There is more to open skies than just airways

To the disbelief of many observers, transatlantic talks on liberalising air traffic spluttered back to life last week. The failure of diplomatic efforts during the previous 12 months has made outsiders sceptical about the chances of a revival.

As talks grind on, a suspicion grows that EU and US negotiators are merely engaged in an elaborate ritual.

What was supposed to be one of the main elements underpinning the ‘open skies’ deal to liberalise the operation of air travel between the EU and the US collapsed at the end of last year. The proposal to ease restrictions on foreign ownership of US airlines, apparently the EU’s primary prerequisite for an agreement, was shelved by the US Department of Transportation in December, under pressure from Congress and labour unions. The controversy over foreign ownership of US ports, which flared following the takeover of P&O by Dubai Ports World, did not help.

Without an ownership deal, talk of negotiating free competition on transatlantic routes seemed improbable. But in January US negotiators returned to Brussels. Jacques Barrot, the European commissioner for transport, who was in Washington last week to relaunch talks, appeared undeterred. "We must leave no stone unturned," he said, insisting on the clear economic benefits of a deal.

According to the European Commission, a deal would produce up to €15 billion in benefits for consumers on both sides of the Atlantic. A deal could also boost economies by creating up to 80,000 new jobs.

US negotiators said in January that Washington would not be reviving the ownership proposal. It seems that EU negotiators have, in any case, given up the ghost. "It’s clear there is no chance to have a deal on the ownership issue," says a Commission official. "It is really quite a sensitive and difficult issue."

With the main prize now lost to the EU, observers wonder what there is left to fight for. "I don’t see it," says Chris Avery, an industry analyst at investment bank JP Morgan. "They [the US] can’t offer any concessions. They’ve just failed to offer any change whatsoever." According to Avery, any agreement without the ownership concession "won’t be ‘open skies’".

Back in 2005, EU and US negotiators seemed to be making progress, having managed to create a ‘first-stage’ agreement. The document promised a range of advances, not all economic, from collaboration on competition issues to safety and security co-operation. To some, the 2005 version of the agreement would have been progress enough.

The 2005 agreement was reached after a shift in position from the UK, which had hitherto been sceptical about an open skies deal, not wanting to surrender access to London Heathrow at too cheap a price. A 1977 US-UK treaty limits traffic between the US and Heathrow to, currently, Virgin Atlantic, British Airways, American Airlines and United Airlines. It had been estimated that British Airways, for example, could see nearly €300 million wiped from annual profits if it lost the privilege of being one of only four airlines permitted to operate transatlantic routes. But the industry as a whole would grow to accommodate the estimated 25 million additional passengers flying in the coming five years.

The EU has great interest in pushing for additional concessions from its main economic partner. At stake are issues far wider than the aviation market. ‘Open skies’, if successful, could come to form one of the main tenets of the transatlantic free trade agreement mooted by German Chancellor Angela Merkel at the beginning of the year. With broader motivations spurring on transatlantic negotiators, it may yet be that pigs will fly.

To the disbelief of many observers, transatlantic talks on liberalising air traffic spluttered back to life last week. The failure of diplomatic efforts during the previous 12 months has made outsiders sceptical about the chances of a revival.