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EU Backs Deal with U.S. to Lift Trans-Atlantic Flight Restrictions

The European Union approved an aviation deal with the United States that opens up restricted trans-Atlantic routes to new rivals, but bowed to British concerns in delaying when the agreement takes effect.

The "Open Skies" deal will allow airlines to fly from anywhere in the EU to any point in the U.S., shedding limitations that also discourage them from charging what they like or combining with other carriers.

The EU said its 27 nations had unanimously voted for the deal on Thursday. It will take effect from March 30, 2008. European negotiators will now have to secure U.S. agreement to delay the pact, originally scheduled to begin Oct. 28, and want to push on with new talks to eliminate remaining barriers on airline ownership.

Britain won its demand for extra time before opening up London Heathrow, the EU's busiest airport, to more carriers.

Only four airlines -- British Airways , Virgin Atlantic Airways, AMR 's American Airlines and UAL's United Airlines -- currently have the right to fly from Heathrow to the U.S., a lucrative route that represents around a third of all EU flights to the United States.

EU governments also stipulated how they could suspend parts of the deal -- curtailing U.S. airlines' new rights in Europe -- if further talks don't lead to more concessions from the United States within three years.

The only nation likely to do this is Britain, which protested opening up Heathrow when the U.S. had not made concessions the Europeans had asked for.

"I have ensured that the U.K. will have the right -- in 2010 -- to re-impose some or all of the restrictions that U.S. carriers face today," said British Transport Minister Douglas Alexander. "I hope very much that this will not be necessary. But this sends a very clear signal to the U.S. that we are serious about making early progress to a second-stage deal."

EU Transport Commissioner Jacques Barrot said he did not believe such sanctions would ever be levied because by 2010 both the EU and U.S. would be moving toward total liberalization for the aviation industry.

"The idea behind this clause is to bring pressure to bear on the U.S.," he said.

U.S. Issue

British Airways CEO Willie Walsh, however, said Britain had to stand by its pledge to withdraw traffic rights, claiming the EU had already given away its most valuable negotiating asset by opening up Heathrow.

"So far the U.S. has made no meaningful concessions," he said. "American carriers can now fly into Heathrow, Europe and beyond while their own backyard remains a no-go area for EU carriers and foreign ownership of their airlines remains unchanged."

U.S. carriers, for example, will now be able to fly from New York to London, where they can pick up passengers and fly on to Stockholm -- offering competition on trips within the EU. But EU airlines will still not be able to operate domestic American routes.

Virgin Atlantic was satisfied, though, saying it wants to expand the number of its flights from key European hubs to New York in the next two years, adding 500 jobs.

EU officials have repeatedly said they were disappointed with the U.S. failure to lift a rule that bars foreign investors from owning more than 25% of an American airline's voting shares -- the key precondition it set for a deal.

The Bush administration tried and failed to win support to scrap the rule amid worries from U.S. airlines and labor unions that this could threaten jobs and security.

U.S. Transportation Secretary Mary Peters welcomed EU approval, saying the agreement would foster more affordable and convenient air travel. The U.S. Congress would have the power to block U.S. approval of the deal.

Environmentalists called the deal a move backward in efforts to fight global warming. The European Federation for Transport and Environment said more flights could negate other efforts to curb climate change and cut the amount of carbon dioxide released by aviation in coming years.

The EU, however, has said the deal would reduce the cost of tickets, putting an extra 25 million people on trans-Atlantic flights within five years. Just under 50 million travelers now fly those routes.

It also claimed the deal will generate benefits of up to 12 billion euros ($16 billion) in five years as ticket prices fall, airlines generate savings and the market grows. That would create up to 80,000 jobs spread equally between Europe and the United States, it said.

Credit Suisse said U.S. carriers Continental Airlines , Northwest Airlines and Delta Air Lines were "likely bigger winners than most believe." Access to Heathrow would help them win major corporate travel contracts, it said.

However, Heathrow is currently full up -- demand for slots at the airport is high and airlines are reluctant to give them up. New rivals will have to wait for new ones to become available when a fifth terminal opens next March.

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