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US, EU reach tentative accord to ease airline rules

US and European Union negotiators reached a tentative agreement on easing restrictions in the $18 bln market for trans-Atlantic airline flights, the US said.

The so-called open-skies accord „will offer more choice and convenience to American consumers,” US Transportation Secretary Mary Peters said yesterday. Her one-paragraph statement didn't provide any details of the pact. She said the US would work to „rapidly” craft a final agreement. The US statement came after European Commission officials said earlier today that they would ask EU governments to endorse an open-skies agreement March 22. The commission, the 27-nation EU's regulatory arm, said negotiators for the US agreed to investment rights and air access for European carriers. „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,” said James May, president of the Air Transport Association trade group that represents major US carriers including American Airlines, United Airlines and Delta Air Lines Inc . The US Congress as recently as December balked at a Transportation Department plan to give foreign investors more control over US airlines. Ed Faberman, a former deputy chief counsel of the US Federal Aviation Administration who now heads the Air Carriers Association, a Washington-based trade group for smaller airlines, said the proposed agreement's chances of winning approval from Congress will depend on the extent of proposed changes.
„The devil is always going to be in the detail with this kind of agreement,” he said. „I think we were at a point with these talks that if they didn't do something, they weren't going to be able to revisit this later.” An agreement would cover 60% of world traffic, be worth as much as €12 billion ($15.8 billion) and add as many as 80,000 new jobs, the European Commission said. It also 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 accord would also scrap rules that let only British Airways Plc, Virgin Atlantic Airways Ltd., UAL Corp.'s United and AMR Corp.'s American fly between the US and London's Heathrow airport, Europe's busiest.

„We have an opportunity to unlock major benefits on both sides of the Atlantic,” EU Transport Commissioner Jacques Barrot said in a statement yesterday in Brussels. „The open aviation area could be a centerpiece for a reinvigorated trans-Atlantic relationship.” Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines, which includes carriers such as British Airways, Air France-KLM Group and Deutsche Lufthansa AG, said in a statement that „some fairly fundamental issues needed to be resolved. We still have to review the small print.” In 2002, the EU's highest court said the US-London 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 US airline market so the separate, court-ordered goal of trans-Atlantic route deregulation is acceptable to Europe's national governments, which have the final say. United Airlines, the world's second-biggest carrier, is „encouraged by the progress and the opportunities that the tentative agreement would bring,” said Michael Whitaker, the Chicago-based company's senior vice president for alliances, international and regulatory affairs, in a statement. American Airlines, the world's largest carrier, declined to immediately comment because details of the agreement weren't available, spokesman Tim Wagner said. The Fort Worth, Texas-based carrier and British Airways are in an alliance where they share passengers across Heathrow.

American and United may see material affect on their international operations if an open-skies accord allows more competition at Heathrow, Faberman said. Large US carriers are increasingly reliant on international routes for profit, as they add overseas flights amid heightened competition at home. US airlines filled 78.5% of seats on their international flights last year, the most since 2003, and the second-highest rate since at least 1980, according to Air Transport Association data. The tentative agreement comes after the Transportation Department in December ended a 13-month struggle with Congress, labor unions and some airlines over whether foreign investors in US carriers should be allowed more say in decisions such as marketing and flight schedules.
The new draft accord includes a protocol covering „rights in the area of ownership, investment and control of US airlines by EU investors,” the commission said. 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, commission spokesman Michele Cercone said by telephone. 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, Cercone said. At present, the US can block such benefits, he said. The draft agreement also would let EU airlines fly from the US to a „number” of non-EU European countries, according to the commission. (Bloomberg)