This article from NYTimes.com has been sent to you by psa188@juno.com. 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 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company