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End to Fly America in sight as EU-US Open Skies deal reaches final hurdle

US aviation negotiators acting on behalf of the country's president George Bush, in an attempt to broker a transatlantic Open Skies accord, appear to have accepted new ownership provisions for the country’s airlines, the world’s first airline franchising agreement and even foreign access to the ‘Fly America’ programme that currently restricts federal air transport usage to domestic carriers.

Few details of the tentative agreement are currently available, and in a bullet point briefing by the European Commission’s vice president and transport commissioner Jacques Barrot it is obvious both sides do not intend to issue specific elements. Senior US legislators have yet to see the document, according to one high level Congressional source.

However, even the broad statements from the EU show that some key issues could be addressed when the proposed accord is shown to European transport ministers on 22 March. One key issue is a novel franchising concept mooted by the Europeans where an EU airline could effectively take over a US carrier’s fleet and fly under its own colours even though it remains under US ownership.

To supplement this, the EU and US negotiators have also drafted text to provide for new rights on ownership, investment and control of US airlines by EU investors as well as similar rights for African and non-EU European countries. At the same time, Barrot’s briefing notes also notes “the possibility for the EU to restrict US investment in ‘Community’ airlines”.

Those Community airlines - carriers based in EU states - will also be recognised as a cohesive group rather than nation state entities by the USA, notes Barrot. This, he says, will allow “for the consolidation of the EU aviation sector”. A new provision to address the “possibility” for any Community carrier to operate from any point in the EU to the USA could facilitate that industry overhaul.

Possibilities abound in the proposal, notably those for fifth freedom rights for both EU and US carriers. Another possibility exists for the USA to unilaterally grant seventh freedom rights to the EU passenger airlines to certain, unspecified non-EU states. This could also be extended to EU cargo carriers while their US peers will retain their current rights, notes Barrot.

The proposed open skies agreement will also call for the establishment of institutional mechanisms, including a joint committee, to settle any dispute arising from the new accord.

Barrot notes that a formal meeting held in Brussels since 27 February resulted in approval of a phased approached to open skies, and a structure for talks to continue. The first phase could be implemented by 28 October, he says.

“Among the benefits, this agreement opens the possibility of an additional 26 million passengers on transatlantic flights over a period of five years. This compares with current annual traffic of just under 50 million. At the end of the fifth year, this will mean that the market will be 34% higher with the agreement than without the agreement.”

He adds: “By eliminating the bilateral agreements and their restrictions on traffic rights, we can already obtain a reduction in the cost of tickets for companies and private customers, with consolidated economic benefits of between €6.4 billion and €12 billion ($8.4 billion to $15.8 billion) over a period of five years. The removal of barriers could lead to the creation of around 80,000 jobs (spread more or less equally between the US and the EU).”

The cargo market would also see growth of between 1% and 2%.

Support for the accord was also immediate. The director general and chief executive of the International Air Transport Association, Giovanni Bisignani noted: “Airlines are businesses. Like any business, the ability to respond flexibly to consumer demand is critical to success. Today’s agreement is a good start but both sides must think bigger and lead the way.”

The Air Transport Association’s president and chief executive in a separate statement adds: “While we have not seen the details, this tentative agreement has the potential for creating new avenues of economic development between the US and Europe. We are pleased that the parties were able to work through the issues to reach this result. We all look forward to developing a more complete understanding of what is envisioned.”

And US Representative John Mica, the top opposition party member on the House Transportation and Infrastructure Committee said: “I am very encouraged that the US and EU negotiators were able to reach a fair and balanced agreement. This is a positive step forward in transatlantic relations and an historic moment for the international aviation industry.”

But opposition is expected. The Congressional source says that supporters could not know what is contained in the agreement, and until details are released opponents, including senior Democrats, will still hold that any change to ownership rules is illegal.

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