I am writing to update you on the progress of negotiations on this dossier since my letter of 23 July. At that point, it was expected that a political agreement would be reached on the proposal at the Transport Council on 2 October. In the event the proposal was not included on the Council agenda, and the Portuguese Presidency now hopes that political agreement will be possible at the Transport Council on 29/30 November.

My previous letter explained that an amendment had been put forward that would require an airline to apply to its employees the social legislation of the Member State in which the employees are based, and that, due to the argument put by the UK and number of other Member States that such legislation was not appropriate in this Regulation, a recital was proposed which simply says that Member States should ensure the proper application of Community and national legislation. This recital is merely a statement of the current position. However, the Council is still awaiting the outcome of a study launched by the Commission to investigate the effects of the internal market in aviation on employment and working conditions before considering whether any further, separate legislation is necessary. The study is expected to report at the end of the year, and I will keep your Commitee informed of the outcome.

  A second outstanding issue that I mentioned related to Public Service Obligations (PSOs). I reported that the Scottish Executive had favoured a de minimis exemption from the notification procedure for very thin routes of less than 10,000 passengers per annum. This amendment remains in the text of the draft proposal.

  I reported that many of the EP's First Reading amendments were welcome to the UK, as they have improved the original Commission proposal. This includes an EP amendment which would enable wet-leasing to continue on the basis of exceptional needs; seaonal capacity needs; or due to the unforeseen operational difficulties including technical problems, which remains in the latest draft text.

  The unwelcome EP amendments requiring that a valid reciprocity agreement exists between a member state and the third country in order for leasing to take place are not included in the latest compromise text, although the approach remains an option for Member States.

  As you may recall, the UK has strongly supported the principle that air fares should include all applicable and non-optional taxes, fees, charges and surcharges at all times, in order to allow consumers to compare prices and to make informed purchases. Although this principle is widely supported in the EP, my previous letter reported that a number of the Parliament's amendments required a full breakdown of any taxes, fees and charges, including security costs. We thought that this level of detail was likely to confuse consumers and would be difficult to implement, and I am pleased to say that the latest text has been simplified accordingly.

  As my previous letter set out, there were a number of other EP amendments relating to pricing and insurance that we did not support, and I am pleased to be able to report that these have been amended to our satisfaction. The proposed political agreement at the Transport Council on 29-30 November will not incorporate the EP amendments, except where they are in agremeent with the position of the Council. No EP amendments that are unwelcome to the UK will be included.

  In the last two months, the Presidency has been having informal discussions with the EP and the Commission on the issues where the EP's opinion differed from the Council's position. We are therefore hopeful that it will be possible to reach a second reading agreement on this proposal in due course. I will of course keep your Committee informed of the progress of the proposed Regulation.

20 November 2007