"U.S. officials rule out an "Open Skies" deal with EU this year"

Tuesday, December 5, 2006

U.S. officials rule out an "Open Skies" deal with EU this year
European carriers blocked on U.S. stakes
By Don Phillips
The International Herald Tribune

 
WASHINGTON - The Bush administration withdrew a plan Tuesday to give
European airlines more freedom to invest in U.S. airlines and to participate
in management decisions, bowing to opposition expected to deepen in a
Democratic-controlled Congress.

The decision came at the detriment of plans for greater cooperation between
U.S. and European airlines. Europeans had made the investor rule a condition
for completing a so-called Open Skies treaty with the United States, which
would be required to allow airlines based in Europe or the United States to
fly with little or no restrictions to each other's territories. Such flights
are now often subject to government-to-government negotiations.

Yet the development Tuesday was not likely to mark the end of the complex
negotiations that govern international air accords, said Mary Peters, the
U.S. transportation secretary, whose agency issued the ruling.

"Today's announcement in no way deters us from our goal of giving U.S
airlines complete access to the world's capital markets," Peters said. She
added that the government was "eager to work with Congress and the aviation
industry to find new ways to make it easier for airlines to raise money from
global investors."

For years, the U.S. airline industry has had billions of dollars of losses
and has been in need of outside investment. But it has shown signs of coming
out of a slump in the past few months, with some carriers, like United
Airlines, making small profits.

The EU transport commissioner, Jacques Barrot, told The Associated Press
that the EU was disappointed with the decision, saying that scrapping the
foreign ownership rule had been "an essential element" in concluding a deal.

Nonetheless, Barrot said negotiators from both sides planned to meet again
shortly to "discuss the way forward."

The U.S. rules, which limit foreign investments in U.S. airlines to 25
percent of the voting stock, have severely limited the ability of European
airlines to participate in managing those airlines in which they invest.

The rules are so strict that European airlines that once invested heavily in
U.S. airlines have sold their interests. Even if the Bush administration had
approved the proposed rules, foreigners still would have been limited to 25
percent of voting equity in U.S. airlines.

The terms of the agreement have been negotiated and could go into effect at
any time. The EU has withheld implementation until Washington announced its
plans on financial regulations. But aviation experts say the EU is likely to
approve the accord at some point in 2007 because Europe stands to gain even
more than does the United States.

The decision by the Transportation Department ended a 13-month struggle over
granting foreigners more say in airline decisions on issues like marketing
and flight schedules.

The proposed change to the investment rule had been strongly opposed by
influential members of Congress, labor unions and several major airlines led
by Continental. British Airways was also cool to the idea because it would
have given greater access to Heathrow Airport, which it dominates.

Representative James Oberstar, a Democrat from Minnesota who is expected to
become chairman of the House Transportation and Infrastructure Committee,
commended Peters for her decision. Oberstar said Peters chose "to do the
right thing in the face of strong pressure from the administration and from
the European Union."

Oberstar did not say whether he would work with the Bush administration to
develop an investment rule that would be acceptable to Congress.

An agreement would bring together the two largest aviation markets in the
world, which account for 60 percent of global traffic, and would allow EU
and U.S. airlines to fly wherever they wanted and to charge whatever they
wanted on trans-Atlantic flights.

"The U.S. has gone about as far as it can go in terms of sweetening the
pot," Jon Ash, president of InterVistas-GA2, a consulting firm in
Washington, told Bloomberg News. "We may very well be at a stalemate here
for a couple of years."


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