«Russia and the World Community’s Respond to a Challenge of Instability of Economic and Legal Systems Materials of the International Scientific-practical Conference ...»
Russian aircraft currently on the market have higher operating costs and offer lower passenger comfort than their Western-built counterparts. There is also a psychological factor that needs to be counted with – EU passengers simply do not want to fly Tupolev or Ilyushin aircraft. However, things might soon start to change. Two small Italian and Swiss airlines have already placed an order for a total of 10 Sukhoi Superjet 100s (table 4). If the aircraft proves successful, additional small orders might follow. A large order of Superjets or MS-21s is for now out of question; although aggressive airlines like Ryanair might surprise the market. 22 Moreover, Russian aircraft-manufacturing industry has considerably enhanced its position in the last couple of years. In 2003, Airbus created an engineering center in Russia that has worked on major projects including Airbus A380 and Airbus A320 neo. Russian companies are also significantly involved in producing components for A320, A350 XWB and A380. Airbus seems set to follow a strategy of cooperation with potential future competitors. 23 Therefore, even if large orders of Russian aircraft by EU airlines can not be expected, the role of Russian subcontractors in EU aviation will keep increasing.
4. Conclusions International civil aviation has recently undergone a turbulent period. Wave of airline bankruptcies in the first years of the new millennium was followed first by economic upturn, later by deep economic crisis leading to even more bankruptcies, and then by the most profitable year in the history of aviation (2010). The European Union has led a broad initiative of liberalizing air transport services, but on the other hand has also tightened regulation of customer service and environmental aspects. Today, facing increased competition from China and the Middle East, as well as possible foreign operation restrictions caused by EU’s unilateral inclusion of aviation in the ETS, EU airlines are operating in a tough business environment. Russian airlines have problems of their Ryanair planned to place an order for 200 Boeing aircraft in 2009, but did not manage to obtain contract conditions it had hoped for. It announced it was not going to buy Airbus airliners either and would wait for the Chinese and Russians to advance with their COMAC 919 and Irkut MS-21. In the end, Ryanair would probably buy aircraft from the producer it can secure the best deal with.
It does so with Irkut as well as with Chinese COMAC. Airbus believes this strategy will help the company increase its sales on the local market; it also lowers the cost base. On the other hand, some experts are afraid it will lead to an unwanted transfer of know-how and a fierce competition of several aircraft manufacturers in the future.
own – Russian aviation market has been hit by a high number of accidents reducing passengers’ confidence.
In this paper we have identified the main trends in current EU-Russia civil aviation relations. They include:
• Steady increase in annual number of passengers and flights.
• Rising importance of air transportation between Russia and the new EU members.
• Rising share of low-cost airlines on the market; however, due to high degree of protectionism their share is less than 8 %, compared to approximately 40 % on the internal market of the EU.
• Continuing unwillingness of Russian authorities to relax protectionist bilateral air service agreements. Inability of the European Commission to negotiate changes.
• Increasing tensions due to EU’s policy of including international civil aviation in the Emission Trading Scheme.
• Intensifying cooperation of Russian and EU civil aviation authorities in field of aviation safety.
• Ongoing integration of Russian contractors into production process of Airbus.
We have argued it is of very little interest for Russian airlines to push for liberalization of the EU-Russia civil aviation market. The main carriers are against complete liberalization for fear of losing market share. Russian government has a strong record of listening to the voice of domestic carriers and pursuing national interest. It is therefore obvious that no radical changes of market regulation can be expected. Rather, liberalization will be pursued in small steps, in response to increasing passenger demand. An example of this strategy could be seen in February 2012 when Russia and Bulgaria amended their bilateral air service agreement to increase frequencies on Burgas-Moscow and VarnaMoscow routes. They also changed the number of designated airlines allowed to operate Russia-Bulgaria routes from one to two from each side.
Sour relations between civil aviation regulators will be counterbalanced by cooperation of airlines and airframe makers. Airbus will further increase its cooperation with Russian contractors and subcontractors. Also, airlines will continue their practice of code-sharing and engaging in alliances – Aeroflot joined SkyTeam in 2006 and S7 Airlines entered oneworld alliance in 2010. We can therefore conclude that although regulators are set to confront the pressures of globalization, commercial sector has already become an integral part of it.
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3. ATAG (2008). The Economic and Social Benefits of Air Transport 2008. Geneve: Air Transport Action Group.
4. Aviation Week (2011). Russia Makes Big Moves as Fatalities Mount.
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5. Bloomberg (2011). Medvedev Seeks Aviation Revamp as Hockey Team Crash Kills 43. In: Bloomberg Businessweek, 8. 9. 2011.
6. Doganis, R. (2007). Flying off Course. Abingdon: Routledge.
7. Europa.eu (2011). Air transport: Commission welcomes agreement on Siberian overflights. In: EC Press Releases, 1. 12. 2011.
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World Community’s Respond to a Challenge of Instability of Economic There is almost no end to the inventiveness fostered by lawyers in need of new legal disciplines to support their activities. The global economic crisis also gave birth to a new legal practice area: financial crisis law.
Thus, soon after the crisis emerged in 2008 law firms began marketing special competence within the field of crises law encompassing i.a. bankruptcy law, law on banking, reconstruction etc. etc. – and the special legislation passed in order to counteract the crisis (in the U.S. for instance the Emergency Economic Stabilization Act). The law firms also formed multidisciplinary practice groups to help clients manage financial difficulties in response to the turbulence in the financial markets. These groups aim to provide clients with news, information and analyses on the financial crisis and help clients deal with distressed assets, litigation, regulatory and government enforcement matters.
In the wake of panic, it was soon forgotten that the “crisis” was not a unanimous phenomenon in all countries, but rater the result of different trends and problems which surfaced in many countries at the same time forming together the collapse we saw. The Southern Europeans for instance were suffering mainly from problems occurring due to a wide-spread corruption stunting society (in particular Greece) and a marked lack of will to control the labour market economy. To compare: in this region pay-rise was up to 50 % in the same period where Germans only got a wage increase of 7 %.
This was pure foolishness. It was foolish by the Greeks to launch strikes and public riots in order preserve welfare which had no economic basis – and it was foolish by the EU to link countries with completely different economic structures to the same currency, the Euro.
In the U.S. the crisis exploded not least due to irresponsible politicians enforcing the financial institutions to accept mortgages in real estate far exceeding the real values of estate in case of even minor economic set-backs and far beyond the economic capabilities of the people possessing the estates. In addition came irresponsible financiers offering profits on the yields of pyramid sale of investments. Thereby the U.S. financial institutions became dangerously overexposed to risk.
Similarly in Denmark the crises was triggered by a legislation which made it possible to give loans to house owners beyond the realistic value of their houses – an opportunity which the banks and financial institution were unable to resist. As a result in 2008 almost nobody was able to pay the market-price for his own house in case he wanted to buy it. In other words: the whole market relied on were few buyers which had the economic strength to pay a fantasy-price, and as these buyers disappeared the market broke down.
However, unlike earthquakes, financial crises of this kind are man-made and need not happen. They do not come from outer space – they happen because they are allowed to happen. Therefore steps could be taken to reduce their frequency and depths. But will such steps be taken?
A whole range of suggestions have been staged in this context: financial firms that are too big to fail should be broken up, they should have higher capital requirements, compensation of executives in financial firms should be subject to claw back, whistle blowers should collect bounties for turning in executives if the executives’ compensation was based on inaccurate accounting, industry rescue funds could be formed, firms should disclose more information about their bets publicly on a daily basis etc. etc.
Law is what makes society run smoothly, and surely new legal solutions have to be applied in order to prevent new crises from coming due to the same factors. But how could lawyers contribute?
In my opinion very little. The necessary solutions are political solutions.
Lawyers can only advise as to the technical methods – law making – on issues decided by the politicians.
But what can politicians do?
I believe there is only one real cure. The general risk-taking incentives on the financial market have to be reduced.
The financial firms are smart and any detailed regulation as to what is allowed and what is not will surely be bypassed. Therefore the weed has to be attacked by the root.
That means that we need remedies which threaten the welfare of the individuals responsible for large risk/takings and not just the shareholders.
To give an example: I.a. French banks offered high-risk/high-interest loans to Greece in the belief that somebody else would pay if Greece went bankrupt.
In fact that was what happened. The bankers nicked the interest and the EU citizens paid the price in order to prevent bankruptcies in the French banking sector from causing an irresistible economic tsunami in the rest of Europe.
Therefore such a bankruptcy should seriously affect the private economy of the individuals running such banks. Even if a firm goes bankrupt years later due to irresponsible loan-giving, all compensation of the responsible individuals should be recovered. Moreover, this personal liability should not be insurable.
As things stand corporate failure punishes the public. But the public has no real ability to influence the decision-making of irresponsible bankers.