Business Law Class Research Paper 5 pg

Running head: NORWEGIAN AIR SHUTTLE DISPUTE 1

Introduction

When an airline of a foreign country wants to conduct commercial operations to and from the

United States, they must obtain authorization from the United States Department of Transportation

(DOT). This authorization includes: (1) economic authority from the Office of the Secretary of

Transportation and (2) safety authority from the Federal Aviation Administration. Under Title 49 U.S.C.

40102(21), a foreign air carrier is “a person, not a citizen of the United States, undertaking by any

means, directly or indirectly, to provide foreign air transportation.” Title 49 U.S.C. 40102(23) further

defines foreign air transportation as ““the transportation of passengers or property by aircraft as a

common carrier for compensation, or the transportation of mail by aircraft, between a place in the

United States and a place outside the United States when any part of the transportation is by aircraft”

(U.S. Department of Transportation, 2014).

According to the U.S. Department of Transportation (2012), by exchange of letters dated

January 12, 2009, the U.S.-E.U. (European Union) Joint Committee adopted reciprocal recognition

procedures for airline fitness and citizenship. Under the U.S.-E.U. Air Transport Agreement, U.S. and E.U.

Member States recognize determinations made by one another regarding its air carriers. Licensed E.U.,

Iceland, and Norway air carriers can file exemption or abbreviated application for foreign air carrier

permits, under 49 U.S.C. 41301/40109 and 14 CFR §211.20/§302.202, while application for fully-

qualified, permanent permits are in process .

As mentioned, economic authority, granted by the Office of the Secretary of Transportation, is

separate from safety authority (FAR Part 129) granted to foreign air carriers by the Federal Aviation

Administration (FAA). A foreign air carrier may meet economic authority requirements, but fall short on

meeting U.S. safety standards and vice versa. Failure to meet requirements of either is grounds for

Running head: NORWEGIAN AIR SHUTTLE DISPUTE 2

denial of permit. In addition, foreign air carriers must meet licensing requirements of any other

applicable U.S. Government agencies (U.S. Department of Transportation, 2014).

Background

In late 2013, Norwegian Air Shuttle, hoping to take full advantage of the reciprocal agreements

reached by the U.S.-E.U. Joint Committee, planned to expand operations to the United States from

countries other than its original home base of Oslo, Norway. In February 2014, the Irish Aviation

Authority granted Norwegian Air International (NAI), a fully owned subsidiary of Norwegian Air Shuttle,

an air operator’s certificate (AOC).

According to the world’s largest airline pilot union, Air Line Pilots Association, Int’l (ALPA),

Norwegian Air’s Irish AOC “creates the same flag of convenience scenario that led to the U.S. maritime

industry’s demise and the loss of tens of thousands of jobs,” this in part because NAI will not officially

serve Ireland (ALPA, 2014). ALPA’s view is that NAI seeks to circumvent Norway’s labor laws, which does

not align with the U.S.-E.U. Air Transport Agreement. ALPA further suggests that NAI looks to gain an

unfair advantage over U.S. carriers by skirting its own national laws and breaching the true intent of the

Air Transport Agreement.

Another concern ALPA raises is safety oversight of NAI’s flight operations. While Norwegian Air

International will never operate through Ireland, Capt. Lee Moak, ALPA’s President, raises the issue,

“The Irish Air Accident Investigation Unit itself has cited the adverse effect of such a business model on a

government’s ability to perform adequate safety oversight” (ALPA, 2014). One example of this point is a

2011 fatal accident at Cork Airport, which involved a carrier with a Spanish AOC that did not operate

through Spain. The Irish Air Accident Investigation Unit cited concern in its Formal Report, ACCIDENT,

Fairchild Aircraft Corporation, SA 227-BC Metro III, EC-ITP date February 10, 2011. Because of the

investigation, the Irish accident unit made 11 safety recommendations including “Agencia Estatal de

Running head: NORWEGIAN AIR SHUTTLE DISPUTE 3

Seguridad Aérea [the Spanish State Agency for Aviation Safety] should review its policy with regard to

continuing oversight of carriers, in particular those conducting remote operations.” Another

recommendation states “The European Aviation Safety Agency should review the process by which AOC

variations are granted to ensure that the scope of any new operation is within the competence of the air

carrier.” In addition, the European Commission “should review the scope of the Air Safety Committee,

and consider including oversight of Operating License issued by Member States and the processes by

which such oversight is carried out” (Air Accident Investigation Unit Ireland, 2011). The Irish Air

Accident Investigation Unit’s recommendations of the Cork accident lay out safety concerns, on the

record, and reinforce ALPA’s stance in their grassroots effort to stop NAI from obtaining a U.S. air carrier

permit.

Analysis

In late 2013, Norwegian Air applied for both a foreign air carrier permit and an exemption to

conduct operations to and from the U.S. for its NAI subsidiary. In September 2014, the Department of

Transportation dismissed that exemption request, which would have allowed NAI to operate while the

department reviewed its application for permit. In the DOT’s decision, signed by Transportation

Secretary Anthony Foxx, “The Department typically reserves its exemption powers in awarding foreign

air carrier authority to situations where the circumstances of a case are sufficiently clear-cut to permit

acting” (Carey, 2014). The decision continues by stating that due to the complex nature of the case, an

approval would not be appropriate.

In a November 2014 letter to Secretary Foxx, 188 House members stated that NAI’s AOC

application was not in the best interest of the public and would place domestic airlines on unfair playing

ground. The members reinforce that Norwegian’s business model would not be in the true spirit of the

U.S.-E.U. Open Skies Agreement.

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ALPA, Int’l, who represents over 50,000 pilots from 31 airlines in the United States and Canada,

has voiced their disapproval for NAI’s tactics by launching educational websites, whiteboard videos

detailing NAI’s unfair business model, and online petitions for airline employees to voice their concern –

this petition has garnered over 35,000 signatures. With their slogan “Deny NAI”, ALPA has taken their

fight all the way to Congress. In November 2014, Capt. Moak sent a letter to the Senate Appropriations

Committee asking Senate leaders to support legislation already passed in the House.

On December 11, 2014, the Senate and House approved a spending bill addressing the dispute

in two paragraphs on pg. 1580. The first forbids the DOT from approving any application if it would

violate U.S. law or provisions of the U.S.-E.U. Air Transport Agreement. The second paragraph states that

as long as an application is consistent with U.S. law and the agreement, nothing prevents the

department from approving the application (Jansen, 2014). Both sides view this as a win. As it stands

today, both sides await a final decision from Congress.

Conclusion and Recommendations

A flag of convenience model typically refers to merchant ships registering in a sovereign state

different from that of the ship’s owners. This practice reduces operating costs and skirts regulations of

the owner’s country. Norwegian Air Shuttle, headquartered in Norway, created the subsidiary NAI as an

Irish airline –Ireland has less stringent laws— in order to get around Norway’s strict tax and labor laws.

NAI plans to use a contract firm in Singapore to provide pilots rather than hire pilots on its own paper.

The airline would base pilots in Thailand as lower paid, non-airline contractors, and along with the crew,

the pilots would work under individual contracts far below compensation of actual Norwegian Air

employees.

By substituting the word maritime with aviation, one can see how airlines could apply the flag of

convenience model to gain unfair advantages in commercial and charter aviation. Approving this

Running head: NORWEGIAN AIR SHUTTLE DISPUTE 5

practice would decimate the airline industry as it operates today just as it did the U.S. merchant marine

industry between 1919 and the 1960s.

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References

U.S. Department of Transportation (2014). Retrieved 12/26/2014 from http://www.dot.gov/policy/aviation-policy/licensing/foreign-carriers

U.S. Department of Transportation (2012). Retrieved 12/26/2014 from http://www.dot.gov/policy/aviation-policy/application-procedures-foreign-air-carriers-european-union

ALPA News, Release #14.15 (2014). Retrieved 12/30/2014 from http://www.alpa.org/Portals/Alpa/PressRoom/PressReleases/2014/2-12-14_14.15.htm

ALPA News, Release #14.91 (2014). Retrieved 01/11/2015 from http://www.alpa.org/Portals/Alpa/PressRoom/PressReleases/2014/11-19-14_14.91.htm

Air Accident Investigation Unit, Ireland. (2011). FORMAL REPORT: ACCIDENT, Fairchild Aircraft Corporation, SA 227-BC Metro III, EC-ITP, Cork Airport, Ireland, 10 February 2011. Department of Transport, Tourism, and Sport.

Jennings, M.M. (2015). Business: It’s Legal, Ethical, and Global Environment (10th Ed.), Cengage Learning. Stamford, CT.

Carey, B. (2014). Opponents dispute Norwegian Air’s U.S. permit application. AINonline. Retrieved 01/26/2015 from http://www.ainonline.com/aviation-news/air-transport/2014-11- 26/opponents-dispute-norwegian-airs-us-permit-application

Carey, B. (2014). U.S. denies exemption as it mulls Norwegian air permit. AINonline. Retrieved 01/26/2015 from http://www.ainonline.com/aviation-news/air-transport/2014-09-03/us- denies-exemption-it-mulls-norwegian-air-permit

Jansen, B. (2014). Congress pleases both sides in Norwegian air dispute. USA Today. Retrieved 02/02/2015 from http://www.usatoday.com/story/todayinthesky/2014/12/11/norwegian-air- international-dot-alpa-afa/20240759/