NYTimes.com Article: Europeans Propose to End 'Open Skies' Deals

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Europeans Propose to End 'Open Skies' Deals

February 27, 2003
By PAUL MELLER






BRUSSELS, Feb. 26 - The European Union moved today to strip
its members of power to negotiate their own bilateral
aviation agreements with outside nations and to replace
those agreements with unionwide deals negotiated in
Brussels.

At the same time, the union's executive body, the European
Commission, laid out a plan to reshape the airline industry
on the Continent to make it easier for carriers to ally,
merge or acquire one another and, the commission hopes,
become more efficient and competitive.

The bilateral deals, known as "open skies" agreements, were
thrown into doubt in November when the European Court of
Justice ruled that eight of the agreements between member
nations and the United States breached European Union law,
because they gave national "flag" carriers an unfair
advantage over rivals.

The commission said today that the court's ruling gave it
the right to step in and formulate a unionwide policy, and
it announced plans to negotiate a new unionwide agreement
directly with the United States, the most important
nonmember.

"We will be able to ensure that the E.U. can finally pull
together in this field and work to develop international
air transport to the benefit of the industry and
consumers," said Loyola de Palacio, the commissioner
responsible for transportation.

The commission's plan would leave existing bilateral deals
in place until they are replaced by unionwide agreements.
Ms. de Palacio said that by clearing away the legal
uncertainty surrounding the existing agreements, she hoped
the commission would win rapid approval from member nations
to begin talks with the United States, "our uppermost
priority."

The national governments are expected to decide on the
commission's plan by the end of June.

European airlines broadly welcomed the new proposals. "It's
a step back from the more confrontational approach the
commission took before," said David Henderson, spokesman
for the Association of European Airlines. "The commission
seems to accept the bilateral nature of many of these
agreements, and the need to keep them in place for the time
being."

Even so, he said, the commission's proposals will have
major ramifications for the industry, Mr. Henderson said.

One element in the proposal became inevitable after last
November's court ruling: the scrapping of clauses in any
bilateral agreements that grant automatic rights to fly
certain routes to airlines designated as national flag
carriers.

Analysts do not expect a sudden rush by the big national
carriers to open routes on one anothers' traditional turfs
- say, Lufthansa flying trans-Atlantic routes out of Paris.
That would probably be uneconomic in any case, said
Nicholas van den Brul of BNP Paribas in London.

"Maybe the large European airlines could have one or two
extra hubs for their long-haul flights," Mr. van den Brul
said. "But a multihub arrangement doesn't really make
sense."

More likely, he said, would be mergers and combinations
that would reshape the industry into a handful of large
companies offering long-haul flights, and a second tier of
short- and medium-haul carriers whose flights would feed
passengers into the long-haul carriers' hubs. "If these
proposals are adopted, it would make it easier for KLM to
operate as a merger partner with British Airways or Air
France," Mr. van den Brul said.

KLM Royal Dutch Airlines is an example of a national
carrier from a smaller nation with little domestic traffic.
Such carriers have struggled in recent years, and a few,
notably Sabena in Belgium, have collapsed. But efforts by
KLM to team up with airlines from bigger nations have been
hampered by the bilateral agreements, which restrict direct
flights between the two nations to those nations' airlines.


"This was one of the main reasons B.A. couldn't merge with
KLM," Mr. van den Brul said - the resulting airline would
not qualify as Dutch-owned under the agreements.

The high costs and restricted routes of the traditional
carriers have made it hard for them to compete with
low-cost short-haul and medium-haul competitors like
EasyJet and Ryanair, whose routes generally stay within the
European Union, and several more of the old flag carriers
are likely to shut down or be swallowed up, analysts said.
But "not having so many flag carriers around doesn't
automatically mean less choice," Mr. van den Brul said.

http://www.nytimes.com/2003/02/27/business/worldbusiness/27AIR.html?ex=1047355917&ei=1&en=83aa89c29eef80e0



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