Issue of European Ownership of U.S. Carriers Blocks Deal

PHOENIX - Foreign investors want bigger stakes and more control of U.S. carriers.

In turn, domestic airlines want improved access to lucrative European cities.

But Europe won't free its skies without better access to American carriers, industry experts said Wednesday at the Phoenix Aviation Symposium, an industry conference.

As with any compromise between governments, they said, politics are holding up what could become a massive international shake-up.

There won't be any agreement between the U.S. and the European Union without "a satisfactory outcome in regards to European ownership and control of your carriers," said Dominique Patry, vice president of international affairs and alliances at Air France.

In the wake of the controversy over a Dubai-owned firm's purchase of American port operations, the U.S. Department of Transportation has faced stiff opposition to its attempt to revise foreign ownership rules of airlines, which are also considered key transportation assets.

The proposal would lift some restrictions on foreign control, raising the maximum stake from its current 25 percent.

U.S. investors can own up to 49 percent of European carriers.

The disparity is holding up air liberalization talks between the European Union and the U.S.

"It's just nutty," said John Byerly, deputy assistant secretary for transportation affairs at the U.S. Department of State.

"This is night and day different from the Dubai ports deal."

Mr. Byerly said he doubts that even if the ownership rules change, there would be a rush of new cash from overseas into domestic carriers.

The more relevant issue for the industry lies with the 63-year-old rules governing where planes can fly between the U.S. and Europe.

True "open skies" would let any plane fly anywhere between the two markets.

That freedom to fly is a threat to the profitable franchise that Fort Worth-based American Airlines Inc. has at London's restricted Heathrow International Airport. Open skies would let any carrier tap into Heathrow.

However, the rules change would also make it far easier for American to get government approval for a deeper alliance relationship with partner British Airways.

Fewer barriers could ignite consolidation on both sides of the Atlantic, said Michael Whitaker, vice president for alliances at United Airlines Inc.

"You'll need that to give the remaining carriers a certain level of strength and stability to compete" in what would be a brutally competitive landscape, he said.

Gaining international access is so important for American and other traditional carriers because they have more pricing power on routes where they don't compete with discounters like Southwest Airlines Co.

American's push into new Asian and Latin American markets has stoked its revenue. The carrier will fly about 4 percent more internationally this year than in 2005, mostly at the expense of its U.S. network.

If the open skies law becomes reality, American will immediately pursue another application to gain antitrust immunity with British Airways, said Will Ris, the carrier's senior vice president of government affairs and its top lobbyist.

The immunity, enjoyed by other carriers, lets two carriers plan routes and set prices collaboratively.

"American has long sought a competitive balance with the other alliances in regards to antitrust immunity," Mr. Ris told the group. "This is increasingly an industry of competition between alliances and we want balance there."

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