ASEAN’s “flight” towards open skies-

ASEAN has set the goal of achieving a single aviation market (A-SAM), or an “open-skies” policy, within the bloc by 2015. However, as this date draws near, a number of member states have yet to ratify the core agreements and protocols implementing A-SAM – the Multilateral Agreement on Air Services (MAAS), the Multilateral Agreement on the Full Liberalisation of Air Freight Services (MAFLAFS), and the Multilateral Agreement for the Full Liberalisation of Passenger Air Services (MAFLPAS). Commentators have also questioned whether these treaties go far enough and whether there will be sufficient political will among the ASEAN states, each of which are at different stages of economic development, to agree and implement a comprehensive open-skies regime within Southeast Asia.

The nine freedoms of the air

Aviation treaties (most famously the Chicago Convention on International Civil Aviation of 1944) typically entail air carriers of one particular state (“A”) being granted certain numbered “freedoms” in relation to the airspace of other countries (“B” and “C”). These include:

  • First freedom: A’s right of overflight over B;
  • Second freedom: A’s right to land in B during overflight, without picking up passengers;
  • Third freedom:  A’s right to carry traffic into B;
  • Fourth freedom: A’s right to carry traffic from B back to A’s home state; and
  • Fifth freedom: A’s right to fly between B and C during flights that originate, or terminate, in A’s home state.

In addition, four higher-level freedoms are frequently noted and discussed (particularly in the International Civil Aviation Organization’s Manual on the Regulation of International Air Transport), even though they are seldom recognised in international treaties:

  • MAFLAFS: The main agreement grants first and second freedoms with respect to air cargo services between all signatories. The protocols further offer third to fifth freedom rights between designated points with international airports (Protocol 1) and all points with international airports (Protocol 2).
  • MAAS: The main agreement grants first and second freedoms with respect to passenger air services between all signatories. The protocols further provide third to fifth freedom rights between designated points within the ASEAN subregion to which the signatory belongs (Protocols 1 and 2), designated points between ASEAN’s sub-regions (Protocols 3 and 4), and ASEAN capital cities (Protocols 5 and 6).
  • MAFLPAS: The main agreement grants first and second freedoms with respect to passenger air services between all signatories. The protocols further give third to fifth freedom rights between designated points with international airports (protocol 1) and all points with international airports (Protocol 2).

However, to date, not all ASEAN members have ratified the agreements or their Protocols; for instance, Indonesia has not yet ratified MAFLAFS or its protocols. Though all ASEAN signatories have adopted MAAS, Indonesia has not ratified Protocols 3 and 4. Furthermore, neither Indonesia nor the Philippines have ratified Protocols 5 and 6. This state of affairs means that the access of other ASEAN carriers to Manila and Jakarta airports is still determined by bilateral treaties. MAFLPAS that offers the greatest degree of liberalisation has the largest number of derogations, with Indonesia, Cambodia, Laos, and Brunei all refusing so far to ratify the agreement or its protocols. It remains unclear whether any of these nations will ratify the relevant protocols/ agreements before the 2015 target.

Conflicting perspectives on A-SAM

It should be noted that the failure to fully ratify MAAS, MAFLPAS, and MAFLAFS by the 2015 deadline does not mean that the A-SAM project has failed. At the 17th ASEAN Air Transport Ministers’ meeting in 2011, member states reiterated their commitment to the vision of open skies by 2015. However, they expressly stated that an “ASEAN minus-X” formula would be used in the implementation, that is, the implementation process should be accorded flexibility. Essentially, some members could agree to derogate from its implementation in the short to medium term, while others proceed according to plan.

The reluctance on the part of certain ASEAN members to fully implement the A-SAM is easy to understand. Countries with fledgling aviation industries, such as Cambodia and Laos, are reluctant to expose themselves to competition from countries with strong aviation industries such as Singapore and Malaysia. Meanwhile, air carriers in countries with large internal markets, such as Indonesia and the Philippines, baulk at the prospect of being forced to share or cede this market to competitors. For these countries, reciprocity under A-SAM would only offer the limited benefit of access to foreign markets such as Singapore. It is for this reason that carriers such as Garuda and Cebu Pacific have lobbied their respective governments persistently against ratification. In so doing, they often couch their arguments in terms of unfairness caused by disparities in levels of economic development, or the inadequacies of the domestic aviation infrastructure.

The perspective of countries with more developed aviation industries on A-SAM is completely different. Low-cost carriers such as Malaysia’s AirAsia are determinedly in favour of open skies that offers them the possibility of a huge increase in their route network and capacity. That this may come at the expense of the airlines of other countries is defended on the grounds that liberalisation will promote efficiency in delivering greater value at lower costs, which in turn would benefit consumers and the wider economy. Countries such as Singapore are perceived as net benefeciaries of the full implementation of A-SAM. They have no greater domestic market to protect and are, therefore, in favour of a greater and faster implementation of A-SAM.

Carriers’ adroit circumvention of restrictions

Many carriers in ASEAN have side-stepped the problems caused by restricted access to foreign markets by setting up minority-owned subsidiaries in countries that offer restricted access to foreign carriers. Majority owned by local interests, they nonetheless operate under the same brand, as well as utilise the same booking system and other infrastructure as the parent airline to achieve economies of scale. Thus, for example, AirAsia has been able to export its branding to the Thai market through its affiliate, Thai AirAsia. In some cases, this practice has proven to be relatively successful, thus enabling airlines to establish a large footprint across several countries within ASEAN.

What kind of “open-skies” policy would it be?

With increasing pressure from the international aviation community (including the International Air Transport Association), an open-skies policy within ASEAN seems a matter of “when”, rather than “if”. However, the form that such a policy will take would depend on the strategic aims of the constituent member states, which will influence the extent to which such a policy would achieve the aim of creating a freer and more efficient aviation industry in the region.

Paul Ng

Global Head of Aviation, Stephenson Harwood LLP,

Assistance from Ethan Tan and James Vincent

Paul Ng is our global head of aviation. Paul has broad experience in structured and receivables finance including project and asset finance, tax based finance, leveraged finance, Islamic finance and export credit. He is also a leading practitioner in various financing areas and renowned for his work with budget carriers. Recently Paul was selected to join the elite group of aviation lawyers as the best in the world in Euromoney’s ‘Best of the Best’ leading aviation lawyers guide.