Open Skies May Result In Transatlantic Mergers
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Last Updated: April 23, 2008
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The next round of US/EU "open skies" talks set to start in May could lay the groundwork for trans-Atlantic airline mergers, but proponents of greater European involvement in US carriers must overcome hurdles in Washington.
 Political opposition to foreign control of US carriers remains strong, but industry executives are wondering how long financially struggling airlines can resist international market forces and consolidation. US negotiators have long expected Europe to present its case for foreign ownership, which federal law caps at 25 percent of voting stock.
The first phase of "open skies" took effect on March 30 and
replaced restrictive treaties dating to World War Two. It allows EU and US
airlines to serve any route between the EU and the United States for the first
time. But EU states have threatened to scrap the deal if Washington does
not agree by 2010 to a second phase allowing foreign airlines to buy more
voting rights in US carriers and permitting them to run domestic services.
Washington also has provisions to suspend the pact.
Bush administration attempts to ease ownership caps were rebuffed by
Congress. While some US airline executives have voiced support for an easing
of ownership restrictions, pilots and other unionized workers fear foreign
control could cut wages or cost jobs. Analysts say that union concerns
are serious and have to be understood, analyzed and addressed.
Negotiations on foreign ownership are also expected to address national
security matters. Questions about how any change in the law would affect
business and consumers are also an important component. The US side also
wants to ensure opportunities in Europe for domestic investors, if it were to
push for changes in foreign ownership at home. The initial round of
talks is expected to last 18 months at least, and analysts say it is premature
to make a judgment on possible outcomes.
Over the years, there has been limited foreign investment in US carriers.
Most recently, privately held Virgin America started a low-cost service in
August 2007 after a protracted fight to win regulatory approval to operate. It
cleared the Transportation Department only after being forced to restructure
ownership and distance itself from Richard Branson's Virgin Group.
Several US-based carriers and unions had opposed Virgin America's entrance,
claiming that the British entrepreneur would control the company. Virgin Group
holds a minority stake in Virgin America. Lufthansa holds a 19 percent
stake in JetBlue Airways.
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