US offers UK inferior open skies deal - FT

[Heathrow Harry]

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

[Barling Magna]

Just the start of the Brexit nightmare......

[c52]

Don't worry. David Davies will sort it out with a click of his fingers. Easy as toffee.

[SealinkBF]

Black passports though...

[GLAEDI]

I thought they were to be blue .........

[Jetscream 32]

Just the start of the Brexit nightmare......

Or more opportunities.....

[Heathrow Harry]

Anyone who think the Yanks won't squeeze us for all they're worth is nuts.... they are a short-track bully on commercial matters

[ATNotts]

Over the 40 plus years in which the UK has been involved in the Europe project, our industries have become increasing European / internationally orientated, by which I mean working across internal European borders / and owned across European / international borders.

The existing Open Skies agreement is between the USA and the European Union / EEA, and our principal transatlantic international airlines are European owned, so under the agreement can operate between UK and the USA, even though the majority shareholders may not be British.

The USA is going to insist that the airlines involved in any new USA / UK Open Skies agreement must be majority USA or UK owned - easy for the USA, which I believe bans majority foreign ownership of the carriers, much harder / impossible for the UK, and in Trump's view of world "free" trade that's fine by him.

Few people who voted in the referendum would have given a second thought to trivial maters like international air agreements; but the thought of possibly fewer flights, less competition and higher fares may make them wonder what they voted for. Once wonders how the likes of our two biggest tour operators and their associated airlines, neither UK owned, will cope trying to offer holidays to Florida, for example from the host of UK airports from which they currently offer service at competitive prices. Could lead to the return of charter flights operated by American or possible new UK owned long haul charter airlines I suppose, but it will potentially challenge their vertically integrated business models.

[oldart]

Would it be right to say that Norwegian Airways would still be able to fly from the UK to the USA without restrictions, them being members of the EEA.

[c52]

Apart from the policies of the USA, why ever would the UK want a Spanish airline to provide its services rather than a British one?

[Heathrow Harry]

Clearly an opportunity for a new airline..

lets see.....

A British & Scottish Airline - lets call it British Caled.... maybe not

A cheap airline just running across the Pond or Lake - lets call it Lake.... noooo

Perhaps something new and virgina..... damn

Back to the Eurostar to CDG or AMS I guess

[AirportPlanner1]

Or more opportunities.....

You’re right actually, airlines will be falling over themselves to take advantage of new liberalised agreements with Saudi Arabia and Azerbaijan

[ATNotts]

Would it be right to say that Norwegian Airways would still be able to fly from the UK to the USA without restrictions, them being members of the EEA.

I would say, if the USA stick to their ownership rules, definitely not, as where the aircraft are registered, they are still a non-British carriers, which under a new agreement could / would prove a major stumbling block. Under the USA / EU agreement they appear to be getting away with it.

Primera will have the same problem as Norwegian, no matter where they base register their aircraft.

[Heathrow Harry]

Saudi - The New Dubai!!!

[ATNotts]

Saudi - The New Dubai!!!

May not be too far fetched if the Saudi Crown Price get's his way.

[SWBKCB]

Yes it's about ownership and control. This isn't the Americans playing hardball, it's pretty standard practice. Otherwise, what would stop - for example - Emirates buying a UK AOC?

[ATNotts]

I look forward to the northern favourite airline, a very British company making profits that stay in the UK, starting its holiday operation to Florida etc.:ok:

It will make a change from Malaga and the Canaries!
Could be an opportunity for Jet2 to provide charter aircraft for TUI or Thomas Cook, they are well place as one of a very few "British" airlines of any size left!

[pholling]

Could be an opportunity for Jet2 to provide charter aircraft for TUI or Thomas Cook, they are well place as one of a very few "British" airlines of any size left!

Wouldn't work as the marketing carrier would not but UK in this case so not allowed (unless TC stays UK controlled and divest Condor).

[pholling]

Yes it's about ownership and control. This isn't the Americans playing hardball, it's pretty standard practice. Otherwise, what would stop - for example - Emirates buying a UK AOC?

The ownership and control clause in all US agreements, and always has been. The killer is the control part as it is much harder to demonstrate than just having 50%+1 owned by UK shareholders.

[ELondonPax]

I'm amazed at how blase Willie Walsh and IAG are about this. Taking an "it'll be all right on the night approach "
Like many here, I struggle with the "gobsh**e motor mouth" approach of Mr O'Leary but Ryanair have built a huge operation on the back of the common European aviation rules - I do think this is an area where O'Leary has an enormous depth of technical and regulatory expertise in this stuff.

[Jetscream 32]

I take it you mean the part where O'Leary has used every rule in the book to get the best advantage - money, marketing, ancillary, state, lending rates, grants, etc - whilst turning the screw on everyone that works for him and flies with him...... yep i think I'd be pi$$ed to if id ordered a bunch of aircraft, that were yet to be delivered and I was having to scale back one of my major markets that provided a massive proportion of my $1.4 billion profitability .... His world domination plan will quickly unravel if he loses the UK market by majority.... but like all things - it only be temporary - it all sounds worse than it actually is

[SWBKCB]

it only be temporary - it all sounds worse than it actually is

Probably - how much would you bet on it?

[AerRyan]

Still fascinating that many refuse that Brexit won't have a profound effect on aviation in the UK.

[AirportPlanner1]

Also fascinating the chap believes Ryanair would unravel if they lost the UK, as though there are no other large markets available

[PDXCWL45]

Yes, the UK can stay part of the US/EU open skies agreement. It would just need to stay member of the EU in order to do so.

If the UK wishes to leave the EU, this will entail leaving the open sky agrement among many others.
Norway and Switzerland aren't EU members yet aren't they in US EU open skies?

[AerRyan]

Norway and Switzerland aren't EU members yet aren't they in US EU open skies?

They are part of the EEA however, something which has taken years for them to achieve and is exactly what the UK want to opt out of.

[Jetscream 32]

" O'Leary has used every rule in the book to get the best advantage"

You may not like him but that's surely what EVERY businessman should be doing?

If you want to be a saint go into religion................

You miss my point.... everyone has a choice to work for whoever, and having never met the man I certainly have no issues with him... what I do have issues with is someone so loud as him so trying to alter the course of an event that has nothing to do with him and he has no knowledge of in regards to outcome apart from himself and his airline.... he wasn't eligible to vote so should keep his opinions to the EU and voiced from Ireland. Spouting off that the UK will no longer be able to travel on cheap holidays unless his esteemed airline can fulfil them is pretty poor reasoning!

When I talk about his aircraft arriving and it causing a hole... it is because growing UK bases with talent from the UK is easier to manage than from many other EU countries in regards to recruiting and operating under an Irish / EU AOC

Yes there are many countries he can swipe and grow a chunk from, in regards to legacy carriers, but first he has to find the crews that both want to work for him and will want to jump ship from their current employ.

All the crews I've ever worked with since the late 80's are now focussing on quality of life and not pushing FTL to the max - better work life balance!

So finding crews to operate all these aircraft will be harder and tighter from a market that he was / is very reliant upon.... yes its business but I do think there was a more easier way to win than scaremongering!

[PDXCWL45]

They are part of the EEA however, something which has taken years for them to achieve and is exactly what the UK want to opt out of.

Interesting times ahead then! Thanks for the answer.

[Rutan16]

Membership of the EEA requires acceptance of the four principles with include the primary ones of freedom of movement acceptance of single market rules and the primacy of the European Court of Justice as the arbitration authority.
All are counter to the current governments arguments and specifically the demands of Brexiteers.
So no we can’t and won’t remain in the current US- EU Openskys arrangements.
Overview:
The vote was a simple binary question.
Brexit will be delivered like it or not but the electorate has NOT been balloted on what form our relationship and partnership will be afterwards.
That’s entirely down to the Cabinet and Parliament supported by the good works of civil servants foreign and trade offices and numerous trade and standards agencies.
Neither side offered anything like a manifesto of promises or aims but more rather simple sound bites of optimist and somewhat vague ideas.

[Rutan16]

I might add the EU-US Aviation Openskys treaty is what might be described as collateral and unintended consequences of the departure from the EU and associated global treaties

[Tu.114]

Rutan16, that may well be, but this should have been part of a thorough analysis of the pros and cons of leaving the EU. If one does not perform his Due Diligence before embarking on such a journey, there may well be nasty surprises ahead.

[Use the Force]

Switzerland is not a member of the EEA!

[Rutan16]

Tu114 not disputed I am afraid the leave campaign was more about hearts and minds over economic risks and opportunities , dominated by arguments that were quite tangential to the real issues.
Immigration and indeed associated xenophobia seem won in the north and provinces that have for decades seemingly to suffered under investment (notably from our own government and financial institutions ) compared to the South East for rather simplistic reasons .
Within the Capital other major cities,Scotland and Northern Ireland remain was much preferred choice.
Still we where we are.
Fact is the country is seriously divided pretty much down the middle and imho the question hasn’t been settled to anyone’s satisfaction.
Arch Grand Master of Brexit - Nigel even acknowledges this !

[Rutan16]

Switzerland is a signatory of the Schengen treaty on borders and freedom of movement rules and has been since 2002 also accepts the supremacy of the European Court of Justice as an arbitration authority and has an effective bilateral treaty that cover a range of trading agreements with access to the single market.
They also contribute to the EU budget for their access something close to 10 billion GB pounds.
Going through those points almost all fail to meet with the Brexit demands and UK governments current redlines
Remain in customs union NO
Remain in the single market NO
Ever sign and enact Schengen NEVER
Continue to accept the ECJ as primary court of arbitration we’ll that one has turned little pink already.
Still we can look forward to being more like Lichtenstein I suppose.

[Barling Magna]

Still we can look forward to being more like Lichtenstein I suppose.

I'm afraid not. Lichtenstein is a member of the EEA.

[Heathrow Harry]

They are part of the EEA however, something which has taken years for them to achieve and is exactly what the UK want to opt out of.


The EU has made it very clear they'll never do a "Swiss" deal again - apparently every change in the EU or Swiss rules requires a major negotiation

The Norwegian case is acceptable to both sides but means the Norwegians have to accept EU rules on a lot of items, pay a substantial "access fee" and there is still a hard customs border

As is said - the aviation industry is one (and probably the earliest) of the unplanned and unrecognised consequences of leaving..............

[ara01jbb]

This article on an anti-Brexit webpage (https://infacts.org/airline-rights-fly-around-world-air-post-brexit/) has an interesting interpretation of the catch-22 situation

If UK airlines want to fly within the EU they need to be 51% EU-owned.

For UK airlines to continue enjoying the same access to the US as they currently do under the EU-US Open Skies, they need to be 51% UK-owned.

Unless someone can come up with a way of an airline being 102% owned by both UK and EU entities (I've tried several times, even my terrible maths can't make it work), I'm guessing the simplest solution is to split BA (or IAG?) into two airlines: British Airways (UK) and British Airways (EU).

[Curious Pax]

This article on an anti-Brexit webpage (https://infacts.org/airline-rights-fly-around-world-air-post-brexit/) has an interesting interpretation of the catch-22 situation

If UK airlines want to fly within the EU they need to be 51% EU-owned.

For UK airlines to continue enjoying the same access to the US as they currently do under the EU-US Open Skies, they need to be 51% UK-owned.

Unless someone can come up with a way of an airline being 102% owned by both UK and EU entities (I've tried several times, even my terrible maths can't make it work), I'm guessing the simplest solution is to split BA (or IAG?) into two airlines: British Airways (UK) and British Airways (EU).

Bad example as I think I’m right in saying that BA don’t operate any inter EU routes other than those to/from the UK. Post Brexit as long as some sort of agreement is in place, they wouldn’t need an EU branch. Easyjet on the other hand....

[Daysleeper]

Bad example as I think I’m right in saying that BA don’t operate any inter EU routes other than those to/from the UK. Post Brexit as long as some sort of agreement is in place, they wouldn’t need an EU branch. Easyjet on the other hand....

Yes, however ba are currently “mainland” eu owned what with IAG being a Spanish company. So at the least they would need to separate off the long-haul operation to satisfy the US and possibly othe states as well. Of course they could sell the entire airline to a UK owner.

[Rutan16]

Daysleeper the ownership rules are minutiae, and does nothing but distract from the fact the post Brexit UK will not comply with regulatory terms and conditions necessary and enacted in the current EU- US Openskys treaties period stop.

The UK must either significantly change modify or other wise drop many of the Red Lines demanded by Brexiteers or must now start and negotiate a unique US-UK bilateral with some urgency and it ain’t going to be easy or as free as the current treaty imho.

Go have a look at the history of UK-US treaty negotiations pre the EU stepping in .

There was huge intransigence on both sides and many of those same issues remain unresolved especially from the UK point of view.

Ownership limits and cabotage are and have been primary objectives of the UK side indeed these form part of the long dismissed phase two of the current treaty discussions reneged on by the US having secured their primary goal of virtually unlimited access to Heathrow and that was considered the UK primary bargaining tool.

A new UK-US bilateral is going to be far from easy and certainly not a simple letter head and stamping operation.

[SWBKCB]

There's no rush, though - we've got over a year... :ok:

[ATNotts]

Unless someone can come up with a way of an airline being 102% owned by both UK and EU entities (I've tried several times, even my terrible maths can't make it work), I'm guessing the simplest solution is to split BA (or IAG?) into two airlines: British Airways (UK) and British Airways (EU).

I don't see how splitting BA and Iberia into two separate companies achieves anything, as IAG (a company with less than 51% UK shareholding) would still own BA.

It's a bit like BT and Open Reach, they are now ostensibly two companies, but with the same ownership. It's nothing but a paper exercise, really an "independence brought about through expediency". Such an arrangement would be laughed out by the USA.

To truly sort out the ownership issues, and satisfy what will surely be one of the USA's primary "red lines" a UK government may have to spend a deal of UK taxpayers cash and buy back BA for the nation - nationalisation heaven forbid. And even then, the USA would probably cry foul at the idea of the state controlling BA, screaming "unfair competition".

Virgin will have the same problem I'm guessing, since I believe Branson's group holds less than 50% of the equity in the airline now. Am I wrong?

It would have been so much easier had the UK been negotiating with a US regime under Obama or Mrs. Clinton, than the protectionist Donald Trump. If the latter doesn't like a proposed agreement out will come the pad of "executive order forms" and it would be brushed aside.

[PDXCWL45]

If the UK government is forced to buy BA then surely they'd also have ti buy Thomas Cook and TUI UK and Virgin as well so they all qualify.
And I'm not so sure having Clinton or Obama in charge would've helped as there would've been no guarantee they'd be UK friendly and i doubt they'd change anything for the UK.

[Dannyboy39]

As I said in the other thread, why not open up a new LH airline and call it IAG Americas?

[ATNotts]

As I said in the other thread, why not open up a new LH airline and call it IAG Americas?

If it were under the same ownership, and just another "group company" that wouldn't help one iota. The company isn't the issue, as I understand it, it's who owns it, and presently they are majority non UK interests, which as we are in the EU isn't a problem, but will be from 30.3.19 - unless transition kick the can down the road for another 20 - 24 months, which I guess is what carriers are banking on.

Same issues blight TUI, Thomas cook and Virgin, not to mention Norwegian and Primera.

[SWBKCB]

If it were under the same ownership, and just another "group company" that wouldn't help one iota. The company isn't the issue, as I understand it, it's who owns it, and presently they are majority non UK interests, which as we are in the EU isn't a problem, but will be from 30.3.19 - unless transition kick the can down the road for another 20 - 24 months, which I guess is what carriers are banking on.

Same issues blight TUI, Thomas cook and Virgin, not to mention Norwegian and Primera.

It's control as well as ownership

[ATNotts]

It's control as well as ownership

Generally, he who owns, also controls.

Looking closer to home, what is there to say that in the worst case scenario the EU decides that to operate within the EU Open Skies carriers must be owned in the EU / EEA. Where would that leave Easyjet? Up a creak with the proverbial paddle one fears.

I've not heard any suggestion that this might happen, just thinking aloud.

[SWBKCB]

Agreed, but the Americans will want to see control being exercised.

Re EZY, isn't that what the Austrian operation is all about? Unless the UK is given a dispensation, you'll need to be an EU airline (with all that entails) to operate intra-EU27 flights

[GLAEDI]

Generally, he who owns, also controls.

Looking closer to home, what is there to say that in the worst case scenario the EU decides that to operate within the EU Open Skies carriers must be owned in the EU / EEA. Where would that leave Easyjet? Up a creak with the proverbial paddle one fears.

I've not heard any suggestion that this might happen, just thinking aloud.

Stelios and his family will switch nationalities depending upon circs. They’re actually in a good position with Stelios being both Greek & British. That’s 34.6% of shares that can be managed to give the nationality the company needs. I don’t see them going long haul to the US so whatever EU/UK agree. Given IAG & Norwegian I don’t think the UK is going to stipulate a 51% UK holding.

[SWBKCB]

Given IAG & Norwegian I don’t think the UK is going to stipulate a 51% UK holding.

The UK might not, but the other nations involved in any agreement might - otherwise where would you draw the line? Which takes us back to the Americans position...

[pholling]

Stelios and his family will switch nationalities depending upon circs. They’re actually in a good position with Stelios being both Greek & British. That’s 34.6% of shares that can be managed to give the nationality the company needs. I don’t see them going long haul to the US so whatever EU/UK agree. Given IAG & Norwegian I don’t think the UK is going to stipulate a 51% UK holding.

The US and EU won't allow Stelios to pick an choose depending on circumstances. There will be one declaration that will apply to all. Not that it will matter for EZY as they are unlikely to go TA anytime soon. Again the issue isn't ownership, but control. In US speak that is anything ≥25% voting shares owned by a single shareholder that isn't US or UK. If they created a Virgin Atlantic USA Inc, that was 51% owned and voting by Delta then Branson or AF/KL could probably squeeze 25%, because it would be obvious DL had control, but without that bulk of a shareholding it would be hard to do. Remember the Virgin America issues around Branson's <50% proposed shareholding. In the end he could only have 24% of the voting shares, and ultimately had no control over the sale to Alaska.