Something is rotten in the state of Denmark Ireland. Well, what’s actually rotten is right here in the United States related to an Irish subsidiary of a Norwegian company. Got it? Me neither. But that’s the kind of complexity involved when trying to understand how Norwegian Air Shuttle and its many subsidiaries function. One thing I do know is that the US government is obnoxiously stalling on deciding the fate of one of the airline’s subsidiaries. Norwegian tried to push the feds to act, but that has apparently failed. The result? Fewer low fare flights. This whole thing is ridiculous.
Norwegian Air Shuttle has quite the complex ownership structure. It’s so confusing that there’s a webpage on Norwegian’s site dedicated to trying to explain it. Even that isn’t entirely clear. Best I can tell, this is an accurate representation of how it all comes together.
Norwegian Air Shuttle ASA is Norway-based and operates most of the Scandinavian-based flights within Europe on 737s. It also operates the 737s that fly between the northeast US and the Caribbean. It has a Norway-based subsidiary called Norwegian Long Haul AS. That operation flies the airline’s 787s to the US and Asia today. That means all those 787s from Scandinavia, London, and as of this summer, Paris, that fly to the US are on the Norway-based long haul airline.
This is where it gets complex. Norwegian has created an Irish-based operation called Norwegian Air International. So far, this operation just flies 737s, primarily in Europe, from non-Scandinavian bases. But it’s also the airline Norwegian wants to use to fly some of its 787s to the US. Some? Yeah, it also has Norwegian Air UK which it wants to use to fly long haul from the UK. And theoretically, the flights from Scandinavia may continue to be operated by Norwegian Long Haul, but I have no idea.
Why is this happening? Norwegian is getting into the complex game of subsidiary-creation in order to take advantage of traffic rights, labor laws, and taxation rules. This all has my head spinning, so let’s focus on Ireland-based Norwegian Air International specifically since that’s where the story is most interesting right now.
Taxation is lower and labor laws are more relaxed in Ireland than in Norway. The general thought was that an Irish subsidiary would make long haul flying more feasible because of the lower cost structure, but not solely because of that. It would also allow Norwegian to take advantage of all European Union bilateral agreements with other countries. Norway isn’t part of the EU, and while it is a party to the EU-US open skies agreement, that isn’t the case for all EU deals. One example I was told was if Norwegian wanted to route a plane from Europe to the US and on to Brazil, it could do that with its Irish subsidiary but not its Norwegian one. (Warning: I haven’t confirmed that exact one to be true, but you get the idea.)
It was more than two years ago that I first wrote about Norwegian’s plans for its Irish subsidiary to fly to the US. And what’s happened since then? Nothing. The US first refused a temporary exemption to let it start operating while the case was being reviewed. But here we are more than 2 years later with no official ruling being made. Apparently the plan is to simply kick the can down the road. That’s inexcusable. There should be an answer one way or another. (Norwegian Air UK was started much more recently, but it is still waiting for approval as well.)
But Norwegian hasn’t been sitting on its hands here. One of the big objections previously was that Norwegian wouldn’t even fly out of Ireland with its Irish subsidiary. So Norwegian decided to rectify that problem. Last September, it announced it would begin flying 737s from Cork to Boston this summer and New York next summer.
This was a brilliant move. After all, it quieted the critics who said that Norwegian’s Irish subsidiary wouldn’t fly from Ireland. At the same time, it’s a route short enough to be operated by 737s, so the level of risk is far less than a 787 would require. With any luck, this move could help clear the log jam. But it hasn’t. Norwegian has just announced that it will postpone Boston flights because it still doesn’t have clearance to fly Norwegian Air International to the US.
This is somewhat disingenuous since it could fly the Cork-Boston route today with a Norwegian Air Shuttle 737. That’s how it’s flying from Boston to the Caribbean, after all. But the point is very clear. Norwegian wants to start an Irish airline that will fly from Ireland (and other places) to the US. If it can’t get it started, then the US won’t get low fare flights. I can’t blame them taking this stance.
Should the US approve Norwegian Air International? Yeah. Will it only fly from Ireland to the US? Definitely not. But will that make these flights viable when they wouldn’t be otherwise? Eh, hard to say.
It’s pretty clear that Norwegian isn’t doing very well for itself in its current state. In 2015, its operating margin was a mere 1.5 percent, though that’s far better than its -7.2 percent margin last year. I remain highly skeptical that low cost, long haul works on expensive new airplanes. (I do, however, like the idea of 737s from Ireland to the US.)
But if Norwegian wants to lose its investors’ money, that’s for the Board to decide. The US government shouldn’t be standing in the way here.
[Original tangled wire photo via Shutterstock]
29 comments on “Norwegian Tries to Push the US to Stop Blocking Its Irish Subsidiary by Scheduling and Then Canceling Flights”
Can’t agree more the US is clearly dragging its feet. We recently took a few Norwegian fights (one Long Haul and one regular) and there is a slight difference in on board service, pitch and uniforms, but if you weren’t looking for it you would probably miss the differences. It certainly didn’t feel like a long haul version of Spirit.
As you said if they’d like to lose money for their shareholders why should the US stand in their way. Then again if they can keep delivering the quality product for the price we paid they just may have a future. Our flight was full of bargain hunters (95% full off peak is impressive).
For another side of this story, see-
http://www.thestand.org/wp-content/uploads/2014/03/632-Norwegian-Scheme-Handout.pdf
flyplayne – This is not entirely correct since now Norwegian clearly does plan on flying from Ireland, unlike in this graphic.
CF;May be true, but planning and doing are 2 different things. I flew for a major U S airline for 30+ years and PLANNED on having a pension from my carrier. 5 years after retirement, the company declared bankruptcy and turned our pensions [only group in the company that got singled out] over to the PBGC for pennies on the dollar. Now the carrier is making billions. So you’ll have to forgive me if I don’t take too much stock in what airlines PLAN to do.
I agree with Cranky in one respect here. The DOT needs to make a decision and act on the application. It’s unacceptable to just leave it in limbo.
But I do feel that the application should be rejected. This is about creating a flag of convenience carrier which is not what the US-EU open skies treaty was intended to permit. The attempt to skirt labor laws contravenes the treaty and provides ample justification for the DOT to deny this application.
I’m not sure if your other readers feel this way, but I would like it if the links in your blog opened a new window. Is that possible? Have you gotten kickback about that in the past?
I’m expressly against that. The user should control if a page opens in a new window. Not the webpage publisher.
Most browsers have a way to have links open in new Windows or tabs.
You can just hold Control or Command as you click the link, and it should open in a new tab.
Thanks for the tip Bill. I didn’t know about that shortcut.
CF, did you hear about this:
http://jalopnik.com/assholes-clap-for-child-kicked-off-flight-for-having-an-1761170271?utm_campaign=socialflow_gizmodo_facebook&utm_source=gizmodo_facebook&utm_medium=socialflow
Since when do dogs have more rights then a boy?
Animals should not be in the airplane cabin
Perhaps the animal was a guide dog or some other service animal. We don’t know.
Honestly I’d like to know if the customers communicated the allergy in advance.
The clapping by other passengers was uncalled for, but the flight attendant was right for asking the passenger with the allergic reaction to leave. (If someone is having a medical issue on the ground, taking off isn’t going to make it better.)
I would rather sit next to a dog any day then a lotta people I’m forced to have to endure in a plane.
On the one hand, I’m not sure what the U.S. has to be concerned about – the fate of Laker, People Express and others is continually bandied about with the comment “it won’t succeed.” So, if they want to spend their investors money – and loose it – that’s their decision.
But there is a pattern here – opposition to the ME3, liberalization in China that could result in a similar onslaught of competition, and it all brings out the worst in us!
Meantime, the level of service provided by U.S. carriers, while arguably improving, has been left far behind by many others.
While it suits us to engage in inversions to avoid high U.S. taxes to the annoyance of many in Europe who believe we are not paying the freight (excuse pun) we can’t have it every way we want!
Perhaps the U.S. would set up an EU based carrier with an EU board reporting to Atlanta, Dallas or Chicago?
What has happened to creativity?
ejwp – Delta has been contemplating foreign subsidiaries, so creativity isn’t dead…
http://airwaysnews.com/blog/2015/11/09/analysis-delta-weighs-foreign-subsidiaries-to-reduce-tax-burden/
The U.S. shouldn’t stick their nose in this and just look at it from what’s allowed by air treaties and is the airline safe to fly to the USA like they would look at anything airline wanting to fly here. Let Europe decide what’s right/legal within the EU.
David sf eastbay – And both Ireland and the UK have already signed off on this. In fact, they are starting to put some pressure on the US.
Problem is most of the complaints about Norwegian in the DOT docket are related to labor and employment laws; the British Aviation Authority and Embassy in the UK sent letters in to the DOT as well stating that the Open Skies agreements do NOT have any requirements of labor laws/pacts/etc and that the U.S. is in breach of the Open Skies agreement.
this will be interesting to follow….
After that opening, I thought we were verging towards a Cranky Jackass Award. Then my hopes were dashed. Still waiting.
Do any other airlines “rent” pilots from 3rd parties to operate their regularly scheduled flights? I know there are wet lease situations with a few startups – Eastern Airlines and People Express being examples, I think. But I can see that there may be an interest in having a pilot work for the operating airline – it seems that training, scheduling, compliance, etc would all be complicated in ways that may potentially affect safety if there isn’t a direct relationship between the pilot and the operating airline. Or maybe this is standard practice that we don’t hear about …
John – Ryanair does it as well. Here’s a good article.
http://www.bloomberg.com/news/articles/2015-02-12/budget-airlines-shop-the-world-for-cheaper-pilots
There is also the questionable crew leasing company based in Singapore but training in I think Bangkok using pilots and training of dubious qualifications and experience. Garuda is banned from the U.S. Specifically for this reason. This whole idea stinks to high heaven.
Cranky, consider adopting the ALPA position on this one.
The US Maritime Industry was drastically altered by these kids of layered corporations.
http://www.thestand.org/wp-content/uploads/2014/03/632-Norwegian-Scheme-Handout.pdf
I agree, as a proud Alpa member I stand by the position to oppose this Norwegian farce.
Cranky: your understanding is incorrect. While Norway is not an EU member, it was included in the expanded US-EU Open Skies Agreement signed in 2011. http://www.state.gov/e/eb/rls/othr/ata/i/ic/170684.htm that included two non-EU members, namely, Norway and Iceland.
In another word, Norwegian Longhaul using a Norway AOC can fly from anywhere in EU, Norway and Iceland to the US. That’s why some US entities against the Irish-based Norwegian International argue that it’s a flag-of-convenience. The opposition uses Article 17 that you can find in the 2010 agreement: http://www.state.gov/documents/organization/143930.pdf (page 11)
“… not intended to undermine labour standards or the labour-related rights and principles contained in the Parties’ respective law”
Whether Norwegian Longhaul can fly to other countries in Asia from non-EU destinations outside of the three Scandinavian countries is irrelevant to the DOT application.
DKM – You’re misreading my post. I specifically say that Norway is a party to the US-EU open skies agreement. But what I’m told is that other bilaterals involving the EU may not include Norway. So that’s the flexibility they would like to have.
But that’s not the concern of US authority, right? That’s why I said it’s irrelevant to the DOT application.
Furthermore, EU has very few ASAs with other countries, most of the EU ASAs are nearby countries on the Mediterranean coasts, Canada being a notable exception. Most of the longhaul ASAs are still bilaterals with individual EU members. The NAI argument is weak, that’s why DOT has been able to drag on the ruling without EU taking real actions.
DKM – Oh sure, the US doesn’t need to necessarily consider that. I was just illustrating another reason why Norwegian wants to do this.
And let me be clear, I don’t support protectionism. But the current open skies framework isn’t truly free market, and it won’t be anytime soon. Then everyone works within the current framework. The EU-US Open Skies is strictly between the US and EU. The US only needs to honor what has been agreed in the agreement, i.e., a EU-based airline (including Norway and Iceland) can freely operate between the two signatory parties without compromising on labor rules as well as other provisions stated in the agreement, then the US has fulfilled its role. The EU-US agreement does not stipulate the US authority needs to consider flexibility of a EU carrier for services that don’t touch the US soil. That’s between the carrier and their authorities. Norwegian doesn’t need the Irish AOC to take advantage of the EU-US agreement. While the agreement in principle would allow NAI to register in any EU countries, if DOT agrees with the opposition that the NAI entity is a flag-of-convenience and has compromised the principles of Article 17, then that’s the way it is. But what exactly are the principles of Article 17? That’s up to the lawyers to determine. ;-)
At the end of the day, what’s wrong with Norwegian’s proposed operations is that they’re using a flag of convenience. I don’t think we want the airline industry to go the way of the shipping industry. An Irish airline should be an Irish airline; this shell game should not fly with US regulators.