Wet-leasing: European Council agrees amendment to EC 1008/2008 for consistency with the EU/US Open Skies agreement

By Simon Phippard, Rachel Welch Phillips

01-2019

Many airlines operating in Europe have had to deal with the limitations and control on use of wet-lease capacity whether leasing "in" or "out", and in particular when non-EU wet lessors are involved.

On 2 October 2018, the Council adopted a 'general approach' to EC 1008/2008 ("Regulation 1008") amending it for consistency with the Air Transport Agreement between the European Union and the United States with regard to wet-leasing (the "EU-US Agreement").

Article 13(3)(b) of Regulation 1008 which imposes time limitations on wet leasing arrangements agreed between EU air carriers and third countries. This is inconsistent with the EU-US Agreement which anticipates an open ended wet-lease. In order to create consistency across these agreements, the amendment proposes relaxing the time limitations for wet leasing in Article 13(3)(b) that are agreed between EU carriers and third country parties.

Several Member States expressed concern that the misuse of wet-leasing arrangements might lead to unfair competition. On this basis, the amendment was passed with the additional modification that it is only applicable where air transport agreements between the EU and third countries that were signed before 1 January 2008 confer reciprocal rights and obligations on both parties.

Some commentators have suggested that this measure will address the increasing prevalence of use of airline structures involving shell companies owning only one or two aircraft with the remaining aircraft wet leased from third countries. This is said to lead to variation in employment and safety standards. By limiting the relaxed time limits to third countries that have developed existing aviation relationships with the EU, this would limit the potential for abuse of unrestricted wet leasing. The obligation for reciprocity between the EU and the applicable third countries also makes it possible for EU air carriers to benefit from opportunities in third country markets.

The amendment to Regulation 1008 will have to be adopted by the European Parliament under the ordinary legislative procedure, and this process is expected to take the Council's general approach into consideration.