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AIRBORNE

Partly cloudy skies

The U.S. and the EU may have gotten an aviation deal off the ground, but it doesn't go far enough.

March 24, 2007

THE BRITISH HAVE REASON to be unhappy with the "open skies" aviation deal between the United States and the European Union, which was approved by the EU on Thursday and is now slated to go before Congress. What's more, Americans should be just as irked with the deal.

Open skies is aimed at doing away with the arcane bilateral arrangements that govern air traffic between the United States and European countries. It will be good for consumers and airlines on both continents because it opens new markets for airlines and eases merger deals between carriers. European officials estimate that it will generate $16 billion in economic benefits over five years and create 80,000 jobs.

The biggest change will be to allow European carriers to fly to the U.S. from anywhere in the EU (currently they can only fly to the U.S. from their home countries). Restrictions on the number of U.S. airlines flying the other way also will be eased. For instance, only two U.S. airlines now can fly to London's Heathrow airport, but under open skies that airport would be open to any carrier that can negotiate a deal for its scarce landing space.

All this is good news, as far as it goes. But it doesn't go far enough.

Britain threatened to scuttle the entire proposal because, while British Airways and Virgin Atlantic stand to lose their profitable near-monopoly at Heathrow, they aren't getting much in return from the U.S. Although U.S. airlines will be allowed to fly within Europe under open skies, European airlines won't be allowed to do the same here. So, for example, American Airlines could fly from New York to London, then pick up additional passengers and shuttle them to Berlin, but Virgin couldn't go from London to New York and then on to Chicago with new passengers.

In addition, the protectionist U.S. limit on foreign ownership of airlines -- foreigners can control no more than 25% of voting shares and 49% of total ownership -- will remain in place under the deal. Foreigners can own 49% of any kind of stock in a European airline.

This is a raw deal for Virgin -- and for U.S. consumers. The more competition there is on domestic flights, the more likely it is that fares will go down. U.S. ownership restrictions are also ultimately destructive because they close off a source of outside capital for troubled U.S. carriers.

The British forced two concessions in the final deal: Its implementation will be delayed from October to March 2008, and European countries can now scrap the deal if the U.S. doesn't take further steps to open its market by 2010. That gives U.S. consumers time to sample the savings a more open market may bring -- and gives Congress time to agree to a more sensible aviation policy.

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