Sceptical response to EU-US ‘open skies’ deal

The EU and US hope to open aviation markets on both sides of the Atlantic to more competition when leaders meet for a summit on 30 April.

A deal on ‘open skies’, liberalising air services in the US and EU, is expected to be at the centre of the meeting between US President George W. Bush and EU leaders in Washington next month.

Following a successful series of talks between US and European Commission negotiators that ended in Brussels on Friday (2 March), EU transport ministers will discuss the issue on 22 March.

The European Commission estimates the deal could be worth up to €12 billion and could create 80,000 new jobs.

Negotiations had been deadlocked since 2003, except for a brief breakthrough in 2005 when a deal was reached, but later blocked by the US Congress.

The Bush administration has been unable to convince Congress that European ownership of US airlines would not present a security threat.

Negotiators sought to overcome this obstacle through the inclusion of an additional protocol that allows European ­investors to own 25% of stock in US carriers plus 25% of non-voting stock.

But European companies will not be allowed to ­establish subsidiaries to operate domestic routes in the US.

For its part the US will in effect become a ‘28th member state’ - having full access to the EU’s air services market.

Many EU member states remain cautious about the deal which they view as unbalanced. Douglas Alexander, the UK’s transport minister, said that the deal "falls short of providing the kind of access to the US market that a number of EU carriers would like".

Member states recently identified a series of issues of concern, including clarification of which anti-trust rules would apply to EU firms, access for EU firms to US public procurement competitions and additional landing rights for EU carriers.

According to one ­industry insider the deal is likely to be the best that can be achieved ­given domestic political constraints in the US and the Commission’s narrow room for man­oeuvre.

But the insider warns that the deal may not be enough to win over member states and business. "Obviously non-voting stock will be worth less [than voting stock], why would you want that [as an institutional investor]? You want to be sure you can re-sell the equity," he said.

"And if you are a strategic investor, like another airline, why would you buy stock that does not give you a say?"

Airline representatives have reacted to the deal with scepticism. The International Air Carrier Association, a group representing 39 commercial carriers, said that the "euphoric" statements issued by the Commission and the US were unwarranted.

"IACA and its members are concerned that the outcomes of the negotiations remain highly unbalanced in favour of the US," said an IACA statement.

If member states rejected the deal the Commission could struggle to convince individual EU countries not to enter bilateral deals with the US to avoid falling foul of EU law.

In 2002 the European Court of Justice said that some bilateral deals discriminated between different EU airlines, breaking internal market rules.

The EU and US hope to open aviation markets on both sides of the Atlantic to more competition when leaders meet for a summit on 30 April.