Although Brussels has been given a mandate to negotiate an open skies deal with the USA, it may have to limit its ambitions if a deal is to be sealed any time soon.
European Union transport ministers, meeting in early June, gave the European Commission (EC) the nod to open negotiations with the USA on a common aviation area. Brussels has also been given the right to negotiate modifications to bilaterals with other third countries to ensure they comply with European law, and in particular, the ruling from the European Court of Justice last November that outlawed nationality provisions.
In the negotiations with Washington, the opening up of London Heathrow to US carriers is the major bargaining chip, although British Airways and its government are still considering their public position. "Leaving aside the question of London Heathrow, the USA has pretty much what it wants," says Geert Goeteyn, a Brussels-based partner with law firm Howrey Simon Arnold & White. US officials say they welcome the negotiations, but are short on specifics. "We're ready," said John Byerly, deputy assistant secretary for transportation at the State Department.
US Congress is likely to be asked to address some thorny issues. Aviation attorney Michael Goldman of Washington-based lawyers Silverberg, Goldman & Bikof, lists these as: cabotage in domestic markets; loosening of ownership and control requirements; termination of the Fly America programme; and reforms for wet-leasing. All are "hot button" US issues that require legislative or political fixes, he says. Fly America, for instance, which requires all government employees to fly on US carriers, still has deep support amongst Congressmen, who see it as a patriotic issue.
The Pentagon's Civil Reserve Air Fleet programme also presents nationality and defence issues that would have to be addressed, while the Department of Transportation's recent proposal to lift the foreign ownership cap from 25%in line with Europe's 49%, has come too late in the year for congressional action.
This raises the possibility that any necessary legislation could run into the pressures of an election year, when all members of the House of Representatives must seek re-election, one third of senators must face the voters again, and all Congressmen will be under pressure to support their party in the presidential election in November 2004.
Some observers believe the EC is being very ambitious. "The EC also wants an awful lot that the US does not want," Goeteyn says. The issue of ownership, seen by the EC as a "key element" in the negotiations, is particularly contentious. Express parcels operator DHL Airways is facing a legal challenge from FedEx and UPS, who maintain that is controlled by Germany's Deutsche Post - 25% owner and major customer. Goeteyn says passenger airlines have much more emotional pull than cargo carriers, and that labour unions are set against the idea. This could make negotiations on ownership tricky indeed.
KLM chief executive, Leo van Wijk, says the length of time it takes to reach an agreement will depend on the levels of ambition on each side, adding that the "EC's are relatively high". He advises a more cautious "step-wise" process, with a focus on a more relaxed approach to mergers rather than more prickly issues.
Much will depend on the attitude of European member states, which will have to ratify any deal and will be involved in the negotiations. The attitude of smaller states, whose flag carriers face being gobbled up in any future industry consolidation, could still be crucial, Goeteyn warns.
The EC appears to have accepted that it will have to co-operate closely with the 15 states, particularly when it comes to renegotiating the plethora of bilaterals with third countries.
COLIN BAKER LONDON AND DAVID FIELD WASHINGTON
Source: Airline Business
