Open skies delay hits anti-trust deal

Date: 17/06/1999

By Renée Cordes
THE latest delay to negotiations between the UK and US on a new open skies accord has dealt a severe blow to British Airways and American Airlines' hopes of winning anti-trust immunity for their global alliance before the end of this year.

As efforts to revive the flagging talks continue, the European Commission is watching as anxiously as the airlines most directly affected.

Analysts say the latest hiccup in the talks, which were due to resume this week but have now been postponed, means there is now only a slim chance that Washington will clear the BA and AA deal, which would allow them to set fares jointly.

Negotiators on both sides still insist that a UK-US open skies deal is possible this year, but industry officials say there will have to be significant progress within a few weeks if this 'deadline' is to be met.

Failure by London and Washington to reach an agreement would give Acting Transport Commissioner Neil Kinnock fresh ammunition in his campaign for a broader open skies deal between the EU and the US.

Kinnock has long been pressing Union governments to give the Commission a mandate to negotiate with the US on behalf of all 15 EU member states, arguing that without this, European airlines would remain at a financial disadvantage to their American competitors. Kinnock has launched legal challenges against several of the bilateral agreements already signed between member states and the US.

A Kinnock aide said this week that the lack of progress in the UK-US talks underlined the need for the Commission to negotiate on behalf of the EU as a whole. "With the new Commission this autumn and the prospect of court cases being handed down, that will be an incentive for everyone to reassess the situation," he said, adding that the Commission could only benefit if the talks dragged on or failed.

Although a new round of negotiations between British and American officials has been scheduled for early next month, officials say they could be delayed again because of continued US opposition to London's demand that the BA/AA deal be given unconditional regulatory clearance.

A bilateral agreement currently in force allows only four airlines - BA and Virgin Atlantic of the UK, and American and United Airlines of the US - to fly between London's Heathrow airport and US destinations. Despite intense pressure from the British to approve the BA/AA venture, Washington is still insisting that it will only do so if the UK opens up additional Heathrow slots to US air carriers.

The two governments have been in heated talks for the last three years to thrash out a new market-opening deal. Most analysts believe that an agreement will eventually be struck, paving the way for the BA/AA deal to be approved, but that the airlines involved will have to fight every inch of the way. "Partnerships carry important benefits for the airlines involved," said one. "BA and AA will have to do everything in their power to get anti-trust immunity."

The prospect of immunity for the two giants worries competitors such as UK-based Virgin Express, which is seeking an exemption from the current American rule which bars foreign airlines from operating on domestic routes in the US and limits foreign ownership of US airlines to 25%. "What we want is to have true open skies rather than just paving the way for BA/AA," said Virgin spokesman Paul Moore.

In February, BA, AA and other airlines announced the formation of a new venture, Oneworld, aimed at making travel easier by, for example, allowing passengers to transfer from domestic to international flights or exchange tickets between airlines more easily. Together with Qantas, Canadian Airways and Cathay Pacific, the Oneworld alliance has a 15% share of world traffic.

BA spokeswoman Louise Evans said the airline was seeking anti-trust immunity as "one part" of its application for exemptions from any open skies agreement between the US and the UK. Although failure to get a deal would be unlikely to unravel the Oneworld alliance, it could prevent BA and AA from reaping all the financial rewards it is expected to generate.