Negotiations on a second stage EU–US "Open Skies" agreement and existing first stage air services ag

European Commission Vice-President Siim Kallas, responsible for Transport, will present the current state of play with regard to negotiations on the second stage EU-US air transport agreement ("Open Skies") to transport ministers, meeting in Brussels, at the Transport Council on March 11 2010.

Current state of play

On March 30 2008, the first stage EU-US " Open-Skies" air services agreement came into effect, introducing new commercial freedoms for operators and an unprecedented framework for regulatory cooperation in the field of transatlantic aviation. The agreement replaced the individual agreements Member States had with the United States and removed all barriers for airlines of either side wishing to fly between and beyond Europe and the United States. For the first time, European airlines could operate from bases outside their licensing state, creating the opportunity, for example, for a German airline like Lufthansa to operate flights from Paris to New York.

The agreement also included a comprehensive new regulatory framework within which these new freedoms could be exercised, reflecting the importance placed by Europe and the United States on safe, secure and effective regulation of the sector. A new body responsible for implementation of the agreement, the Joint Committee, was formed, and new cooperative initiatives in the areas of security, competition and air traffic management were launched.

This groundbreaking agreement has paved the way for new entrants into once sheltered markets and provided an open market for all trans-Atlantic routes between the United States and Europe, thereby facilitating greater competition, encouraging job creation and helping to lower air fares.

Importantly, the first stage agreement also established a road-map for negotiations on further improvements to the agreement aimed at creating additional opportunities for both sides, particularly within each other's domestic markets, and deepening the already excellent level of cooperation on aviation issues of common interest. These negotiations on a second stage EU-US "Open Skies" agreement are currently ongoing.

On the negotiations on a second stage EU-US air transport agreement

What is currently under discussion?

The EU and US are currently negotiating a Second Stage Air Services Agreement aimed at building on the existing First Stage Air Services Agreement ("Open Skies"), which has been in place since 30 March 2008.

What are Europe's aims for the second stage negotiations?

Europe believes that the ground-breaking first stage agreement could be improved in a number of areas. In particular, the second stage agreement is a significant opportunity for both sides to normalise the rules on airline investment , thereby facilitating the ownership of European and US airlines by each other's investors. Furthermore, there remains the potential for a second stage agreement to further improve choice for consumers by further opening market access .

Separately, Europe sees this agreement as an opportunity to secure deeper regulatory cooperation on the broad range of issues faced by the transatlantic aviation sector, including safety, security, competition enforcement, and the environment.

When did these negotiations begin?

They started in May 2008, less than 60 days after the first stage agreement came into effect. This timetable was foreseen in the first stage agreement, which established a detailed framework for the second stage negotiations, including a list of priority topics for discussion. Since then, there have been a total of seven [7] rounds of negotiation.

How advanced are the negotiations?

Considerable progress has been made in recent months, with tentative agreement on a wide range of items. A number of important issues remain outstanding, though Europe is confident that an agreement can be reached on these in 2010, consistent with the commitment made by both sides at the 2009 EU-US Summit that they would "aim to reach a second-stage air transport agreement in 2010 which includes benefits for both sides".

Why have the negotiations taken so long?

The issues for discussion in the second stage negotiations require careful consideration by both sides. Furthermore, there was a long break in the negotiations leading up to and continuing for a period after the US elections in November 2008. Consequently, the negotiations have taken some time.

What happens if no agreement is reached on a second stage agreement?

The provisions of the first stage agreement mean that, should no second stage agreement be reached by the end of November 2010, then both sides have the right to suspend certain rights under the existing agreement.

However, given the progress already made in the negotiations, Europe considers an agreement in 2010 to be the most likely outcome.

O n the first stage EU-US air services agreement

When did the first stage agreement enter into force?

The EU-US Air Transport Agreement, signed on 30 April 2007, has been in effect since 30 March 2008.

What were the new rights for EU airlines in the first stage agreement?

The recognition of all European airlines as "Community air carriers" by the US, allowing for the consolidation of the EU aviation sector and the compliance with the November 2002 Court cases in the so-called 'Open skies judgments'.

The possibility for any "Community air carrier" to fly between any point in the EU to any point in the US, without any restrictions on pricing or capacity. This freedom did not exist before 30 March.

The possibility to continue flights beyond the United States towards third countries ('5th freedom').

The possibility to operate all-cargo flights between the United States and any third country, without a requirement that the service starts or ends in the EU ('7th freedom').

So-called '7th freedom rights' for passenger flights between the US and a number of non-EU European countries, i.e. direct flights between the US and Croatia or Norway.

A number of access rights to the US 'Fly America' programme for the transport of passengers and cargo financed by the US federal government.

More freedom to enter into commercial arrangements with other airlines (code-sharing, wet-leasing etc.).

Rights in the area of franchising and branding of air services to enhance legal certainty in the commercial relations in between airlines.

Possibility of antitrust immunity for the development of airline alliances.

Rights for EU investors in the area of ownership, investment and control of US airlines; rights in the area of inward foreign investment in EU airlines by non-EU European investors; rights in the area of ownership, investment and control by EU investors of airlines in Africa and non-EU European countries.

What has been the commercial effect of the first stage agreement?

The immediate effect of the agreement has been to remove constraints and enable competition to thrive. Although services have since been affected by the crisis, the number of flights and degree of competition available to consumers is now considerably higher than under the previous set of bilateral arrangements.

In the first year following implementation of the agreement, the effect was considerable, with the total number of flights between the EU and the US in April-June 2008 8% higher than the same period in 2007.

Transatlantic services have increased particularly in those Member States where restrictive agreements were previously in place. In London Heathrow alone, flights to the US increased by 18 daily flights, an increase of more than 20% . Flights to the US from Spain and Ireland have also increased.

Airlines have also made use of the opportunity to operate transatlantic flights from outside their home country. For example, British Airways' subsidiary, Open Skies, operates daily between Paris and the US destinations of Washington and New York.

Many airlines have made use of the extended code-sharing opportunities opened up by the agreement. For example, SkyTeam partners Air France-KLM and Delta/Northwest have secured antitrust immunity for their operations. Oneworld partners British Airways, Iberia, and American have also applied for antitrust immunity for a closer alliance.

Furthermore, there has been new transatlantic investment in the airline industry. German airline Lufthansa acquired 19% of US carrier JetBlue in February 2008.

How will the EU and the US cooperate in regulatory issues?

The agreement introduces unprecedented mechanisms for regulatory convergence , notably in competition , state aid and security . The objective is to minimize incompatibilities between the rules and policy approaches on either side of the Atlantic.

The provisions on security are key towards a 'one-stop security' approach . The regulatory cooperation includes also provisions on EU-US technical cooperation in relation to climate change , on consumer protection and on the development of joint EU-US approaches in international organisations.

Are there concrete examples of this regulatory cooperation?

In the field of aviation security, a working arrangement has been reached on reciprocal airport assessments.

In the field of air traffic management and environmental protection, the European Commission and the U.S. Federal Aviation Authority have created the Atlantic Interoperability Initiative to Reduce Emissions (AIRE) partnership to improve the environmental footprint of air transport with environmentally friendly air traffic procedures from gate to gate.

In the field of competition policy, the European Commission and the U.S. Department of Transportation have been working together to achieve compatible regulatory approaches.

How does the Commission monitor the implementation of the agreement?

The agreement establishes a new mechanism: The EU-US Joint Committee . This has already met a total of nine [9] times to oversee implementation of the agreement and ensure regulatory cooperation.