EU and US successfully Achieve an Extension of the Open Skies Agreement

Sources:
FT.com: Washington Wins Battle of the Open Skies;
Nytimes.com: U.S. and E.U. Agree to Expand Open Skies Accord;
Marketwatch.com: Open Skies Deal Version 2.0, Doesn’t Go Far Enough;
EUbusiness.com: Second Stage E.U.-U.S. "Open Skies" Agreement and Existing First Stage Air Services Agreement-Briefing.

In March of 2007, the United States and the twenty-seven European Union Countries entered into the Open Skies Agreement. Since 2008, this agreement has allowed any European or American Airline to fly planes between any two airports in either region, for the first time allowing European airlines to operate bases outside their licensing state. So for example, the agreement allows British Airways to operate a flight from Boston to Frankfurt instead of forcing the company to operate solely out of Great Britain. The Open Skies Agreement has essentially been a deregulation of the transatlantic aviation business, which replaced the resulting in increased competition, fostering job creation and lowering airfare in the $18 billion market.

On Thursday, March 25, E.U. and the U.S. leaders signed a draft expansion of the Open Skies Agreement after concluding negotiations in Brussels, Belgium. Currently, U.S. law prohibits foreigners from owning more than 25% of the voting stock of U.S. airlines. This has been a major point of contention for the E.U. as members allow for 49.9% of foreign ownership in its airlines. Many European airline companies were hopeful that the talks would result in the U.S. agreeing to open their markets to allow for a higher percentage of foreign ownership rights. However, the U.S. made clear that it has made no commitments to lift its restrictions on foreign ownership, prompting British Airways to renew an earlier request to drop the treaty should the U.S. refuse to cooperate.

Even though the United States has not agreed to liberalize their market restrictions to foreign ownership, the agreement does further open the aviation market to other entrants. For instance, the U.S. has agreed to explore ways that American carbon emissions regulations could be squared with those of the E.U., something that the Bush Administration had firmly rejected in the first stage of the agreement. Further, the E.U. has gained greater access to travel by American government employees, who had previously been restricted to American airlines under what was known as the “Fly America” program.

Thursday’s deal has had, at the least, the effect of guaranteeing that the terms of the 2007 Open Skies Agreement are in place permanently. The relationship between the E.U. and the U.S. on this matter is intact and both sides are expecting further progress in the future.

Discussion Questions:
1. Why would the United States be hesitant to open their market to foreign ownership? Do you think the aviation market is more sensitive due to past instances of terrorism?

2. Is it likely that a result of this deregulation will be lower airfare for the consumer on airlines like American or Aer Lingus? Why or why not?