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EU to seek single "open skies'' air pact with U.S.

Thursday, June 5, 2003

BY ROBIN POMEROY
REUTERS


LUXEMBOURG - The European Union agreed on Thursday to seek a single air-traffic rights deal with the United States, a move that could reshape the transatlantic air market and potentially pave the way for airline mega-mergers.

The EU, pushing for greater access to the world's biggest airline market, will try to replace existing national pacts that govern transatlantic routes with a single agreement that would allow its carriers to fly to any U.S. city and vice versa.

``This is an historic date,'' European Transport Commissioner Loyola de Palacio told a news conference after EU transport ministers handed her a mandate to seek an ``open skies''-style accord with the United States.

``We look forward to beginning negotiations with the commission,'' a spokesman for the U.S. Department of Transportation said in Washington. ``We will seek to build on the foundation set in the open skies agreements we have concluded with 11 of the 15 European Union member states.''

A Europe-wide open skies deal with the United States could transform business on the world's busiest flight paths. The EU-U.S. air market accounts for 40 percent of global aviation.

Under such a deal, airlines from any country in the EU -- a bloc which will expand to 25 member states next May -- would be able to fly to the United States from any neighboring EU country, a provision which is currently not allowed.

That has prevented European airline mergers as carriers have been wary of buying up competitors for fear they would not be entitled to the target carrier's flying rights.

Potential merger talks between British Airways and KLM over the past decade hit this snag. BA shares ended 3.5 percent up at 155-1/4 pence in a weaker London market.

De Palacio said a new pact with the United States would be ``a vital step to consolidate the European aviation sector,'' adding it could also lead to transatlantic airline mergers.


EYES ON WASHINGTON

The agreement by ministers is a victory for the European Commission, the EU's executive arm which has been asking for a mandate to negotiate on behalf of EU states for the last decade.

Governments handed over this piece of national sovereignty only after the European Court of Justice ruled in November that parts of existing national-level air treaties violated EU law.

Britain's Virgin Atlantic, BA's main rival, welcomed the news.

``If negotiations with the Americans are successful, and we believe they will be, this opens up the prospect of a radical restructuring of the world's aviation business,'' said Virgin's external affairs director Barry Humphreys.

Among EU airlines, Virgin and BA stand to benefit most from a new pact as they control the bulk of transatlantic flights.

But the question of whether the Bush administration is open to giving European airlines the right to run domestic flights in the U.S. remains to be seen.

Washington spent the 1990s securing open skies deals with trading partners around the world and already has open access to most EU markets as well as the right to operate between most EU member states.

Earlier this week, U.S. Transportation Secretary Norman Mineta urged Congress to raise foreign ownership limits for U.S. airlines to 49 percent of voting stock from 25 percent currently.

London and Washington have been trying for years to reach a deal to lift restrictions on the number of airlines that can fly between London's Heathrow, the world's busiest international hub, and select U.S. cities.

A sticking point has been Britain's resistance to opening up the valuable takeoff and landing slots at Heathrow to U.S. carriers while the U.S. domestic market remains closed to British airlines.

``It is clear to me and clear to a lot of people that the model that the United States proposes is unacceptable,'' London-based aviation analyst Chris Tarry told Reuters. ``The U.S. model will be such as to continue to provide advantage to U.S. carriers.''

Eventually the Commission wants to alter all EU bilateral pacts to grant flying rights to any EU carrier. But with some 1,500 of these, they cannot be altered overnight.

De Palacio also said she would propose launching EU-level talks with other countries, possibly Russia, Japan, China, Australia and Morocco, before the end of the year.