EU backs U.S. air pact but seeks 5-month delay

BRUSSELS, Mar 22 (Reuters) European Union transport ministers unanimously backed a landmark agreement with the United States on Thursday to throw open transatlantic air travel to more competition and drive down fares.

But the 27 ministers, at Britain's request, sought a five-month delay in implementing the deal so it would take effect in March 2008 instead of October this year.

The ''open skies'' agreement will allow EU airlines to fly from any city in the 27-nation bloc to any city in the United States and vice versa.

''The deal is of great political and economic importance. The fact that everyone in the Council (of transport ministers) has been able to welcome the outcome is to be commended,'' Transport Commissioner Jacques Barrot said in a statement.

''I am delighted to have piloted this agreement to its destination with all passengers still on board.'' Britain had sought concessions for London's Heathrow Airport, Europe's busiest hub, and some firm assurance that Washington will in the future allow foreign airlines to own and control U.S. carriers.

''I recognize the absolute will of my colleagues to come to an agreement today,'' German Transport Minister Wolfgang Tiefensee told reporters as the 27 EU ministers arrived for the decisive meeting.

SHARES TAKE OFF Italian Transport Minister Alessandro Bianchi had said he would also express concerns about the pact in Thursday's talks but diplomats said he accepted the unanimous agreement.

Proponents say ''open skies'' would boost competition, increase flight frequencies, reduce fares and create jobs on both sides of the Atlantic.

But Britain was reluctant to lift restrictions at Heathrow, which favour British Airways and Virgin Atlantic, without getting more rights to invest in U.S. carriers.

Industry sources said on Wednesday that London also wanted an automatic termination of the deal's contents if talks for a second stage -- when the EU will push for greater ownership rights of U.S.

airlines -- are not in full swing by 2010.

Speculation that ''open skies'' would trigger airline mergers boosted shares in British Airways and Spain's Iberia on Wednesday.

Deutsche Lufthansa denied on Thursday that it was interested in the Spanish carrier.

Apart from BA, which stands to lose lucrative market share at Heathrow, European and U.S. airlines are largely supportive.

''We welcome the agreement and hope that it's approved,'' said Anthony Concil, spokesman for airline industry group IATA.

''It's not the great leap forward that's going to fundamentally change the industry, but it's a step in the right direction, so let's take it.'' Currently British Airways, Virgin Atlantic, AMR Corp.'s American Airlines and UAL Corp.'s United Airlines are the only carriers allowed to fly transatlantic routes through Heathrow.

The new rules would abolish those restrictions but would not create extra takeoff and landing slots at the busy hub.

U.S. rules limit foreign investment in U.S. carriers to 25 percent of voting rights, whereas U.S. companies can control up to 49 percent of EU carriers -- a key sticking point for Europe.

The new deal would give European companies the right to own more than 50 percent of non-voting equity in U.S. carriers and allow the EU to limit U.S. investment in EU airlines to 25 percent of voting shares.

REUTERS CS RS1721