Open Skies May Result In Transatlantic Mergers

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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