Americas: October 2005 Archives

Delta Air Lines has become the latest US carrier to state its support lifting ownership levels beyond 49%.  Its managing director for the Atlantic region, Loren Neuenschwander, makes clear that the carrier is prepared to see this restriction lifted as part of an EU-US open skies deal. "If you look at Singapore International Airlines' 49% stake in Virgin Atlantic, it hasn't had any impact on Virgin's business model," he observes. "25% to 49% just doesn't present you with any challenges."

There is plenty of support within US airline boardrooms for an end to ownership restrictions. There is little sign, however, of airline chief executives hammering on the doors of Congress and the White House demanding a change, although United Airlines chief executive Glen Tilton has been made his views on the need to ditch the restrictions pretty clear.

With the UK now apparently willing to see London Heathrow opened up, and the likes of Delta apparently happy enough to get slots through alliance partners, the issue of ownership and control is increasingly looking like the key obstacle to a deal. Labour unions, fearful that that a relaxation will open the way for airlines to ship in cheap labour, are less than keen on the idea, and the military are worried that their ability to requisition aircraft will be compromised - although Neunenschwander notes that this directive has never been invoked in Delta's 75 year history.

Congress will need some convincing that these issues can be dealt with if it is to give the nod to lifting the restrictions, and has been less than enthusiastic on the move from a 25% to 49% cap. A more concerted effort by the US airline industry to explain the economic and consumer advantages of a deal to Congress, unions and the military could well be necessary to ensure talks do not come up against a brick wall yet again.  

The latest round of EU/US aviation talks may have opened with publicly flouted high hopes but for some insiders the hope is tempered. Just hours before he got on a plane from Washington to Brussels to head up the US delegation at the talks, State Department aviation negotiator John Byerly told a small group of airport people that he would not use the word ‘optimistic’. “That word characterized my perception in the spring of 2004, before it became apparent how discordant at that time were the interests and relationships among the Commission, member states, and European stakeholders. Let’s say instead that I’m ‘hopeful’,” Byerly told a group headed by Washington Dulles boosters and others. After the last go, when US hopes were dashed at the last minute, he said it was realistic to hope that a first-step agreement can be reached, not necessarily at the Brussels talks, but rather during the second round of negotiations already scheduled to take place in Washington in mid-November.

The US will again offer the new concept that it had hoped would drive the last round to a successful conclusion, the concept of the European Carrier. Byerly quoted his Transportation Department counterpart, Jeff Shane, in describing the concept:  an EU-based carrier could offer services originating anywhere in EU territory, not just at points in a carrier’s home country. In others words, as Shane has said, the US would open its market to competition “not just from Lufthansa at Frankfurt, not just from Alitalia at Milan, not just Air France at Paris, not just from KLM at Amsterdam, but potentially from any and all EU carriers at every EU city”.

But Byerly conceded to the USA/BIAS group (US Airports for Better International Service) that the US was not yet ready to offer a finished version of its liberalised airline ownership policy, and said that it is still working on raising the limit from 25% as the law now stands. “The administration is aware of the keen interest of European parties in this issue”, Byerly said, adding, “What is important, however, is to emphasize that this issue is being considered by the administration on its own merits and cannot be linked to air-services negotiations”.

Still, one USA BIAS leader, Leo Schefer of the Washington airports task force, said he thought that the timing was ripe because the US Congress is not focused on the issue but is not obsessed with the midterm congressional elections. Byerly said the time is opportune because “the European Commission has made crystal clear that, in the absence of an agreement in 2005, it will take legal action to force the termination of all existing bilateral air services agreements with the US.”  No one wants that, everyone says. But Byerly was firm: “For our part, we will insist that, in addition to maintaining all the traffic rights that we secured in bilateral Open Skies agreements with fifteen EU member states, a US/EU agreement must expand Open Skies to the remaining ten countries. And lest there be any misunderstanding, this includes full fifth freedom rights, both within and beyond the EU. Any other result - some quirky concoction one might call ‘Open Skies Lite Plus’ - makes no sense and is an absolute non-starter.” Whatever that may mean, one can still have hopes as well as optimism.