The success of the latest approach appears to have taken even DOT officials by surprise. For years, Washington has been pushing for open skies agreements with the larger European countries, like France, Germany and the UK, thinking that if one such agreement were established - a wedge - others would follow.
It never worked, and Washington's latest incarnation of this strategy, the offer of open skies to nine smaller European countries (G9), was not widely perceived in the US DOT as doing any different. In total, the G9 countries account for less than 10 per cent of the transatlantic market - hardly a persuasive force. 'It was a good line, but no one at DOT believed it,' a Washington aviation official admits.
Unlike Neil Kinnock, the European transport commissioner, who in late February shot off a letter to the six G9 states which are members of the European Union. The letter's tone paid no heed to the Commission's normal practice of cautious goading towards the member states:
'. . . [The] evolving situation now seems to the Commission to require urgent action . . . I would like to receive your assurance that you will not negotiate, initial or sign any [open skies] agreement with the United States. In the absence of a positive response, the Commission reserves the right to initiate such procedures as are foreseen by the Treaty [of Rome].'
The threat of taking Austria, Belgium, Denmark, Finland, Luxembourg and Sweden to the European Court appears to have diminished little since a meeting between Kinnock and the 15 EU transport ministers in mid-March. Nor does it appear to have put the six EU countries off signing up to the offer. A three-hour discussion produced little except a commitment from member states to monitor the situation until the next transport ministers' meeting. The lack of action produced an angry retort from one Commission official: 'This is not satisfactory because we still feel the [EU] is being sold out.' The official would not exclude the use of legal action.
Ironically, the same meeting handed the Commission a mandate to open negotiations with Switzerland over limited participation in the single aviation market. Switzerland, Iceland and Norway make up the three non-EU members of the G9 club, but the latter two already have access to the single aviation market.
Though heavy-handed, the Kinnock threat actually gave more substance to the US open skies proposal by pushing EU member states into finally facing the concept of granting the Commission external competence - the authority to negotiate for the EU with third countries like the US. The problem for the Commission, however, remains the differences in opinion between member states over how to proceed, which effectively prevents any coherent Brussels policy.
For the G9 countries, the US proposal has practical implications, particularly for the six EU members involved. As smaller members of the EU, there is a distinct belief that they could lose out to the larger member states if the Commission were to negotiate for all. 'We believe that the offer from the US today gives us better opportunities than we would have if the Commission were negotiating on our behalf,' says Bjorn Hagen, director of government affairs at SAS, while emphasising he is only speaking for the carrier and not for its three shareholder governments.
Nor do these countries want to wait for the Commission to gain a mandate, especially when 'open skies' in the case of the G9 proposal means for the most part a long-sought-after balance of opportunities for their carriers.
All nine countries have bilaterals that favour the US, to the point that US carriers did not oppose the proposal because they have long possessed all the rights to and beyond the countries, and do not face capacity constraints. The offer does not include domestic cabotage as the G9 countries all have insignificant home markets compared with the vast US market.
Indeed, one of the Commission's main aims in obtaining a mandate to negotiate for the EU as a whole is to use the offer of access to the single European market for US carriers as a lever to open up the US domestic market. In this sense the G9 offer 'disguises the US protectionist stance very well,' says one Commission official.
The stance of the larger EU member states, whose support the Commission needs to gain its mandate, is mixed and domestic political considerations will ensure the various positions remain muddled for some time.
Germany and France are understood to be supportive of the Commission's position but apparently for different reasons. The German delegation will have heard of Lufthansa's concerns that it fears being 'encircled' by countries with US open skies agreements. This is a concern confirmed by Ulrich Schulte-Strathaus, Lufthansa's vice president international, who fears increased hub competition. Aside from the US-Netherlands open skies agreement, Germany borders four of the G9 nations. But Germany and Lufthansa are still attempting to take a neutral stance, according to Schulte-Strathaus: 'We need to analyse the European reply [to the G9 proposal]. We will then need to see what kind of alliances develop, if they stabilise, and then develop a scenario for a multilateral playing field.'
But despite the attempts to remain neutral, the prospect of the G9 countries gaining US anti-trust immunity has Lufthansa worried. This has provoked some speculation that Germany could soon take up recent offers by the US to implement open skies between the two countries to strengthen Lufthansa's alliance with United Airlines (see box). Schulte-Strathaus believes the KLM-Northwest immunity granted in 1992 is increasingly 'distorting' competition, and that the only remedy is to either take away the anti-trust rights, or to bestow them on all alliances; he favours the latter approach.
France, meanwhile, is also understood to be supportive of the Commission and one Brussels source indicates Paris may well back the threat of legal action against the six EU participants of the G9. But Paris' role is somewhat confused by the fact that France holds the revolving presidency of the EU until June and may only be supportive of the court action as long as it holds that position. Moreover, France is also understood to be pushing for restrictive Commission competence. That would result in oversight from European transport ministers and, some believe, protectionist rulemaking.
Not all of the larger EU members are as hesitant in expressing an unambiguous opinion on granting external competence to Brussels. UK officials believe strongly that member countries should not be constrained by the Commission. 'Member states do have the right to negotiate bilaterally, and we would reserve that right,' says a source at the UK Department of Transport. The lack of support is tied to the belief that the G9 agreements 'would have little effect on UK airlines and airports.'
The issue of anti-trust immunity, widely credited as a key factor in the success of the KLM-Northwest codesharing alliance, has already worked its way into the G9 discussions. Because most of the carriers from the G9 countries feel the competitive impact of KLM/Northwest, and also because the US open skies proposal was based on the US-Netherlands bilateral that included an anti-trust immunity provision, all except Iceland have requested this immunity.
Though not everyone is convinced of immunity's competitive benefits, the US countered with words that appear to nullify any immunity language anyway. But an Austrian Airlines official strongly believes that the few sentences are still 'very important. It's slightly weaker [than the US-Netherlands anti-trust language], but it gives some basis for diplomatic pressure.'
It is Austrian and Swissair which would most likely first seek the immunity as part of a trilateral codesharing alliance with Delta Air Lines, due to go on line at the end of March. Indeed Ivan Dizlick, who oversees Delta's alliances, hints that immunity could be extended to other carriers from the G9 countries.
Here Dizlick is certainly referring to a linkup with Sabena. The Belgian flag carrier already has limited codesharing with Delta and is close to a deal with Swissair, which may take up to 49 per cent of Sabena. The equity deal is central to the Belgian carrier's restructuring plans and would explain the unusual position the Belgian government now finds itself in - one of the strongest opponents to Commission interference in the G9 talks.
Belgium has traditionally been a vociferous supporter of a single Europe in most policy areas. But with the survival of its flag carrier at stake, political expediency appears to have driven the government to lead the other five EU nations in the G9 towards signing up to the US open skies offer. n
So began a disjointed and, to some in Germany, affronting process that has thrown officials from the government and Lufthansa into a debate that has raged before and throughout the G9 open skies negotiations in Washington. Though no answer has yet been found, the question is perfectly clear: should Germany accelerate its negotiation with the US to achieve open skies and, perhaps, request US anti-trust immunity for the Lufthansa-United alliance?
While this proposal is not directly related to the G9 discussions, it is not completely divorced from them either. US officials, having renegotiated the US-Germany bilateral last May, wanted to reopen talks over what had become a highly controversial resolution that froze capacity in the market between the two countries.
Not only is the bilateral seen as a model by countries unhappy with their agreements with Washington, but if Germany signed up to US open skies the new bilateral could become a powerful lever that could force other large European countries to negotiate open skies deals with the US.
In two separate meetings with Germany in the second half of last year, the US put forward an updated open skies proposal analogous to the framework agreed to by the G9. But hopes were dashed at the US DOT when Germany brushed off the proposals as posturing. 'The two rounds were characterised as non-events,' says a source close to the discussions. 'The US made it clear they want no more of that, which is why there is the debate now [in Germany].'
For some, 'debate' is too strong a word to describe what airline and German government officials say is a strong allegiance to the 'transitional' bilateral agreed to last May, which would not see open skies until October 1997, at the earliest. The decision will come down to a quantitative analysis, says one source, balancing the benefits of a capacity freeze against the benefits of open skies. The latter, it is assumed, would include anti-trust immunity for Lufthansa-United.
Ironically anti-trust immunity, which most agree is a clear competitive benefit, is an issue that riles some German officials. For one person, it symbolises the 'arrogance' of the US. Offering the immunity unilaterally automatically assumes that the European Commission has no say in the matter, the source complains. The concern speaks to the larger issue of the need for common criteria for judging airline competition. But it also speaks to a simple problem many countries have with US brashness. 'They said, "You take it or leave it," ' says a German aviation official. 'They didn't intend to negotiate.'
For United's vice president of government affairs Cyril Murphy, there is a tacit understanding that 'open skies does not guarantee anti-trust immunity.' He believes that the Lufthansa-United alliance is 'not ready yet' for immunity, though he does admit that 'we are a good vehicle for pushing this issue.' He sees the US using the Lufhansa-United alliance as a means to take aviation policy to new places.
Source: Airline Business
