Defiant stand over US air deals

Date: 12/03/1998

By Chris Johnstone

FRANCE and the UK have vowed to press ahead with negotiations on new, wide-ranging aviation agreements with the US in defiance of Transport Commissioner Neil Kinnock's decision to challenge countries which have signed bilateral accords.

The two countries' determination to pursue their own deals with Washington is a clear signal that they still believe they have more to gain by going it alone than by supporting Kinnock's call for a united European mandate to negotiate new aviation agreements with the US.

Kinnock this week stepped up the pressure on governments which have already signed 'open skies' deals with the US by acting on his long-standing threat to take them to the European Court of Justice for breaking the EU's trade and single market rules.

Seven member states - Germany, Belgium, Finland, Sweden, Austria, Luxembourg and Denmark - are in the firing-line for striking deals allowing unrestricted flights to and from the US. The UK is also being targeted for concluding a more limited deal with Washington. Austria immediately said it would stick with its accord which, it claimed, did not break European law.

France's snub to Kinnock is particularly significant since its aviation officials are in Washington this week trying to sketch out a new agreement. “France will negotiate because other countries already have,” said a French official. “We must continue because companies want more flexibility to be built into the existing agreements between France and the US.”

Paris promises, however, that its deal will stop short of a full open skies arrangement, and insists it will be less one-sided in favour of US interests than others. The UK has also pledged to continue talks on a new and deeper bilateral deal even though its existing aviation agreement is under attack.

“We are not concerned about this,” said a spokesman for the department of transport, adding: “We are allowed to negotiate bilateral agreements.”

British officials this month revived long-stalled talks with the US on the possible shape of a new agreement. An overall deal is a precondition for Washington to clear British Airways' far-reaching alliance with American Airlines, but meaningful talks cannot get under way until the European Commission decides what BA and AA must do to win EU competition clearance for their venture.

That ruling appears a long way off with the Commission still studying individual routes to discover where the two companies have a dominant position and what should be done about it.

Competition Commissioner Karel van Miert talked of a breakthrough last month after meeting BA chief executive Robert Ayling, but Van Miert's officials are refusing to give any target date for settling the case.

One of the difficult issues facing competition officials is whether they can introduce broad rules curbing airlines offering heavy discounts and incentives to travel agents who sell a lot of their tickets, or should instead target individual firms which abuse this marketing practice.

Volume discounts can be used by big airlines to squeeze new companies out of the market. But new and existing enterprises can also use discounts to boost competition.

The Commission's strategy remains to deal with most of the airline alliances at the same time, so the slowest case will dictate the pace. Lufthansa's alliance with United Airlines, KLM's with Northwest, and the pact between Sabena, Swissair and Delta Airlines are lined up with BA/AA waiting for official Commission clearance.

Delta is now cooperating with the EU after being accused earlier of delaying it responses to questions. However, this is little consolation to BA/AA, whose partnership has been grounded since June 1996 while rival alliances are already up and running.