EU, US Strike New 'Open Skies' Deal

March 25, 2010

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European airlines may soon be able to take majority control of US airlines and get access to lucrative US government business in a deal struck on Thursday -- but real change will hinge on approval by the US Congress, a far from certain prospect.

The deal in "Open Skies" talks followed a 2007 agreement allowing airlines to fly for the first time between any EU city and any US city, uniting two markets that account for nearly two-thirds of global aviation.

"This draft deal represents a significant breakthrough in the process of normalising the global airline industry," European Transport Commissioner Siim Kallas said.

"Both sides have agreed to increase regulatory cooperation, and remove the barriers to market access that have been holding back the development of the world's most important aviation markets," he added.

Current laws in the United States limit foreign ownership of US airlines to 25 percent, but that will be loosened if Congress approves the measures agreed on Thursday. Some US airlines such as United have called for lifting of the rules.

"United fully supports this important milestone that reinforces the strong bond that exists between the US and EU, promises greater cooperation on environment, security, competition and other important areas and believe it should serve as a model in other regions of the world," said Glenn Tilton, UAL chief executive.

European carriers will also have fresh access to US government business under the "Fly America" programme.

In return, US airlines will gain improved market access in the EU and increased share ownership rights from above the current 49.9 percent.

In a statement after the talks, Continental Airlines said it supported aviation liberalisation, saying it allows for more competition in the marketplace and paves the way for airlines to expand.

"Continental believes close coordination and cooperation with the European Union on aviation matters is important to the US and international economies," the company said.

Creating a full EU-US "Open Aviation Area" might generate up to 80,000 new jobs, the European Commission said.

EU transport ministers will be asked to approve the deal at a meeting in June, but Congress has in the past rejected efforts to relax airline ownership restrictions even though some US airlines support more foreign investment.

"We had hoped that the conclusion of the second stage negotiations would have resulted in the immediate removal of restrictions on ownership and control, Fly America and cabotage," a British Airways spokesman said. Cabotage is the right to transport goods or passengers within the borders of another country.

"We call on both sides to honour the firm commitments they have made in this agreement to further liberalisation," he added.

There has been no indication in the current US Congress that it would act to change the law that limits foreign ownership to 25 percent of voting stock in a US airline.

(Reuters)