The purpose of Aviation Law and Policy in Asia: Smart Regulation in Liberalized Markets is to examine the evolution of aviation law and policy in selected Asian jurisdictions and to analyse the dynamic regulatory challenges that each jurisdiction faces. The markets this book will discuss are Japan, South Korea, mainland China, Taiwan, Hong Kong, the Philippines, Vietnam, Thailand, Malaysia, Indonesia, asean as a bloc, India and Sri Lanka.
Aviation in Asia has undergone a significant transformation in the past three decades. A region that was once in the shadow of more prosperous continents such as North America and Europe is now at the forefront of growth. Indeed, Asia will be the biggest driver of demand for at least the next 15 years, with more than half of new passenger traffic originating there. China will replace the U.S. as the world’s largest aviation market (defined by traffic to, from and within the country) around 2024. India will displace the UK for third place in 2025, while Indonesia and Japan will be ranked fifth and seventh, respectively, according to the International Air Transport Association (iata). Despite such remarkable growth, Asia is underrepresented in the academic literature for aviation law. This lack of literature fuels the misunderstanding that Asian aviation law and policy are not sufficiently developed. The purpose of this book, therefore, is to challenge that view. This edited volume aims to prove that there are in fact fascinating legal and policy developments across Asia.
Originally, the aviation industry was tightly regulated by governments with a strong tradition of protectionism. In the past few decades, however, protectionism in the aviation industry has steadily declined, giving way to a new era of deregulation. The first 30 years of commercial aviation (1946–1975) were no doubt the ones with the most stringent regulation. Since the mid-1970s, however, the aviation industry has undergone a remarkable degree of deregulation. 1978, in particular, was deemed the year of deregulation in aviation history because of the Airline Deregulation Act of 1978 in the U.S. and the first liberalized bilateral air services agreement between the U.S. and the Netherlands. The EU aviation market prior to 1987 was heavily regulated and rigorously protected by individual member states. But during the next decade, through 1997, the market was significantly liberalized with the goal of establishing a single aviation market in the EU.
Liberalisation came late to Asia. Most Asian economies only started to liberalise their markets after 2000. Progress toward liberalisation has been relatively faster in Southeast Asia than Northeast Asia and South Asia. In the context of larger economic integration, the Association of Southeast Asian Nations (asean) has implemented a substantial amount of regional liberalisation. Today, aviation liberalisation has spread throughout Asia, though it differs in style and substance in each country.
Even when markets are liberalized (or deregulated), that does not mean there is no need for regulation. In fact, liberalized markets require smarter regulation. While minimising government intervention, policymakers in Asia should make sure that the aviation market works in a safe, fair and efficient manner. The relevant question has shifted from whether to regulate the market to how to regulate the market. How to regulate Asia’s diverse aviation markets is a broad theme of this edited book, as should be apparent from its subtitle, ‘smart regulation in liberalized markets’.
As an attempt to make the edited volume more coherent and connected, each contributor adhered to the following three guidelines while writing their chapter:
- 1)choose a particular aviation law-related topic in their economy that takes the form of a research question;
- 2)examine the role of airlines while considering how airlines have become active reformers of government regulations rather than merely passive subjects of those regulations; and
- 3)provide legal and/or policy suggestions.
This book originated from a conference hosted by the Faculty of Law at the Chinese University of Hong Kong (cuhk) in November 2019, and each of its chapters corresponds to a presentation that was made there. The Conference on Aviation Law and Policy in Asia brought together diverse groups—academics, government officers, airline representatives and aviation practitioners—and the conference participants broadly discussed how aviation growth faces the dual challenges of protectionism and infrastructure constraints in Asia.
The year 2020 started in a way that no one could have imagined. The covid-19 pandemic took countless lives and a tremendous toll on the global economy. The airline industry was hit hard (perhaps the hardest of all industries) by the disease. Indeed, 2020 presents the aviation industry with unprecedented challenges that constitute no less than an existential threat. Experts predict that the growth of passenger traffic will not reach 2019 levels until 2022 at the earliest, in part due to an expected global recession in 2021.1 This recovery could be V- shaped but would occur at various times in different markets.2 While the 2010s were largely a prosperous time for the airline industry in Asia, the early 2020s will be a time for survival.
All the chapters in this book were written in 2019 except Chapter 18. Admittedly, the analyses of some chapters are not in tune with the post-covid 19 world. However, this collection still carries considerable weight with academia, governments and industry. The remarkable growth of the Asian aviation market in the 2010s presented various legal and policy questions. It is meaningful to capture that discussion in this book. Moreover, the Asian aviation market will rebound. When the market returns to normal, some of the issues raised here will still be valid, though they may not seem very relevant in the context of the covid-19 crisis.
This book consists of 17 chapters that are organized into three parts: Northeast Asia (Part 1), Southeast Asia (Part 2), and South Asia (Part 3).
Chapter 1 by Katsuhiro Yamaguchi details how the Japanese government (more specifically, the Civil Aviation Bureau under the Ministry of Land, Infrastructure, Transport and Tourism) has managed to fulfil two basic missions: facilitating connectivity for users and fostering the growth of the Japanese airline industry. Yamaguchi also reviews how the national promotion of the Visit Japan Campaign and the development of airports in Tokyo and Osaka have affected Japan’s open sky policy. He concludes that market forces are what drive airlines to improve their services and that government intervention is only appropriate as a response to market failure.
In Chapter 2, i (Jae Woon Lee) chart the remarkable development of the Korean aviation market and particularly the significant growth of homegrown low-cost carriers. After discussing long-standing regulatory concerns about excessive competition in the airline industry, I point out that the Korean government has been regulating the level of competition in the aviation market through not only statutory requirements but also discretionary powers. I argue that, if the government regards a new airline as being capable of providing safe operations, it should not block that airline from receiving a business licence or an Air Operator Certificate (aoc) because of concerns about excessive competition.
Chapters 3, 4 and 5 examine various aviation law issues in mainland China. Chrystal Zhang in Chapter 3 explores airlines’ political activities in air transport policymaking. While pointing out that the policymaking process is influenced by a dynamic interaction between policymakers and stakeholders, Zhang explains how guanxi (network and connections) plays into the relationships between airlines, local governments and the Civil Aviation Administration of China (caac). Given that ‘becoming an aviation power in the new era’ is a big policy goal for China, she anticipates that China’s aviation policy will continue to support its state-owned airlines in order to enhance their international competitiveness.
Chapter 4 by Pai Zheng carries along the themes of Chapter 3. Zheng first outlines the traditional stringent approach on market access management and the allocation of traffic rights in China. He then introduces new administrative measures on international traffic rights allocation that reflect Beijing’s increasing capacity, following the opening of Beijing Daxing International Airport. Zheng discusses the rationale behind policy changes that are tailored to better operating two mega airports (Beijing Capital Airport and Beijing Daxing Airport) within one city.
Chapter 5 by Juan He seeks to analyse China’s industrial policies for commercial aircraft manufacturing from the perspective of international trade law. She offers an in-depth overview of how China’s own large civil aircraft, Comac C919, has been developed with strong support from the central and local governments. After analysing the evolving legal and political dynamics in relation to aircraft subsidy disputes and the U.S.-China trade war, she raises the practical questions of how and under what conditions government intervention can best be tailored to the commercial civil aviation manufacturing sector.
Chapter 6 by Mickey Shan focuses on the regulatory gap between aviation law and labour law in Taiwan. There has been a clear escalation in industrial actions by unions within the airline industry. Shan demonstrates that there are inconsistencies between Taiwan’s Labour Standards Act and the Aircraft Flight Operation Regulations. The conflict between cross-sector regulations (e.g. labour law) and sector-specific regulations (e.g. aviation law) is indeed receiving more attention. This chapter calls for a legislative amendment to resolve the discrepancies between the labour law and aviation law.
Chapter 7 by Andrew Yuen, Kan Tsui and Michael Fung discusses the changing status of Hong Kong International Airport. While the airport has been an international and regional aviation hub and has experienced strong growth over the last few decades, it now faces tremendous pressure and challenges from the major international airports nearby in the Greater Bay Area. These scholars suggest that, inter alia, the Hong Kong sar Government should discuss the possibility of opening more airspace for civil aviation with the corresponding departments of the mainland Chinese government as well as improve ground transportation to stimulate demand for air travel in the airport’s hinterland.
Chapter 8 by Victor Chan sheds light on the legal framework of aircraft leasing and the tax regime for aircraft lessors that the Hong Kong government adopted in 2017. Chan argues that, although the new tax regime that reduced the corporate income tax for aircraft lessors is an important step, other steps need to be taken to make Hong Kong a global hub for aircraft leasing. He suggests that Hong Kong should reform its aircraft registration system and ratify the Cape Town Convention of 2001.
Chapter 9 by Michelle Dy critically analyses the ownership and control requirements for establishing an airline in the Philippines. The Philippine Constitution provides that the operation of a public utility must be vested to the citizens of the Philippines, with at least 60% of capital owned by Filipinos, and air services are interpreted as a public utility. However, there is a pending bill that seeks to remove airlines from the definition of public utilities. Dy argues that the passage of this bill could not only change the aviation market in the Philippines but also provide the catalyst needed to move forward the stalled discussion of the concept of the asean Community Carrier.
Chapter 10 by Nguyen Van Tuan and Duong Tri Thanh address the Vietnamese legal system, the legislative development of civil aviation and airlines’ influence in the law-making process. It is interesting to note how lobbying activities are conducted indirectly in Vietnam, even though there is no formal means of lobbying in law-making. Tuan and Thanh clearly explain how airlines exert an influence over the process of drafting laws, decrees and circulars regarding aviation operations. They also provide case studies to illustrate the procedures and responsibilities of the competent government authorities in acting on the comments of the airlines.
Both Chapters 11 and 12 explore air transport liberalisation in Thailand but discuss the topic from different angles. Chapter 11 by Navatasn Kongsamutr focuses on how Thai policy toward aviation liberalisation has impacted Thai Airways, the Thai flag carrier. Indeed, when governments open up their aviation markets, they no longer ‘protect’ national airlines. Kongsamutr concludes that the Thai government has liberalized so many international markets through bilateral air services agreements during the last two decades that the country’s flag carrier has lost market share. He also suggested that nationalism could make a comeback because of the airline’s worsening financial losses.
Chapter 12 by Lalin Kovudhikulrungsri and Prasert Pompongsuk traces the historical background of Thai aviation policy and demonstrates how the Thai government has adopted a policy of gradual liberalisation since the 1980s. These scholars carefully analyse the relevant laws on ownership and control restrictions: namely, the Thai Constitution, the Foreign Business Act, the Public Partnership Act, the Air Navigation Act and Regulation of Civil Aviation Board No. 97. Their finding is that the ownership and control rules under Thai law have not been drafted under the lens of nationalism. Kovudhikulrungsri and Pompongsuk also note that the Air Navigation Act was recently tightened due to the concern that too many companies have been awarded air operator licenses (currently more than 40) and doubts about the civil aviation authority’s ability to oversee the issuance of operator licenses to airlines.
Chapter 13 by Ridha Aditya Nugraha elaborates legal challenges in the Indonesian aviation industry and specifically identifies three key issues: asean Open Skies (or the asean Single Aviation Market), overpriced domestic airfare resulting from the duopolistic market structure, and the civil sector’s joint use of military airbases. As the biggest economy and aviation market in Southeast Asia, Indonesia has been reluctant to participate fully in the asean Single Aviation Market. Nugraha anticipates that the recent introduction of asean Open Skies Protocol 3 on Domestic Code Sharing and asean Open Skies Protocol 4 on Co-Terminal Rights will test the level of protectionism in asean, including Indonesia.
Both Chapters 14 and 15 address asean’s approach to the aviation sector. While Chapter 14 examines the aspect of intra-asean investment, with a focus on the Malaysian market, Chapter 15 looks at the external aspect of asean as a bloc. Chapter 14 by Sufian Jusoh and Haris Zuan discusses the asean Economic Community Blueprint 2025, which outlines asean’s plan to become a highly integrated regional economy and the role of the aviation sector in increasing connectivity in the region. Jusoh and Zuan argue that asean must move forward from the ownership and control restrictions towards substantive liberalisation and offer three options for getting there: adopting full liberalisation (100% foreign ownership), allowing 100% ownership by asean investors or allowing up to 70% ownership by asean investors.
Chapter 15 by Alan Khee-Jin Tan offers an in-depth overview of the soon-to-be-signed asean-eu Comprehensive Transport Agreement (cata). The cata will be the first bloc-to-bloc air transport agreement, covering not only market access issues but also a wide range of areas including environmental protection and fair competition. Tan points out that a prime objective of the cata is to neutralise the formidable Middle Eastern carriers that capture a significant amount of traffic in the asean-eu market. He also highlights that the asean Single Aviation Market is still incomplete and that the lack of a true internal market in asean means that only EU carriers will be able to effectively connect any EU point with any asean point, presenting a disadvantage to asean carriers.
Chapter 16 by Rajesh Singh provides a detailed overview of trends in India’s aviation policy and calls for a change. Although India possesses nearly every advantage for growth in its aviation market, its protectionist policy towards national carriers—and particularly its state-owned carrier—has been hampering the market’s development. However, the Indian government has introduced substantial reforms to liberalise the aviation sector since 2016. Noting that tourism to India and the movement of the Indian diaspora are highly dependent upon air connectivity, Singh argues that India should remove restrictions on expanding market access to support tourism and economic growth.
Chapter 17 by Anusha Wickramasinghe critically reviews the aviation policy of Sri Lanka. As an island that depends heavily on tourism, the significance of aviation connectivity cannot be overstated. Wickramasinghe reprimands the Sri Lankan government for orienting its entire aviation policy around the protectionist ideology of a ‘national’ airline. While detailing the repeated failures of direct government intervention in the airline industry and successful reform by a foreign airline, she emphasizes the need for privatization. She asserts that the most important goal of aviation policy is providing proper air services for the benefit of the people, rather than maintaining a national airline.
Chapter 18 concludes the collection while identifying future research topics for aviation law and policy in Asia, summarizing how covid-19 affected the aviation industry and proposing smart regulation in the post covid-19 era.
While this volume cannot realistically address the complete range of identifiable issues in the diverse Asian aviation markets, it provides timely, specific and research-based studies by a team of distinguished authors. It is hoped that these chapters paint a picture of the dynamic legal and policy challenges that Asian states have undergone and continue to face in the aviation market.
Jae Woon Lee
Jamie Freed, ‘Airline industry braces for prolonged recovery from coronavirus crisis’ Reuters (Sydney, 3 April 2020) <
Brian Pearce, ‘IATA COVID-19 Impact Assessment’ (International Air Transport Association, 24 March 2020) <