Bloomberg News

China Airlines in ‘Intolerable’ Spot on Europe Levies, IATA Says

February 13, 2012

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Feb. 13 (Bloomberg) -- Chinese airlines are in an “intolerable” position because of a spat between the country and the European Union over emissions levies, said Tony Tyler, the head of the International Air Transport Association.

“They face the impossible choice of either obeying the law of their own land or obeying the law of Europe,” he said in a Bloomberg TV interview yesterday in Singapore ahead of the city- state’s airshow. “It’s an intolerable situation to be in.”

China last week barred carriers from taking part in an EU emissions-trading system because of concerns it will raise costs and impinge on non-European governments’ sovereignty. The U.S., Russia and India are also among at least 27 nations due to meet next week in Moscow to discuss retaliatory measures against the addition of aviation to a European carbon market.

The Chinese carriers are “almost now taking a leadership position in the industry against this,” said Tyler, whose organization represents about 240 carriers worldwide. “We need a solution” to the impasse, he said.

The EU added flights to its cap-and-trade carbon program on Jan. 1. Under the system, which is designed to pare pollution, airlines must monitor and report their emissions on all flights into and out of Europe each year, and purchase carbon permits to cover these discharges. Carriers will be given about 85 percent of their permits free of charge in 2012. One permit is equivalent to one metric ton of carbon dioxide.

Global System

IATA has called for the EU to drop the airline-emissions cap and instead wait for a global program now being worked on by the United Nations’ International Civil Aviation Organization. The dispute hasn’t so far affected flights as carriers don’t need to hand over any permits until next year.

“If there hasn’t been a resolution by then, airlines will be in a very difficult position,” said Andrew Herdman, the head of the Association of Asia Pacific Airlines, which represents 15 Asian carriers, based outside mainland China. Its members “aren’t happy, but we are complying” with EU rules, he said.

The China Air Transport Association asked its government to oppose the EU levies and it is working on a legal challenge to be filed in Germany, Vice President Chai Haibo said Feb. 6. The group’s members include mainland China’s big three state- controlled carriers -- Air China Ltd., China Eastern Airlines Corp. and China Southern Airlines Co.

The EU hopes to resolve the issue through negotiations or it may ultimately be ruled on by the courts, Markus Ederer, its ambassador to China, said at a press briefing last week. Based on current carbon prices and the free permits, the system would increase Beijing-to-Brussels ticket prices by about 17.50 yuan ($2.80), he said. Airlines can be exempted from the EU emissions markets if their home government introduces a similar program.

Moscow Meeting

At the Moscow meeting due to start Feb. 21, countries will discuss new taxes and charges on European airlines, as well as the re-opening of bilateral treaties governing flight rights, an Indian civil aviation ministry official said last week. He declined to be identified, citing government policy.

India has also asked carriers to not give emissions data to the EU, according to Jet Airways (India) Ltd., the nation’s biggest airline. U.S. carriers backed a legal challenge to the emissions levies last year, which was ultimately rejected by the EU Court of Justice.

China hopes to reach an “acceptable solution” and will consider “appropriate responses,” Foreign Ministry spokesman Liu Weimin said on Feb. 7.

Airline Bankruptcies

Tyler also said that he “wouldn’t rule out” the possibility of more airline failures in Europe after the collapse of Spanair SA and Malev Zrt. A European recession could cause the global industry to lose as much as $8.3 billion this year, according to IATA forecasts.

That would be “a disaster,” Tyler said. Even without a European crisis, it will still be a “difficult year,” with the global industry probably posting a 0.6 percent margin and $3.5 billion worldwide profit, he said.

Asian carriers will probably be in a stronger position than European ones because of economic growth in countries including China, he said. A slump in cargo demand may also be bottoming out, he said.

--With assistance from Jasmine Wang and Anand Menon in Singapore and Karolina Miziolek in Hong Kong. Editors: Neil Denslow, Chua Kong Ho

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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