EU-US ‘Open Skies’ agreement

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After more than four years of negotiations, the EU and the US have agreed on a deal that should throw open transatlantic air travel to more competition in a move which the Commission says could create 80,000 jobs and generate €12 billion in economic benefits. But European operators will be seeking further concessions from the US in the next few years after it refused to ease its stringent ownership and investment rules.

Background

In 1998, the Commission launched a case against eight member states (Denmark, Sweden, Finland, Belgium, Luxembourg, Austria, Germany and the UK) because it argued that the bilateral aviation agreements they had signed individually with the US infringed on the EU's external competence and breached single market rules because they put airlines from countries with no individual agreements at a commercial disadvantage. 

In 2002, the European Court of Justice confirmed that this patchwork system was incompatible with EU law and ordered that a single pact be negotiated. 

Negotiations with the United States, however, proved arduous due to business and security concerns. 

A compromise package, outlined in November 2005, was sunk in December 2006 when the US Congress opposed provisions that would make it easier for foreign companies to invest in and operate American airlines. 

By bringing together the world's two largest aviation markets, a transatlantic "open sky" would cover more than 60% of global air traffic and is expected to generate an additional €12 billion in economic benefits and up to 80,000 new jobs in Europe and the United States over the next five years, due to increased competition and the creation of additional routes. 

Issues

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.

  • Cabotage

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. 

  • Foreign ownership

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. 

  • Suspension clause

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. 

Positions

EU Transport Commissioner Jacques Barrot welcomed the deal and expressed optimism that EU ambitions for greater access to the US market would be fulfilled at a later stage thanks to the suspension clause. "The EU will have the right to suspend US access rights if they drag their feet…So we will arrive at our final goal," he underlined. 

US Deputy Assistant Secretary of State John Byerly played down the significance of the EU exit procedure, saying that termination provisions are a "standard fare" in aviation agreements. He said that the US is committed to pursuing the second-stage negotiations "in absolute good faith and in the spirit of cooperation", but warned it would take time "to build consensus among stakeholders as well as Congress to see what we can do." 

Asked about whether progress could be made towards a second-stage deal, a spokesman from the US Mission to the EU told EURACTIV: "Mr Barrot says that he is confident." 

The Association of European Airlines (AEA) said that the agreement was "good news for passengers", but added: "The immediate commercial advantages of this agreement for airlines are difficult to assess at this stage." 

A number of European airlines welcomed the agreement, including Air France and KLM, which said it would offer "considerable new opportunities for the travelling public, airlines and labour on both sides of the Atlantic". For them, the deal also means that the concept of an "EU airline" will be recognised by the US, allowing them to finalise their merger without losing out on flight rights to the US. This agreement will create a more "stable regulatory framework in which to solve some of the most difficult issues looming ahead like data protection, environmental measures and consistency of security measures, to name a few", they stressed. 

Deutsche Lufthansa AG added: "Point-to-point traffic is not the only benefit. There are other elements in the agreement that will help us, for instance, comparable security standards between the US and the EU." 

However, British Airways Chief Executive Willie Walsh said that the deal would "deliver short-term gains for the subsidised American aviation industry". He warned: "With the EU having given away their most valuable negotiating asset - Heathrow - the UK government must stand by its pledge to withdraw traffic rights if the US does not deliver further liberalisation by 2010." 

Sylviane Lust, director-general of the International Air Carrier Association (IACA), said: "This agreement is a way off from the original plans for an Open Aviation Area trumpeted four years ago by the European Commission. The Commission's shopping list for the second-phase negotiations remains substantial while the US side has obtained everything it wanted in the first phase," adding: "A deal between the EU and US can only be balanced if it results in equal traffic rights for EU and US airlines in each other's internal markets, identical ownership limits and control possibilities, as well as equivalent access to governmental traffic." 

Olivier Jankovec, director-general of Airports Council International Europe (ACI EUROPE),  said that the deal would "open new opportunities and bring valuable economic benefits for airports around Europe", but added: "We must not stop here." 

Jos Dings, director of the European Federation for Transport and Environment (T&E), warned that the deal was a serious setback to the EU climate policy, because it failed to subject US airlines to EU regulation on environmental protection and preserved "a decades-old prohibition of fuel taxation on transatlantic flights, the most important measure for reducing emissions from the sector". 

He said: "Just two weeks after the EU announced major new climate targets, it has given away airspace to American carriers but hasn't gained a clear mandate to combat emissions from those flights." 

Environmentalists also point out that, with increased competition and lower fares, the open skies agreement will lead to 25 million extra air passengers and some 3.5 million tonnes of extra CO2 emissions annually over the next five years – cancelling out expected reductions from emissions trading. 

Timeline

  • 30 Apr. 2007: EU and US leaders signed the so-called "open skies" deal during the EU-US Summit in Washington.
  • 30 Mar. 2008: Accord entered into force (EURACTIV 31/03/08).
  • 15 May 2008: Launch of second-stage negotiations (EURACTIV 16/05/08). 
  • 2009: EU due to review the progress of second-stage negotiations. 
  • Mid-2010: Deadline for achieving an 'Open Aviation Area'. 

Further Reading

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