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EU backs US air pact in new era for travellers

Written by: Staff
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Brussels, Mar 23: The European Union launched a new era in transatlantic air travel, backing an agreement with the United States that will drive down passenger fares and open aviation markets to more competition.

Transport ministers gave unanimous support to the ''open skies'' deal, which will allow EU airlines to fly from any city in the 27-nation bloc to any city in the United States and vice versa, replacing restrictive bilateral arrangements that date back to World War Two.

At Britain's request, the ministers agreed on a five-month delay in implementing the deal, so it will take effect on March 30, 2008 instead of October this year.

Washington, which called the ministers' support ''historic'' after four years of talks, said it could accept the delay.

German Transport Minister Wolfgang Tiefensee, who chaired the talks, hailed what he said was a breakthrough that would give a boost to transatlantic relations and benefit consumers and airlines.

Shares in European airlines rose as carriers announced new transatlantic routes and traders speculated the deal would trigger mergers in the crowded sector.

''This is good news for passengers,'' said Ulrich Schulte-Strathaus yesterday, head of the Association of European Airlines. Carriers on both sides of the Atlantic largely praised the deal.

EU states can withdraw benefits of the agreement from US airlines if Washington does not agree in 2010 to allow foreign airlines to buy more voting rights in US carriers and permit them to run domestic services within the United States.

Washington also has provisions to suspend the pact.

Britain had resisted lifting restrictions at London's Heathrow airport, which favour British Airways and Virgin Atlantic, without more US investment rights.

''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,'' said British Airways Chief Executive Willie Walsh.

SECTOR SHAKEUP EU Transport Commissioner Jacques Barrot forecast the deal would boost transatlantic flights by 50 per cent over five years and said takeovers among European airlines were likely.

Tiefensee acknowledged that a boom in intercontinental air travel would need to be reconciled with the EU's ambitious goal to cut greenhouse gas emissions blamed for climate change -- a key objection of environmentalists.

The Commission says the accord should create up to 12 billion euros in consumer benefits and 80,000 new jobs on both sides of the Atlantic.

But a lot is riding on the second stage.

John Byerly, the lead US negotiator in the ''open skies'' deal, said the United States would engage constructively in the next round of talks but gave no guarantee to ease limits on foreign investment in US airlines. Congress is fiercely opposed to foreign ownership or control of American carriers.

British Transport Secretary Douglas Alexander said it would be up to each EU member state to decide which rights it would take away if Washington did not budge on the issue.

Airlines reacted swiftly. US Continental Airlines and Ireland's Aer Lingus both announced plans to start new routes as a result of the deal.

Speculation that ''open skies'' would trigger airline mergers had boosted stock in Spain's Iberia on Wednesday. Deutsche Lufthansa denied it was preparing a bid.

The agreement will shake up Heathrow most. British Airways, Virgin Atlantic, AMR Corp.'s American Airlines and UAL Corp.'s United Airlines are the only carriers currently allowed to fly transatlantic routes at Europe's biggest airport.

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

US rules limit foreign investment in US carriers to 25 percent of voting rights, whereas US companies can control up to 49 per cent 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 US carriers and allow the EU to limit US investment in EU airlines to 25 per cent of voting shares.

Reuters

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