US embassy cable - 05DUBLIN177

C O N F I D E N T I A L SECTION 01 OF 03 DUBLIN 000177 
 
SIPDIS 
 
E.O. 12958: DECL: 01/31/2015 
TAGS: EAIR, PREL, ETRD 
SUBJECT: U.S.-IRISH DISCUSSIONS ON OPEN SKIES PROSPECTS 
 
 
Classified By: Political-Economic Counselor Mary Daly; Reasons 1.4 (B) 
and (D). 
 
1.  (C) Summary: In informal bilateral discussions on 
February 7, Ireland indicated its intent to decide in the 
next several weeks on the possibility of establishing Open 
Skies with the United States.  Transportation Affairs Deputy 
Assistant Secretary John Byerly and DOT International 
Aviation Director Paul Gretch told Irish counterparts that 
the USG was prepared to pursue an Open Skies "arrangement" 
that would not entail formal amendments to the existing 
bilateral air transport agreement.  This unprecedented 
approach would aim to sidestep the legal impediments posed by 
the November 2002 judgments of the European Court of Justice 
and the mandate subsequently given to the Commission to 
negotiate with the USG on behalf of Member States.  Irish 
Transport officials said that the GOI could immediately 
accept nearly all the elements of Open Skies, but preferred a 
transition on the Shannon stop requirement as well as a 
possible delay in implementing full fifth-freedom rights, 
given likely Commission opposition.  Byerly and Gretch noted 
that fifth freedoms were central to Open Skies, but indicated 
a willingness to consider a transition that would allow for 
implementation of fifth-freedom rights and cargo 
seventh-freedom rights in a year as part of an overall Open 
Skies arrangement, inclusive of a Shannon phase-out.  Irish 
officials committed to respond shortly and recommended that 
the two sides avoid designating possible follow-on talks as 
"formal," since this would trigger legal difficulties for the 
GOI with the Commission.  Separately, Byerly expressed USG 
support for Ireland as ICAO's selected site for the 
international registry under the Capetown Convention, despite 
recent attempts by Canada, a losing bidder, to revisit the 
selection.  On February 8, Byerly addressed a Dublin seminar 
on trans-Atlantic aviation that fleshed out conflicting Irish 
views on the need for a multi-year phase-out of the Shannon 
stop.  End summary. 
 
2.  (C) On February 7, State Department Deputy Assistant 
Secretary for Transportation Affairs, John Byerly, and U.S. 
 
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Department of Transportation Director for International 
Aviation, Paul Gretch, met with Irish counterparts to discuss 
possibilities for establishing a bilateral Open Skies 
relationship.  Irish participants included: John Murphy, 
Department of Transport (DOT) Director General for Civil 
Aviation; John Lumsden, DOT Assistant Secretary for Roads 
(and Murphy's immediate predecessor); Brendan Lyons, 
Department of Foreign Affairs (DFA) Assistant Secretary for 
Bilateral Economic Relations; Robin McKay, DOT Principal 
Officer for Aviation Regulation and International Relations; 
Doreen Keaney, DOT Principal Officer for Aviation Security; 
Colin Hunt, Special Advisor to the Minister of Transport; 
and, Micheal O'Mealoid, DOT Assistant Principal Officer for 
Aviation Regulation and International Relations. 
 
A Way Forward on Open Skies 
--------------------------- 
 
3.  (C) Byerly noted the USG's willingness to consider an 
"arrangement" with Ireland that would establish Open Skies 
without formally amending the existing bilateral air 
transport agreement -- an approach that would aim to sidestep 
the legal impediments posed by the ECJ judgments and the 
Commission's mandate to negotiate with the USG on behalf of 
Member States.  This approach would require an explicit GOI 
political commitment to implement the Open Skies arrangement 
in the form of a Memorandum of Consultations (MOC).  Byerly 
explained that the MOC would have an attached text of 
U.S.-proposed amendments needed to transform the bilateral 
agreement into an agreement containing the essential elements 
of Open Skies.  The amendments would incorporate liberalized 
routes (including fully open fifth-freedom rights and 
desirable all-cargo seventh-freedom rights for scheduled and 
charter service) as well as Open Skies model provisions on 
customs, operational flexibility, fair competition, 
codesharing, user charges, commercial opportunities, safety, 
and security.  Moreover, the MOC would note that the GOI was 
not prepared to amend formally the existing bilateral 
agreement, but that the two governments would apply the 
proposed changes on the basis of comity and reciprocity. 
Byerly added that the U.S. proposal attached to the MOC would 
reflect U.S. industry input and could include, if the GOI 
desired, a "transitional annex" for a phase-out of the 
Shannon stop requirement and a phase-in of new U.S. points 
for Irish carriers. 
 
4.  (C) To proceed with this approach, the USG needed a 
definitive signal from the GOI on its willingness to 
establish Open Skies, Byerly emphasized.  He cited several 
bilateral exploratory discussions held since mid-2004, and he 
noted that there would be no value in further informal 
consultations.  Byerly added that an unequivocal "yes" to 
Open Skies would trigger a process in Washington involving 
the scheduling of bilateral talks, the preparation of texts, 
and necessary USG consultations with U.S. industry.  He 
observed that the USG had not yet discussed the specifics of 
the MOC idea with U.S. industry, which would have definite 
views on the package to be offered Ireland.  Lumsden and 
Murphy concurred with Byerly that additional exploratory 
talks would not be useful. 
 
5.  (C) Byerly and Gretch explained that reliance on an MOC, 
a non-legally binding document under international law, would 
constitute an unprecedented approach to the establishment of 
Open Skies.  They noted that the approach had raised some 
concerns on the U.S. side, since the two sides would not have 
recourse to arbitration if the arrangement were violated. 
Murphy asked whether the USG had considered using this 
approach with other Member States, given the impasse in the 
U.S.-EU negotiations.  Byerly replied that the anti-trust 
immunity sought by Iberia for its relationship with American 
Airlines would probably only be approved in the context of a 
legally binding Open Skies agreement with Spain.  He added 
that there was probably insufficient demand for 
trans-Atlantic air services for most new Member States to 
consider incurring the ire of the Commission, which would not 
welcome this method of sidestepping Commission competence. 
 
Irish Difficulties with Fifth Freedoms 
-------------------------------------- 
 
6.  (C) Murphy said that the GOI could immediately accept 
nearly all the essential elements of Open Skies, but 
preferred a transition on Shannon as well as a delay in the 
implementation of fifth-freedom rights.  The GOI also needed 
to review the possibility of all-cargo seventh-freedom 
rights.  (Note: Murphy did not express opposition to 
third-country codesharing.)  To concede fifth/all-cargo 
seventh-freedom rights bilaterally at this point in the 
U.S.-EU talks, said Murphy, would be unacceptable to the 
Commission (which seeks to withhold such rights as perceived 
leverage in seeking greater access to the U.S. market for EU 
carriers).  He added that the GOI wished to allow the U.S.-EU 
negotiations to proceed to a point of clarity on whether a 
trans-Atlantic agreement was reachable.  Lumsden elaborated 
that the GOI did not seek indefinite postponement of 
fifth-freedoms, but rather a delay that would enable Ireland 
to argue later that "the Commission had had time to do a deal 
with the United States, but had failed, leaving Ireland no 
choice but to act bilaterally." 
 
7.  (C) Byerly and Gretch responded that the USG sought 
immediate implementation of fifth-freedom rights as a central 
part of any Open Skies agreement, with very few exceptions in 
unique cases for economic reasons.  Moreover, Ireland's 
withholding of fifth freedoms would play into false arguments 
that the Commission should hold back such rights to 
counterbalance the lack of market access (cabotage rights) 
faced by European carriers in the United States, relative to 
U.S. carriers in Europe.  Byerly said, however, that the USG 
would be willing to consider two options for a transition. 
The first option had the following steps: (1) on day one, 
there would be easing of the Shannon stop requirement, 
additional U.S. points for Irish carriers, and the 
implementation of all elements of Open Skies, except for 
fifth and all-cargo seventh freedoms; (2) in a year, Ireland 
would grant full fifth freedoms and all-cargo seventh 
freedoms, with further easing of the Shannon stop requirement 
and additional U.S. points for Irish carriers; and, (3) at an 
end-point subject to negotiation, the Shannon stop would end 
completely, and Irish carriers would have full access to the 
U.S. market.  Under the second option, the entire arrangement 
could be delayed for a year, but there could be no transition 
on fifth-freedom rights.  Murphy said that this methodology, 
broadly speaking, seemed acceptable, and he indicated that 
the Irish side might be partial to the second option. 
 
Next Steps 
---------- 
 
8.  (C) In terms of next steps, Byerly said that the U.S. 
side would await a final GOI decision on moving to Open 
Skies, preferably within the next two weeks.  With the GOI's 
green light, the USG would begin consultations with U.S. 
industry on the U.S.-proposed Open Skies amendments to the 
bilateral.  This proposal would not include provisions for a 
transition on Shannon, U.S. points for Irish carriers, and 
fifth/all-cargo seventh-freedom rights.  Upon receiving the 
proposal, the Irish side would introduce the transition 
provisions and return the updated package to the USG for 
review with U.S. industry.  The two sides would then move to 
formal negotiations to work out final details, after which 
the Irish side would announce "a failure," in the sense that 
it was not prepared to amend the bilateral formally.  The GOI 
would then agree to implement the amendments on a comity and 
a reciprocity basis and would sign the MOC with the 
amendments and transitional annex attached. 
 
9.  (C) Murphy responded that this approach sounded 
reasonable, and he committed to obtain Transport Minister 
Cullen's final decision on whether to move to Open Skies. 
Murphy, however, recommended against a U.S. request to enter 
into formal negotiations, as this would trigger notification 
requirements to the Commission for the Irish side.  Rather 
than negotiate formally and "fail," the GOI preferred to have 
discussions that would not be designated as "formal." 
Government delegations of the customary size as well as 
industry representatives could nonetheless participate as 
usual.  Ireland might also envision an MOC that incorporates 
the agreed new arrangement rather than have the text as a 
U.S.-proposed (and Irish-rejected) text of formal amendments. 
 Byerly and Gretch signaled U.S. willingness to consider this 
approach.  They also cautioned that Ireland should expect 
strenuous Commission opposition to whatever approach was 
chosen, and he urged that Minister Cullen communicate his 
decision to the U.S. side as soon as possible. 
 
Ireland and the Capetown Convention Registry 
-------------------------------------------- 
 
10.  (C) Byerly said that ICAO Council President Kotaite had 
expressed concerns on the margins of a recent Washington 
conference that Canada was pressing to revisit the selection 
of Ireland, its rival bidder, as the site for the 
international registry under the Capetown Convention. 
According to Kotaite, Canada claimed that it was able to 
secure USD 200 million in insurance to cover the liability of 
the registry for negligence/mistakes, while Ireland had only 
been able to obtain USD 10 million.  Irish DOT Principal 
Officer for Aviation Regulation and International Relations, 
Robin McKay, responded that he had been involved in the 
PrepCom discussions on the registry and that Canada was 
acting as a sore loser.  He remarked that there was no way to 
confirm Canada's claim about the amount of insurance it had 
secured, since the insurance company involved protected this 
information as confidential.  The key to countering Canada's 
tactics, McKay explained, was to un-block that 
confidentiality.  Byerly pointed out that the USG continued 
 
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to support Ireland's selection as the registry site, and he 
ventured that Dr. Kotaite had raised the issue to confirm the 
U.S. position.  Lumsden said that the GOI would discuss the 
issue directly with Dr. Kotaite and PrepCom. 
 
Public Discussion on the Shannon Stop 
------------------------------------- 
 
11.  (SBU) A February 8 seminar in Dublin on trans-Atlantic 
aviation hosted by the Institute of European Affairs and 
addressed by Byerly provided for lively discussion on the 
U.S.-Ireland bilateral agreement and the Shannon stop 
requirement.  In prepared remarks, Byerly cited the U.S. goal 
of eliminating outdated restrictions in the bilateral in 
order to establish Open Skies, and he noted U.S. willingness 
to phase out these restrictions, including the Shannon stop, 
over a reasonably short period.  As the local press reported 
the following day, recently resigned Aer Lingus CEO Willie 
Walsh said that the Shannon stop was inimical to national 
interests, and he recommended that the requirement be 
abolished without any transition.  Walsh elaborated that the 
Shannon stop raised fares in Dublin, prevented new carriers 
from entering the market, and had prompted Aer Lingus' 
announcement that it would end Baltimore/Washington service 
(effective this May).  Representatives of the Shannon Airport 
Authority (which will be split from the Dublin Airport 
Authority this summer) countered that Shannon Airport was 
preparing business plans in anticipation of the stop's 
elimination, but that these plans envisioned a five-year 
phase-out.  Walsh replied that five years was too long to 
make projections for the aviation industry, and he added that 
the Shannon community had already had 15 years to prepare for 
the transition. 
 
12.  (U) This cable was cleared by DAS Byerly. 
KENNY