May 3, 2006

US changes may snag ‘open skies’ deal with Europe

WASHINGTON (Reuters) - Prospects of cementing a landmark
agreement this year to further open up transatlantic air
service hit severe turbulence on Wednesday over revised U.S.
plans to give foreign investors in domestic airlines more say
in how those businesses are run.

The tentative accord struck by U.S. and EU negotiators
months ago hinges on timely completion of last November's
Transportation Department proposal to ease long-standing limits
on foreign investment.

The United States wanted to wrap up the ownership plan in
time for European Union transport ministers to review it in
June. But legislation working its way through the Senate would
delay consideration of it for a year.

By revising the proposal on Wednesday, the Bush
administration sought to try and head off congressional
intervention and salvage both the ownership plan and the
aviation agreement with Europe.

In its revision, the Transportation Department backed off
its spring deadline for the ownership initiative. It also
revised language in that plan to ease concerns among lawmakers
worried about the potential national security implications of
overseas investors having influence over the operations of U.S.

There is scarce overseas investment in U.S.-based passenger
or cargo carriers because federal law allows foreigners no say
in how they are run. The law also caps international equity
stakes at 25 percent voting stock. That investment ceiling does
not change under the proposal.

British entrepreneur Richard Branson's Virgin Group has a
stake in Virgin America, a low-cost airline that has applied to
the Transportation Department to begin operations later this

A senior agency official told reporters the new timetable
for finalizing the revised ownership rule is mid-summer. The
earliest opportunity for European authorities to consider the
proposal as part of the "open skies" agreement would be pushed
back to October.

Transportation planners remain hopeful a final "open skies"
agreement with Europe then could be struck in the waning days
of 2006. U.S. officials say "open skies" would invigorate
competition on lucrative U.S.-Europe routes and create new
business opportunities for carriers on both sides of the

"My expectation is that whenever we get the rule out it
will be in ample time for the EU transport ministers to form a
view," said Jeffrey Shane, undersecretary of transportation for

But European officials would not say whether the new
ownership changes are acceptable or whether the transatlantic
aviation agreement is salvageable this year. An EU spokesman in
Washington said officials would review the new proposal