US drops Open Skies treaty with Europe

The Bush Administration’s withdrawal of its plan to give foreign investors more management control of US airlines is generally regarded as a detriment to greater cooperation between American and European airlines.

Europeans had made the investor rule a condition for completing a so-called Open Skies treaty with the US. The proposal would have made it easier for airlines to fly from Europe and the US with little or no restrictions to each other’s territories.

“It was clear from reviewing the comments that the department needs to do more to inform the public, labor groups and Congress about the benefits of allowing more international investment,” said Transportation Secretary Mary Peters in a written statement.

But she added the development was not likely to mark the end of the complex negotiations that govern international air accords. She said:

“Today’s announcement in no way deters us from our goal of giving US airlines compete access to the world’s capital markets,”  saying the US government was “eager to work with Congress and the aviation industry to find new ways to make it easier for airlines to raise money from global investors.”

The EU transport commissioner, Jacques Barrot, told The Associated Press that the EU was disappointed with the decision, saying that scrapping the foreign ownership rule had been “an essential element” in concluding a deal.

Mr Barrot added that negotiators from both sides planned to meet again shortly to “discuss the way forward.”

The US rules, which limit foreign investments in U.S. airlines to 25 percent of the voting stock, have severely limited the ability of European airlines to participate in managing airlines where they have investments.

The rules are so strict that European airlines that once invested heavily in US airlines have sold their interests. Even if the Bush administration had approved the proposed rules, foreigners still would have been limited to 25% of voting equity in US airlines.

The decision by the Transportation Department ended a 13-month struggle over granting foreigners more say in airline decisions on issues like marketing and flight schedules.

The proposed change to the investment rule had been strongly opposed by some members of Congress, labor unions and several major airlines led by Continental. British Airways was also cool to the idea because it would have given greater access to Heathrow Airport, which it dominates.

An agreement would bring together the two largest aviation markets in the world, which account for 60% of global traffic, and would allow EU and US airlines to fly wherever they wanted and charge whatever they wanted on trans-Atlantic flights.

But for right now, observers said, it appears to be a stalemate.

Report by David Wilkening