US offers UK inferior open skies deal - FT
The US is offering Britain a worse “open skies” deal after Brexit than it had as an EU member, in a negotiating stance that would badly hit the transatlantic operating rights of British Airways and Virgin Atlantic.
British and American negotiators met secretly in January for the first formal talks on a new air services deal, aiming to fill the gap created when Britain falls out of the EU-US open skies treaty after Brexit, say people familiar with talks. The talks were cut short after US negotiators offered only a standard bilateral agreement. These typically require airlines to be majority owned and controlled by parties from their country of origin.
Such limits would be problematic for British carriers as they have large foreign shareholdings. Under existing arrangements, UK-based airlines are covered by the open skies treaty that requires them to be majority EU owned. One person attending the London meetings to “put Humpty Dumpty back together” said: “You can’t just scratch out ‘EU’ and put in ‘UK’.” A British official said it showed “the squeeze” London will face as it tries to reconstruct its international agreements after Brexit, even with close allies such as Washington. Negotiators are confident of an eventual agreement to keep open the busy UK-US routes, which account for more than a third of current transatlantic flight traffic. But there are legal and political obstacles that could impede the two sides from reaching a deal in time to give legal certainty to airlines booking flights a year in advance.
In its opening stance the US side rolled back valuable elements of the US-EU agreement, the most liberal open skies deal ever agreed by Washington. Its post-Brexit offer to the UK did not include membership of a joint committee on regulatory co-operation or special access to the Fly America programme, which allocates tickets for US government employees. Washington also asked for improved flying rights for US courier services such as FedEx.
The Americans will play it hard. The mood has changed [against liberalisation], it’s the worst time to be negotiating Senior EU official The UK has also yet to formally offer the US access to overseas territories such as the British Virgin Islands and Cayman Islands, which were not included as part of the original US-EU deal, according to people familiar with the talks. There are also potential issues over the continuation of antitrust exemptions, permitted by the US-EU open skies agreement, which allow airline alliances to set fares and share revenue, according to people familiar with talks. The biggest sticking-point is a standard ownership clause in Washington’s bilateral aviation agreements that would exclude airlines from the deal if “substantial ownership and effective control” does not rest with US or UK nationals respectively. In effect it requires majority ownership by one of the two sides if an airline is to benefit. London asked the US to adjust its long-held policy since it would exclude the three main British-based transatlantic carriers, which all fall short of the eligibility criteria. These are IAG, the owner of British Airways and Iberia; Virgin Atlantic; and Norwegian UK. Sir Richard Branson owns 51 per cent of Virgin, making it majority UK-owned. But he is in the process of selling 31 per cent to Air France-KLM, which could complicate Virgin’s access rights to the US. US airline Delta owns the remaining stake.
The challenge is most acute for Willie Walsh, IAG chief executive, whose group must also clear the EU’s 50 per cent ownership threshold to avoid losing his European operating rights after Brexit, when UK nationals are no longer counted. The EU has been arguing for a change to the ownership and control rule for decades. If the US has never bent before why would they do it just for the UK? Andrew Charlton, aviation consultant One senior EU official said the airline operator was heading for “a crunch”. “From the US point of view, there is not a single big airline that is UK-owned and controlled,” he said. “ Copyright The Financial Times Limited 2018. All rights reserved. Lates