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EU’s Barrot urges nations to back US aviation pact

The European Union’s transport chief urged EU governments to endorse an aviation treaty that would remove trans-Atlantic route privileges for carriers including British Airways Plc and encourage industry mergers.

EU Transport Commissioner Jacques Barrot said the US is offering enough extra investment and flight rights for European airlines to justify an „open-skies” accord aimed mainly at deregulating the $18 billion (€13.6 billion) trans-Atlantic market. The EU’s 27 governments, which have the final say, will scrutinize the draft deal at a March 22 meeting of transport ministers.

„This is an agreement that is significant and very valuable for Europe,” Barrot told the European Parliament yesterday in Strasbourg, France. The European Commission, the EU’s regulatory arm, reached a draft accord with the US on March 2. An open-skies agreement would cover 60% of world traffic, be worth as much as €12 billion ($15.8 billion) in economic benefits and add up to 80,000 new jobs, the commission says.

A deal would allow airlines based in the EU to make trans-Atlantic flights from any of the bloc’s nations instead of from just their home country, a freedom that would facilitate takeovers in Europe. An agreement would also scrap rules letting only British Airways Plc, Virgin Atlantic Airways Ltd., American Airlines and United Airlines fly between the US and London’s Heathrow airport, Europe’s busiest.

 

The EU’s highest court ruled in 2002 that these route restrictions break the bloc’s free-market rules. The commission has spent four years seeking a US offer of greater foreign access to the domestic airline market so the separate, court-ordered goal of trans-Atlantic route deregulation is acceptable to Europe’s national governments. Britain, which accounts for 40% of the market, spearheaded opposition that killed a draft open-skies accord in June 2004.

UK members of the European Parliament expressed skepticism yesterday about the new draft agreement, highlighting lingering threats linked to the British government’s right to veto a treaty. „Those who enthusiastically welcome this agreement may need to pause a little and examine it in more detail to see what it delivers for the EU,” said Brian Simpson, a British member of both the Parliament and UK Prime Minister Tony Blair’s Labour Party.

 

Simpson said he had „no indications” of what the British government’s verdict will be on the matter, which he called „a very delicate one for the UK” „In the end, it’s all about Heathrow,” he said in an interview. „My gut feeling is that they will sign up to it, but reluctantly. The UK is more isolated than it was two to three years ago.” Barrot said he spoke with UK Transport Secretary Douglas Alexander eight days ago about the draft accord and Alexander highlighted the threats it would pose for British Airways, which gets about 60% of its revenue from trans-Atlantic flights. „He simply told me about the difficulties for British Airways,” Barrot said in an interview. „He didn’t give me a particular assurance.” Yesterday, Alexander said the UK’s position would depend on further market opening in the US as a second step – an element the draft accord foresees through further negotiations.

 

„My ultimate aim is a fully liberalized air-services market,” he told a hearing with UK lawmakers in London. „What I and my fellow European transport ministers need to consider is whether a phased approach to solving this problem is possible.” The German government, which holds the EU’s rotating presidency, aims for an accord among all the bloc’s transport ministers on March 22. The pact would take effect from October 28.

British Airways CEO Willie Walsh repeated the airline’s opposition to the draft deal and urged EU governments to reject it. „The agreement is unbalanced,” Walsh told the hearing with UK lawmakers. „It favors US carriers, it does not tackle the protectionist barriers.” Barrot said the new draft accord „is better balanced” than the previous one. The latest text includes a protocol covering „rights in the area of ownership, investment and control of US airlines by EU investors,” the commission says.

 

The US would let foreign investors acquire more than 50% of the total capital of a domestic airline without the risk of a government veto while remaining subject to an existing 25% limit on voting equity, according to the commission. In addition, European airlines that buy carriers in other countries with aviation agreements with the US would be entitled to the benefits resulting from those accords, the commission says. An EU-US accord would encourage airline mergers by removing nationality-based route limits that have complicated or thwarted alliances in Europe.

In 2003, KLM Royal Dutch Airlines NV accepted a takeover by Air France SA only after the two carriers created a temporary operating structure that safeguards the Dutch airline’s landing rights under a Dutch-US aviation treaty. Worries about losing landing rights helped prevent a British Airways takeover of KLM in 2000. The commission has the power to press EU governments to endorse any draft agreement by threatening lawsuits aimed at enforcing the 2002 ruling by the European Court of Justice. So far, Barrot has refused to take this step. (Bloomberg)