After four years of stilted negotiations, EU and US leaders, on 30 April 2007, signed a so-called "open skies" deal, replacing existing bilateral aviation agreements between the US and EU member states.
The main elements of the agreement are:
Removal of restrictions on route rights
Current restrictions on the number of carriers that are allowed to fly the transatlantic route would be lifted so that any EU airline will be able to fly from any European city to any American city and from there onwards to third destinations. Conversely, any US airline will be allowed to fly into any EU airport and from there to third destinations.
Furthermore, EU airlines will be allowed to fly between the US and non-EU countries that are members of the European Common Aviation Area (ECAA), such as Norway, Iceland and Croatia.
This liberalisation will mainly hit London's Heathrow airport, which accounts for more than 40% of all flights from Europe to America, and where, currently, only four carriers (British Airways, Virgin Atlantic, American Airlines and United) have authorisation to fly the transatlantic route.
Opening up this bustling airport was thus the US negotiators' main demand. However, the UK was determined to resist such a move as it would force its companies to give up prime landing and takeoff slots and lose an important part of their profits – unless it got significant reciprocal concessions from the US.
The main pressure came from British Airways, which currently gets 60% of its revenues from operating the transatlantic route and was incensed about having to give up its part-monopoly in exchange for only limited opportunities to operate and invest in the US.
In the end though, the UK gave in to pressure from its EU counterparts – whose companies, including the likes of Air France, Lufthansa, Ryanair and EasyJet, are set to benefit from the liberalisation as they will be able to operate the lucrative route from Heathrow. In fact, Ryanair has already confirmed that it is planning long-haul flights between Europe and a number of US cities.
Nevertheless, the UK did succeed in winning a delay in the application of the agreement, from October 2007 until 30 March 2008, so as to give Heathrow airport time to finish building its new state-of-the-art terminal, into which British Airways will be moving.
To the disappointment of European airlines, while the agreement foresees that US airlines can fly within Europe, so long as they do not fly between two points in any one member state, it does not allow European airlines to fly domestic US routes.
The deal does nevertheless give European carriers the right to establish subsidiaries in the US, which can carry domestic traffic if they meet a number of stringent requirements.
While the deal will make it easier for European companies to buy up to 100% of non-voting shares in US airlines, it will not compel Washington to ease existing rules that prevent European companies and individuals from owning more than a 25% stake of voting rights in US carriers.
Instead, the agreement will make it harder for American companies to invest in European airlines, by setting a reciprocal 25% limit, non-existent until now.
Furthermore, it is doubtful whether cash-strapped European airlines will actually use the increased opportunity to buy non-voting shares in US companies, as this would actually entail investing in potential competitors without the possibility of having a say in how their operations are run.
Because of Washington's refusal to show more flexibility on ownership and investment rules in the negotiations, the EU obtained a "suspension clause" in the final deal, which commits the US to taking further steps towards opening up its domestic market and loosening its rules on foreign investment and ownership by mid-2010.
A second round of negotiations was thus launched on 15 May 2008, although European airlines fear that this kind of two-phased approach is just an excuse for the US to wriggle its way out of opening up its domestic market.