In 1919 the first ever international commercial flight was conducted by a French company called The Farman Company. The flight had twelve passengers transported between Paris and London. However, the said airplane was a warplane that had been converted as commercial passenger airplanes were yet to be developed. Five air transport companies then came together at The Hague to form a regulatory body on commercial air transport. The representatives from Britain, Germany, Norway, Sweden and Denmark formed the International Air Traffic Association also known as IATA (Mackenzie, 2010). Its main aim was to regulate and assess the technical procedures of the five companies.
However, it was not until October the same year that the first formal international agreement was drafted and signed. 26 countries under the backing of the League of Nations met in Paris and signed the Convention Relating to the Regulation of Aerial Navigation. However, the United States and USSR were not signatories of the convention. This meeting which came to be later known as the Paris Convention also oversaw the setting up of the International Commission on Air Navigation (ICAN) (Mackenzie, 2010).
In 1925, still in Paris, The First International Convention of Private Air Law took place. In 1926, the Bureau Veritas formed the Aircraft International Register (AIR). Still, in 1926, a meeting in Vienna saw the formation of The International Federation of Freight Forwarders Associations (FIATA). USSR, in 1927, pushed for a conference in Hague, Netherlands, which came to be known as the First International Air Post Congress. The meeting saw the laying down of laws concerning transport of mails by air.
Another meeting was held in Washington DC to discuss the use of radio frequencies by airplanes and airway control stations. It was known as the International Radio Convention (Mackenzie, 2010). In 1928, the civil aviation industry saw the passing of a significant milestone. The United States and 20 more countries signed the Pan American Convention on Commercial Aviation, better known as the Havana Convention, on February 20. It is through this convention that basic regulations concerning aerial transport were laid down. The convention also recognized the complete and exclusive sovereignty each state held over the airspace above it.
In Washington DC, the International Civil Aeronautics Conference was held to discuss the developments in civil aeronautics and how to improve them farther for the benefit of everybody. To guarantee damages were paid to those who suffered injuries from international aircrafts, a convention in Rome saw the signing of the Convention for the Unification of Certain Rules Relating to Damage attributed by Foreign Aircraft to third parties on the surface and the convention for the unification of various rules relating to the precautionary arrest of aircraft.
In 1938 the fourth Private Air Law convention was held in Brussels. In 1944, the United States invited other countries representatives to Chicago. The aim of the meeting was to come up with international air routes and establish a body to regulate international aviation. The Convention on International Civil Aviation, which came to be known as the Chicago Convention, was agreed upon and signed by 52 states (ICAO, 2009). It also saw the setting up of Provisional International Civil Aviation Organization (PICAO).
Substantial Ownership and Effective Control
There has been a lengthy ongoing discussion on the meaning of the concepts of substantial ownership and effective control. Nevertheless, there is still no internationally agreed upon definition of the two terms. Each state that enters into an aviation contract with another state has the liberty to interpret the meaning of substantial ownership and effective control as it so wishes. Through the International Air Services Transit Agreement, states have been provided with the liberty to revoke a license of an air transport enterprise from another state if it was not satisfied with the effective control and substantial ownership are vested in nationals of the contracting state (Cheng, 1962).
However, the clause quoted in substantial ownership and effective control is entrenched in the policy of protectionism. The clause is meant to effectively block a third party state from being a beneficiary of a treaty agreed upon by the party states. This is enshrined in international law in that a treaty does not form obligations or rights to a third party. In the majority of the international community, the concept of substantial ownership is understood to mean having more than a half of the voting shares regardless of whether private or public (Caclubindia, 2004). However, there is a changing perspective of the meaning of this concept.
This is due to the privatization surge that has been witnessed in airlines. Unlike in the past, where governments owned the majority stake in airlines, private investors and co-operation are taking over. Thus if say about, 40% of the voting rights of an airline is privately owned by foreign nationals then the airline cannot be considered to be substantially owned (Haanappel, 2001). This is despite the fact that the majority shareholding is in the hands of the natives.
Effective control, on the other hand, is a completely different term altogether. This is because it not about the shareholding but rather who is calling the shots at the airline, i.e., controlling internal and external policy (Caclubindia, 2004). This lies not with the shareholders but with the board of directors.
As earlier stated, protectionism is the cornerstone of these two concepts (ICAO, 2011). The idea behind the application of this clause is to protect a nations economic interests in an airline. This has, however, been described as just the external aspect of it by Van Fenema (1988). He adds that the internal aspect behind such a rationale would be xenophobia. Furthermore, national security matters also come into play.
This clause has caused substantial challenges in the aviation industry. Most notable is the 2000 merger agreement collapse between Dutch KLM and British Airways (BA) (Fama and Jensen, 1983). The treaty did not take shape because of the fear that BA would absorb KLM and finish it off. Also, although KLM had already entered into an open skies agreement with USA and Britain had not, USA had promised to revoke the rights given to KLM in case of the merger (Nanda, 2002).
Caclubindia, 2004. Substantial ownership & effective control- meaning. [Online] Available at https://www.caclubindia.com/experts/substantial-ownership-effective-control-meaning-627685.asp [Accessed 4 Nov. 2017]
Cheng, B., 1962. The law of international air transport (Vol. 47). Stevens.
Van Fenema, H.P., 1998. Ownership restrictions: consequences and steps to be taken. Air & Space L., 23, p.63.
Fama, E.F. and Jensen, M.C., 1983. Separation of ownership and control. The journal of law and Economics, 26(2), pp.301-325.
Haanappel, P.P., 2001. Airline ownership and control, and some related matters. Air & Space L., 26, p.90.
ICAO, 2009. Convention on International Civil Aviation - Doc 7300. [Online] Available at http://www.icao.int/publications/pages/doc7300.aspx [Accessed 4 Nov. 2017]
ICAO, 2011. Air Transport Policy and Regulation. [Online] Available at http://www.icao.int/sustainability/Pages/economic-policy.aspx [Accessed 4 Nov. 2017]
Mackenzie, D., 2010. ICAO: a history of the international civil aviation organization. University of Toronto Press.
Nanda, V.P., 2002. Substantial Ownership and Control of International Airlines in the United States. The American Journal of Comparative Law, 50, pp.357-379. [Accessed 4 Nov. 2017]
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