered to agency or other auxiliary services;

‘basic fare’ means the lowest fully flexible fare, available on a one way and return basis, which is offered for sale at least to the same extent as that of any other fully flexible fare offered on the same air service;

‘public service obligation’ means any obligation imposed upon an air carrier to take, in respect of any route which it is licensed to operate by a Member State, all necessary measures to ensure the provision of a service satisfying fixed standards of continuity, regularity, capacity and pricing, which standards the air carrier would not assume if it were solely considering its commercial interest;

‘seat rates’ means the prices expressed in ecus or in local currency to be paid by charterers to air carriers for the carriage on air services of the charterer or its customers and their baggage and any conditions under which those prices apply, including remuneration and conditions offered to agency and other auxiliary services;

'State of registration' means the Member State in which the licence referred to in(b) is granted

Chapter II: Operating licence

Article 3

ð Operating licenceï

1.           Without prejudice to Article 1(2), noÖ No Õ undertaking established in the Community shall be permitted within the territory of the Community to carry by air passengers, mail and/or cargo for remuneration and/or hire Ö within the Community Õ unless Ö it Õ the undertaking has been granted the appropriate operating licence.

An undertaking meeting the requirements of this Regulation Ö Chapter Õ shall be entitled to receive an operating licence. Such licence does not confer in itself any rights of access to specific routes or markets.

2.           Without prejudice to Article 5(5), Member States Ö The competent licensing authority Õ shall not grant operating licences or maintain them in force where any of the requirements of this Regulation Ö Chapter Õ are not complied with.

3.           The carriage by air of passengers, mail and/or cargo, performed by non-power driven aircraft and /or ultralight power driven aircraft, as well as local flights not involving carriage between different airports, are not subject to this Regulation. In respect of these operations, national law concerning operating licences, if any, and Community and national law concerning the air operator’s certificate (AOC) shall apply. Ö Without prejudice to any other applicable provisions of Community, national, or international law the following categories of air services are not subject to the requirement to hold a valid operating licence: Õ

(a)               Ö air services performed by non-power driven aircraft and/or ultralight power driven aircraft, and Õ

(b)               Ö local flights not involving carriage between different airports. Õ

Article 4

ð Conditions for granting an operating licenceï

No Ö An Õ undertaking shall be granted an operating licence by a Member State Ö the competent licensing authority Õ unless Ö provided that Õ :

(a)               its principal place of business ð head office ï and, if any, registered office are located in that Member State ð the Community and it carries out the largest part of its operational activities in the Community ï ;

(b)               ð it holds a valid AOC; ï

(c)               ð where the licence is applied for to the authority of a Member State, its head office and, if any, registered office are located in that Member State, it carries out a substantial part of its operational activities in that Member State and, where the AOC is issued by a national authority, the same Member State is responsible for the oversight of the AOC;ï

(d)               its main occupation is air transport in isolation or combined with any other commercial operation of aircraft or Ö the Õ repair and maintenance of aircraft;

(e)               ð its company structure allows the competent licensing authority to implement the provisions of this Chapter;

(f)                 Member States and/or nationals of Member States own more than 50 per cent of the undertaking and effectively control it, whether directly or indirectly through one or more intermediate undertakings, except as provided in an agreement with a third country to which the Community is a party;

(g)               it meets the financial conditions specified in Article 5.

(h)               it complies with the insurance requirements specified in Article 11. ï

Without prejudice to agreements and conventions to which the Community is a contracting party, the undertaking shall be owned and continue to be owned directly or through majority ownership by Member States and/or nationals of Member States. It shall at all times be effectively controlled by such States or such nationals.

Any undertaking which directly or indirectly participates in a controlling shareholding in an air carrier shall meet the requirements of paragraph 2.

3. (a) Notwithstanding paragraphs 2 and 4, air carriers which have already been recognized in Annex I to Council Regulation (EEC) No 2343/90 and Council Regulation (EEC) No 294/91 of 4 February 1991 on the operation of air cargo services between Member States shall retain their rights under this and associated Regulations as long as they meet the other obligations in this Regulation and they continue to be controlled directly or indirectly by the same third countries and /or by nationals of the same third country as those exercising such control at the time of adoption of this Regulation. Such control may, however, be transferred to Member States and/or to Member State nationals at any time.

(b) The possibility of buying and selling shares under subparagraph (a) does not cover nationals who have a significant interest in an air carrier of a third country.

Article 5

ð Financial conditions for granting an operating licence ï

1.           An applicant air transport undertaking to which an operating licence is granted for the first time must be able to demonstrate to the reasonable satisfaction of the competent authorities of the licensing Member State ð The competent licensing authority ï Ö shall closely assess whether an undertaking applying for the first time for an operating licence can demonstrate that Õ:

(a)               it can meet at any time its actual and potential obligations established under realistic assumptions, for a period of 24 ð 36 ï months from the start of operations;

(b)               it can meet its fixed and operational costs incurred from operations according to its business plan and established under realistic assumptions, for a period of three months from the start of operations, without taking into account any income from its operations.

.

2.           For the purpose of paragraph 1, each applicant shall submit a business plan for, at least, the first two ð three ï years of operation. The business plan shall also detail the applicant’s financial links with any other commercial activities in which the applicant is engaged either directly or through related undertakings. The applicant shall also provide all relevant information; in particular the data referred to in point A Ö 1 Õ of the Annex Ö I Õ .

3.           Paragraphs 1 Ö and Õ 2, 3, 4 and 6 shall not apply to air carriers exclusively engaged in operations with aircraft of less than 10 tonnes MTOW (Maximum Take Off Weight) and/or less than 20 seats. Such air carriers shall at all times be able to demonstrate that their net capital is at least ECU 80000 ð EUR 100,000 ï or to provide when required by the licensing authority the information relevant for the purposes of paragraph 5 Ö article 9(2). Õ

A Member State may nevertheless apply paragraphs 1 Ö and Õ 2, 3, 4 and 6 to air carriers licensed by it that operate scheduled services or whose turnover exceeds ECU Ö EUR Õ 3 million per year.

The Commission may, after consulting the Member States, increase as apporpiate the values referred to in subparagraph (a) if economic developments indicate the necessity of such a decision. Such change shall be published in the Offical Journal of the European Communities.

Any Member State may refer the Commission’s decision to the Council within a time limit of one month. The Council, acting by qualified majority, may in exceptional circumstances take a different decision within a period of one month.

Article 6

ð Air operator’s certificate ï

1.           The granting and validity at any time of an operating licence shall be dependent upon the possession of a valid AOC specifying the activities covered by the operating licence and complying with the criteria established in the relevant Council Regulation Ö under relevant Community law Õ . Until such time as the Council regulation referred to in paragraph 1 is applicable, national regulations concerning the AOC, or equivalent title concerning the certification of air transport operators, shall apply.

2.           ð Any modification in the AOC of a Community air carrier shall be reflected in its operating licence.ï

Article 7

ðProof of good repute ï

1.           Where the competent authorities of a Member State require, for the purpose of issuing an operating licence, proof Ö is required Õ that the persons who will continuously and effectively manage the operations of the undertaking are of good repute or that they have not been declared bankrupt, or suspend or revoke Ö or for the purpose of suspending or revoking Õ the operating licence in the event of serious professional misconduct or a criminal offence, that Member State the ð competent licensing authority ï shall accept as sufficient evidence in respect of nationals of other Member States the production of documents issued by the competent authorities in the Member State of origin or the Member State from which the foreign national comes ð where the person has his/her permanent residence ïshowing that those requirements are met.

2.           Where the competent authorities of the Member State of origin or the Member State from which the foreign national comes ð where the person has his/her permanent residence ï does not issue the documents referred to in the first subparagraph Ö paragraph 1 Õ , such documents shall be replaced by a declaration on oath - or, in Member States where there is no provision for declaration on oath - by a solemn declaration made by the person concerned before a competent judicial or administrative authority or, where appropriate, a notary or qualified professional body of the Member State of origin or the Member State from which the person comes ð where the person has his/her permanent residence ï ; such authority, or notary ð or qualified professional body ï shall issue a certificate attesting the authenticity of the declaration on oath or solemn declaration.

3.           The competent authorities of Member States ð competent licensing authority ï may require that the documents and certificates referred to in paragraphs 1 Ö and 2 Õ be presented no more than three months after their date of issue.

Article 8

ð Validity of an operating licenceï

1.           An operating licence shall be valid as long as the Ö Community Õ air carrier meets the obligations of this Regulation Ö complies with the requirements of this Chapter. Õ However, a Member State may make provision for a review one year after a new operating licence has been granted and every five years thereafter.

A Ö Community Õ air carrier shall at all times be able on request to demonstrate to the Member State responsible for the operating licence ð the competent licensing authority ï that it meets Ö all Õ the requirements of this Article Ö Chapter Õ . The Commission acting at the request of a Member State shall examine compliance with the requirements of this Article and take a decision if necessary.

2.           The competent licensing authority shall closely monitor the compliance with the requirements of this chapter. It shall in any case review the compliance with these requirements two years after a new operating licence has been granted, when a potential problem has been suspected, or at the request of the Commission.

In case the competent licensing authority suspects that financial problems at a Community air carrier might affect the safety of its operations, it will immediately inform the authority competent for the AOC.

3.           ð The operating licence shall be resubmitted for approval ï when a Ö Community Õ air carrier

(a)               Ö has not started operations for six months after the granting of an operating licence Õ

(b)               has ceased its operation for six ð more than three ï months or has not started operations for six months after the granting of an operating licence the Member State responsible shall decide whether the operating licence shall be resubmitted for approval.

4.           A Ö Community Õ air carrier shall provide to its Ö the competent Õ licensing authority every financial year without undue delay the audited accounts relating to the previous financial year ð within six months following the accounts closing date ï. ð During the first two years of operation of a Community air carrier, the data as referred to in point 3 of Annex I shall be updated and made available to the competent licensing authority on a six monthly basis ï. At any time upon request of the licensing authority a air carrier shall provide the information relevant for the purposes of paragraph 5 and, in particular, the data referred to in part C of the Annex.

ð The competent licensing authority may at any time assess the financial performance of a Community air carrier to which it has granted an operating licence by requesting the relevant information and, in particular, the data referred to in point 3 of Annex I. ï

5.           A Ö Community Õ air carrier shall notify ð the competent licensing authority: ï

(a)               in advance to its licensing authority of any plans for operation of new sxcheduled service or non-scheduled service to a continent or a world region not previously served, changes in the type or number of aircraft used or a substantial change in the scale of its activities;

(b)               in advance of any intended mergers or acquisitions, and

(c)               within fourteen days of any change in the ownership of any single shareholding which represents 10% or more of the total shareholding of the Ö Community Õ air carrier or of its parent or ultimate holding company. The submission of a 12-month business plan two months in advance of the period to which it refers shall constitute sufficient notice under this paragraph for the purpose of changes to current operations and/or circumstances which are included in that business plan.