Nothing is ever simple when it comes to EU-US Open Skies. It is hardly surprising then that behind the recent headlines proclaiming a long-awaited breakthrough in negotiations to broker a new liberalised transatlantic air services regime there are plenty of caveats. For carriers that have spent hundreds of man hours, and considerable legal and consultative fees lobbying in Brussels, London and Washington on this subject, they have seen it all before. Years of stop-start negotiations, proposed mini-deals and deadlocks have taught the industry to be cautious.

That said, the US Transportation Department (DoT) proposal to promote transatlantic co-operation by moving away from a strict interpretation of how much control foreign investors can wield over US carriers is heralded as a potential deal-maker. At present there is a 25% voting-power limit on overseas investment in US carriers, which Congress is reluctant to change.

The question soon to be answered by Europe’s transport ministers is whether the US proposal will satisfy European demands for restrictions to be relaxed to the point where investors have effective control even if ownership levels remain below 50%. Ultimately Europe wants to see a fully liberalised environment, but may accept a partial deal as long as there are some guarantees over control in place.

The most optimistic view is that the deal could take effect in time for the next winter season. Next winter is crucial because the European Commission (EC) has said that if no Open Skies deal is in place by then, it could begin the process leading toward renunciation of bilaterals between the US and individual European states.

Some believe that there is now enough on the table to avoid this unpalatable outcome. United Airlines chief executive Glenn Tilton has been particularly enthusiastic, calling the deal “the basis for a whole new global template for international aviation”. He calls it a “very modest first step”, and that it would be ironic if such a “reasonable” proposal was subject to challenge.

However, challenges to the deal are already emerging. It has become clear that Transportation Secretary Norm Mineta and his colleague Jeff Shane may have offered more than they had in their hand with their proposal on easing foreign control limits. Critics argue that the DoT has overstepped its authority, because only Congress has the power to change the current rules.

The DoT tried but failed to persuade Congress to raise the limits in 2003, and now Congress, never wary of accepting or exercising power, is again refusing to allow a change to the status quo. More than 80 members of Congress, joined by a half dozen Senators, have said as much. The leading congressional authority on aviation, Representative Jim Oberstar, has asked Mineta for clarification about any private discussions he has had about the airline control issue in private meetings, including those with European representatives.

In addition to opposition from Congress, Continental Airlines highlights another key stumbling block – the availability of slots at London Heathrow. It is no coincidence that Continental is the most vocal when it comes to Heathrow slots. Delta Air Lines took a similar line earlier this decade, but is now confident that it can get slots through its SkyTeam partners, which include Air France-KLM, Alitalia and CSA Czech Airlines. Continental, a more recent addition to SkyTeam, would find this more difficult.

Just as the DoT is hamstrung by Congress opposition to attempts to raise the foreign ownership limit, the Europeans do not have the power to simply hand out Heathrow slots to cement a deal. And even though the London gateway is slot-constrained, they are not impossible to acquire. The so-called “grey market” in slots at Heathrow has always been a murky world, but could be formalised. There are moves to legalise secondary trading of slots within Europe by the EC.

The level of slot trading is difficult to quantify, but deals are commonplace. United, for example, recently leased five of its 16 daily slot pairs to Virgin Atlantic Airways for five years. They were “surplus to our requirements”, said Tilton. British Airways too has snapped up slots from second-tier carriers to bolster its slot holding. Even as long ago as winter 2000 and summer 2001, Star Alliance members traded slots covering 85 flights per week.

Star has built up a critical mass at Heathrow, led by bmi’s 12% slot share, allowing it to compete against BA and the oneworld alliance. The carve up of Heathrow into alliance-focused terminals in 2008, when Terminal 5 opens, will help foster inter-alliance competition.

With consolidation effectively made impossible by the sort of restrictions that the EU-US deal is designed to break, horse trading by alliance partners remains the most likely solution to unlocking Heathrow for US carriers.

And if consolidation does eventually become a longer-term reality, it will hopefully consign these convoluted deals to history. ■

Source: Airline Business