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Airlines in the United States cheered the signing last week of a second-stage E.U.-U.S. Open Skies deal for its promise of providing to transatlantic travelers more choices and to airlines greater commercial freedoms. Airlines in Europe, however, were ambivalent. They welcomed the opportunity to expand services but stated disappointment in the lack of clear progress in easing foreign ownership restrictions on U.S. carriers. There also was no indication that U.S. negotiators are willing to allow European carriers to fly intra-U.S. routes, long a goal of the Europeans that some have viewed as extremely unlikely.
"The agreement was not a step backwards, but it did not move us forward," according to International Air Transport Association director general Giovanni Bisignani.
Government officials on both sides, however, hailed the deal as a historic milestone, following up on the activation in March 2008 of the first phase of the deal. They pointed to further cooperation on competition, environmental issues, labor standards, safety and security.
"Market access will be further opened with E.U. carriers gaining further access to U.S. government-financed traffic," according to a European Commission statement, though some restrictions related to the Fly America Actwould remain in place. "We hoped [the second-stage agreement] would see an end to the Fly America policy," according to British Airways.
The deal also would ease restrictions for U.S. carriers operating night flights at European airports and provide European airlines rights to fly between the United States and non-E.U. countries. According to United Airlines, the second-stage agreement will "enable airlines and their alliance partners greater commercial flexibility to better serve their customers."
The removal of restrictions on traffic rights could reduce "the cost of tickets for companies and private customers, with consolidated economic benefits of between €6.4 (US$8.6 billion) and €12 billion (US$16.2 billion) over a period of five years," according to an E.C. analysis.
Meanwhile, DOT also noted the agreement contains "a ground-breaking article on the importance of high labor standards in the airline industry." E.C. said such a "social dimension" would "ensure that the existing legal rights of airline employees are preserved."
Regarding environmental matters, the deal requires "the compatibility and interaction of market-based measures (such as emission trading schemes) to avoid duplication," according to E.C., and enhances cooperation on developing green technologies, alternative jet fuels and more efficient air traffic control.
Air Transportation Association president James May characterized the overall deal as "a win-win on both sides of the Atlantic."
'No Guarantee' On Foreign Ownership Rules
Some of May's counterparts in Europe were less optimistic, specifically on the foreign ownership issue, which DOT did not mention in its official announcement.
According to E.C.'s announcement, the new deal "includes a commitment to engage in a process" toward reforming airline ownership and control rules, including "a number of incentives to encourage reform: When the United States changes its legislation to allow E.U. investors majority ownership of U.S. airlines, the E.U. will reciprocally allow majority ownership of E.U. airlines by U.S. investors and U.S. airlines will benefit from additional market access rights to and from the E.U."
Such language provides "no guarantee that the United States will, in the near or even the longer term, lift its barriers to European investment and create a level playing field," according to Association of European Airlines secretary general Ulrich Schulte-Strathaus. "What we have is a process, and a commitment from the U.S. that they will continue to talk about liberalizing ownership and control. That in itself is a step forward, but it is not where we hoped we would be."
"It is disappointing that, at this critical time, we did not make significant progress on the issue of ownership," according to IATA's Bisignani. "The long-term financial sustainability of the industry is dependent on normal commercial freedoms."
Some European carriers also were discouraged that the deal does not allow them to secure cabotage rights--the ability to fly between two U.S. cities.
Without cabotage and especially looser foreign ownership restrictions on the U.S. side, some worried that European officials would call for an unraveling of the first-stage agreement. But according to DOT, "the new agreement affirms that the terms of the 2007 agreement will remain in place indefinitely."
"Given the possible impact on U.K. passengers and the industry of taking away the significant benefits of the first stage, [the U.K. government] considers a negotiated settlement to be preferable so long as there is a clear commitment to further progress in the future," according to a British Airways statement. "The U.K. government welcomes the commitment in this agreement to continue the process of removing market access barriers and increasing the access of airlines to global capital markets."
According to Virgin Atlantic, "Whilst this deal falls somewhere short of [a truly liberalized aviation market], we hope the commitments agreed ... will mean that the European Commission, E.U. member states and U.S. government lose no momentum in removing the remaining barriers to full market access."
Citing cabotage, Fly America rules and the foreign ownership issue, BA said both sides should "honor the firm commitments they have made in this agreement to further liberalization, and to re-double their efforts going forward, in order to make a fully liberal E.U./U.S. Open Aviation Area a reality."
As it now stands, the agreement requires approval by governments on both sides before it can take effect, ostensibly before year end. In Europe, E.C. will seek approval from 27 transport ministers and the European Parliament.
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