Much like Wimbledon tennis or the Open golf championship, the US-UK bilateral negotiations have come to occupy a special place in the sporting calendar. But unlike those other much-loved tournaments, the air agreement has singularly failed to produce a result. And, barring some startling match-play by one of the sides, they appear unlikely to settle the tie in the next round.
Both sides are putting an optimistic gloss on the current talks. The US Department of Transportation (DoT) emerged from the mid-June round in London enthusing about discussion covering a "wide range of issues" and the UK side too has stressed how constructive the talks have been. Yet, as the negotiators make their way over to Washington for the return match at the start of July, hopes seem as slim as ever for a ground-breaking deal.
The blunt fact is that the US side has precious little on offer that could coax the UK away from the safety of Bermuda II and the protection that offers for its major carrier at London Heathrow.
The one prize big enough to make open skies worthwhile remains antitrust immunity for British Airways and a US partner. And that is not necessarily in the US gift. It was Brussels, not Washington, that effectively stopped a deeper BA/American Airlines alliance in its tracks, with the demand for the wholesale transfer of Heathrow slots. True, Europe's competition commissioner could overrule his predecessor's decision and go softer on BA/American, but there seems barely any political capital in doing so. It is hardly in the European Commission's best interests to ease the way to a UK-US open skies deal when it has its own more dramatic transatlantic solution to promote.
The shortest way to end the blockage would clearly be for BA to find another, less contentious, US partner than the mighty American. It briefly appeared ready to do that early this year. Unfortunately, US Airways its former and still most obvious partner was rudely snatched away by United. Talks have taken place with the Delta/Air France axis and, of course, now with KLM, which would bring the dowry of its longtime Northwest partnership. Yet those deals still require some nifty footwork to keep American on-board and the oneworld alliance intact.
Neither is Virgin Atlantic showing any signs of letting up in its lobbying. Having painted "no way AA-BA" on half the fleet, it says that it is perfectly willing to finish the job. For that matter it would paint over the AA with any new US initials with which BA wanted to associate itself. After that it could be a threat to join the Star Alliance.
The shorter odds are on the possibility of a less ambitious deal for starters. The DoT is privately talking about the need for patience.
One option is for a phased liberalisation, as rehearsed with the French and others. That might appeal to BA and other Heathrow incumbents by avoiding sudden competition. But if open skies is the end point, then that would appear merely to postpone the evil day when the issue of antitrust re-emerges.
Such a deal would also take time to agree and that may be too slow for Transportation Secretary Rodney Slater. With the US election getting into full swing, one way or another he may well not be in the same job by January and would love to have progress to report on the UK bilateral, however slim, before he hands over. The DoT is, perhaps unwisely, playing up the need for "real movement" by the end of the year.
More intriguing is the possibility of a deal struck around British Midland's campaign to re-enter the transatlantic. But for all the bullish talk, this may not be the imperative that Washington believes it to be. Even if British Midland was to ease the way for a third US entrant at Heathrow, it would put Washington back in the invidious position of having to choose which of its carriers to honour. For its part, the UK could well decide that this is not a big enough cause over which to lose its grip on the family silver. Some would argue that such silver should be used to buy more than just another US open skies deal.
More possible is that there could be movement on the cargo sector. FedEx and UPS want the right to build on fifth-freedom rights out of the UK. The British Cargo Alliance would like the modest enough concession of parity with the US carriers on wet leasing.
Finally, the US-UK governments could live up to their free trade reputations with something radical, such as an end to foreign ownership restrictions, a prototype common aviation area or an audacious airline merger. As both sides have conceded, that is a distant hope.
Until then the blockage remains. One day Bermuda II and the bilateral system must be replaced. It cannot last for ever as an anachronism in an increasingly liberalised global economy. But when it does, both sides might secretly come to miss their annual bilateral contest.
Source: Airline Business
