By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian airlines yesterday escaped the threat of US sanctions after federal authorities rejected the aviation industry’s accusations that this nation’s air navigation fees regime is “discriminatory”.

Anthony Hamilton, Southern Air’s director of administration, and president of the Bahamas Association of Air Transport Operators, told Tribune Business it was “a major relief” that local carriers no longer face the possibility of being restricted or barred completely from the US market after the Biden government’s Department of Transportation ruled in this nation’s favour.

Dismissing the complaint by the Airlines4America consortium, whose members include American Airlines, Jet Blue, FedEx, Delta, Southwest Airlines, United Airlines, and the United Parcel Service, it found that the charges could not stand as the fees imposed by The Bahamas were the same as those levied on this nation’s carriers and those from other foreign countries.

The Department of Transportation found that the same air navigation service fees applied regardless of whether aircraft were landing in, or taking off, from The Bahamas or simply passing through this country’s air space headed towards another destination. As a result, it ruled: “We cannot conclude in those circumstances that the fee structure constitutes unjustifiable or unreasonable discrimination.”

Chester Cooper, deputy prime minister, and minister of tourism, investments and aviation, in a statement yesterday hailed the Department of Transportation’s verdict as upholding Bahamian sovereignty and the country’s right to determine the fee structure it wishes to impose on the aviation industry for use of its air space.

Noting that the US regulator has rejected the airline industry’s allegations of “unfair practices”, he said: “The Department of Transportation recognised the sovereignty of The Bahamas to charge these fees and collect them.

“The Department of Transportation raised questions about the methodology used to assess the fees and is seeking to have a clearer understanding of the matter through bilateral consultation at the state level under the provisions of the Air Transport Agreement that exists between The Bahamas and the US. We expect these consultations will begin within 60 days.

“We are pleased by the recognition of The Bahamas’ sovereignty in this matter, and we are happy to enter into consultations with the US government as we continue to strengthen our partnership. We will continue to work with our airline partners to make doing business with The Bahamas a mutually rewarding experience.”

Mr Cooper’s statement, though, did not address the extent of the Department of Transportation’s ruling - especially its “serious concerns” about the fees’ costs and whether they are excessive when compared to the actual expenses The Bahamas incurs for providing air navigation services. It raised concern whether the level of charges is compliant with the Air Transport Agreement treaty agreed between The Bahamas and US, to which Mr Cooper referred.

While The Bahamas will benefit from the airline industry effectively being taken out of the dispute, with the matter now set to be resolved at the government or diplomatic level, the Department of Transportation warned that it has “ample statutory and regulatory ability to take actions required by the public interest” if it determines this nation’s fees are excessive.

“Representatives of the US and the Commonwealth of The Bahamas have exchanged letters regarding this matter, and on January 18 and February 13, 2023, held virtual meetings in which both sides expressed a desire to reach a resolution,” the ruling revealed. 

“The Department believes the preliminary discussions have been productive. However, we have serious concerns and a number of questions outstanding, particularly with regard to The Bahamas’ cost-basis analysis for its [air navigation services] fees. Concurrent with the action we are taking by this order, we have taken steps to initiate formal consultations under Article 13 of the agreement.. We fully expect to reach satisfactory closure of the issue through diplomatic efforts.”

Detailing its position, the US Department of Transportation said: “After analysing the entire record of this proceeding, we have serious concerns that the air navigation service charges imposed by BANSA may not fall within a reasonable level vis-à-vis The Bahamas’ cost for the provision of air navigation services, and we question whether the charges are fully consistent with Article 10 of the Air Transport Agreement, which entered into force on January 27, 2020.”

BANSA is the Bahamas Air Navigation Services Authority, but the Department of Transportation said the airlines’ complaint against this nation fails because they have produced no evidence that the air navigation services fees are discriminatory.

“While we are concerned that the charges potentially exceed a reasonable cost basis as contemplated in the agreement, the record shows that air navigation fees are imposed on US carriers at equal rates with the charges imposed on Bahamian and third-country carriers,” the ruling found. “In those circumstances, we are unable to conclude that the charges constitute discriminatory activity.” Without proof of discrimination, the industry’s case has no basis for success.

“We have also considered the complainants’ assertions that discriminatory activity is construed from the difference between the fees charged for transit flights compared to the fees for flights originating or departing The Bahamas,” the Department of Transportation said.

“The complainants argue that it is unreasonable and discriminatory for The Bahamas to use charges imposed on transiting operators to bankroll The Bahamas’ entire air navigation services system, including for services not used by such transiting operators.

“The complainants themselves acknowledge, however, that operators in the same category of operations are charged the same amount. We cannot conclude in those circumstances that the fee structure constitutes unjustifiable or unreasonable discrimination,” the federal regulator continued.

“Nor do we find a basis to regard payments made to the US Airport and Airway Trust Fund as a discriminatory action on the part of The Bahamas..... In the circumstances presented, we believe that the public interest is better served by pursuing our cost-basis questions and seeking to resolve the underlying matter through the terms established in the Air Transport Agreement.”

The dispute had potentially serious ramifications given that the US Department of Transportation, if it found in the US airlines’ favour, could go to the extent of totally barring Bahamian airlines such as Bahamasair and Western Air from flying to the US or reducing such access. Mr Hamilton yesterday said it was critical that The Bahamas won because of the negative for both domestic aviation and tourism if their US counterparts had succeeded.

“That is excellent news,” he told Tribune Business of the US verdict. “Certainly given that the domestic operators were interested in that matter it’s a major relief not having to be concerned about that. Its a high priority matter given that our tourism industry depends heavily on it, domestic operators and airline industry partners.

“We are in the flying business, and if you can’t fly, you’re out of business. The US is a major market, and not being able to participate in that arena would be a major thing. The Government had indicated they felt this matter was better dealt with at the government-to-government level and we were conscious they were making that effort.”

The Bahamas, in 2021, signed a 10-year deal that outsourced management of 75 percent of its air space above 6,000 feet to the Federal Aviation Administration (FAA), with the US agency agreeing to waive the air navigation fees it previously levied for using this country’s air space.

The Bahamas subsequently imposed its own air navigation services charges in a bid to generate revenue sufficient to fund the development of civil aviation safety and oversight in The Bahamas, and associated regulatory functions. This will thus eliminate the need for Bahamian taxpayers to fund this, saving the Public Treasury millions of dollars per annum at a time when it is coming under increasing fiscal stress.

However, arguing that these fees should only cover the cost of providing the service, the US airlines alleged there was no justification for “the tens of millions of dollars” that The Bahamas is collecting given that it is just paying, at most, $80,000-$100,000 to the FAA - sum equivalent to 1 percent of the charges. They claim this “runs afoul” of global best practice and agreements, plus the US International Air Transport Fair Competitive Practices Act 1974.

The Bahamas has established a sliding scale for its air navigation services fees that ranges from $8.50 to $51.60 per 100 nautical miles based on the aircraft’s weight. Several observers have privately suggested to Tribune Business that the US airlines are seeking to bully The Bahamas by placing no value on the worth of this country’s sovereign air space.

They believe the sector is longing for a return to the days when The Bahamas earned not a single cent in revenue from the aviation industry’s use of its air space, which sits on key Atlantic and other routes between Europe and the western hemisphere and North and South America. The FAA used to waive air navigation services fees for planes that took off and/or landed in the US after passing through Bahamian air space, thus giving them free use of this country.

The Government, in its answer to the US airlines’ complaint, asserted that The Bahamas’ air navigation services regime was compliant with the Chicago Convention - the agreement that established the main principles of global air transport - as well as International Civil Aviation Organisation (ICAO) guidelines.