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EU, US Face Deadlock in Liberalizing Aviation

The first phase of the EU-US "Open Skies" agreement has been hailed as a success. Now disagreements over investment requirements and majority voting rights threaten the second round of negotiations.

View of the sky from an airplane

The EU and US can't agree on just how open the skies should be

"The European Union has one clear political goal, we want to establish an open aviation area between the United States of America and the European Union," Zoltan Kazatsay from the European Commission's transport wing, said at the launch of the second round of talks in Slovenia, on Thursday, May 15.

The meeting follows an initial Open Skies agreement, which went into effect at the end of March. It effectively allows any EU carrier to fly to any point in the US and vice versa.

Both phases of Open Skies aim to increase competition, slash ticket costs and potentially pave the way for the first-ever trans-Atlantic aviation mergers.

US fears takeovers during economic crisis

Airplane taking off

Trans-Atlantic flights have reportedly increased since Open Skies part one took effect

Investment and voting rights are slated to be the focus of the second round. While the previous agreement allows EU carriers to buy majority stakes in US airlines, it restricts their voting rights to 25 percent.

American carriers, on the other hand, currently have a voting privilege that is capped at 49 percent, though this could change if negotiations fail to resolve the discrepancy.

The US Congress has strongly opposed expanding the rights of EU buyers, fearing that this could make US airlines a target for takeovers, particularly due the current turmoil in financial markets and weak dollar.

"It's going to take a lot of work to persuade our Congress that this is something that should be allowed," said Boyden Gray, US special envoy for EU affairs.

In a surprise move earlier this week, the US said it would seek a broader agreement by promising to cut access restrictions for carriers from over 60 countries.

However, Kazatsay said the EU preferred to focus on deepening the existing deal.

"We think that a broader multilateral initiative cannot replace the bilateral removal of this type of restrictions," he said.

No resolution in sight

Airplane against an orange sun

Some say mergers lead to efficiency but US carriers are worried about getting burned

Prospects are slim that Open Skies will be wrapped up any time soon.

"I think by some time next decade we will have virtually everything, by 2020 perhaps, but by 2010 -- I don't know," said Gray.

The previously implemented deal is set to be reviewed in 2010, and some elements could be changed if the second round fails. Britain, a major critic in the first round, has already threatened to exercise its right to end the agreement if the US does not lower investment barriers.

Despite receiving initial criticism, Open Skies is considered to have been a success thus far.

"We are already seeing concrete benefits, very positive developments," said Daniel Calleja Crespo, director of aviation at the European Commission's transport department.

He added that he expected an 8 percent rise this summer between the EU and the US, compared to 2007, and that about 20 percent more trans-Atlantic flights were be operating out of London's Heathrow Airport.

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