Open skies delay to hit Aer Lingus sale plan

Plans for the sale of Aer Lingus in September have suffered a setback with its long haul expansion plans caught up in wrangling between US and EU negotiators.

A new EU-US open skies deal was due to be signed off on October 12th, but the US side has run into difficulty getting political support for its various provisions. Aer Lingus was hoping it could fly into an unlimited number of US cities if the agreement was approved. It is currently limited to just five cities.

But this now appears to be a distant prospect. The open skies deal would also have heralded major changes in the Shannon stopover rule which could also have benefited Aer Lingus.

The US negotiators are having difficulty getting the politicians on Capitol Hill to agree to relax rules on foreign ownership of US carriers. Many politicians in Washington are concerned about the security implications of foreign firms controlling US airlines. Similar sentiment was evident in the recent debate about foreign ownership of US ports.

The US restricts foreigners from owning more than 25 percent of a US carrier. The Bush administration has proposed expanding this to 49 per cent, despite strong congressional opposition.

A deal may still be hammered out by March 2007 but with an Aer Lingus IPO due in late September, certainty about when a deal might be done would have given the sale a boost. The future growth of Aer Lingus is closely linked to opening up more US routes and relaxing the Shannon stopover provisions. These oblige all airlines flying into Ireland to route every second flight through Shannon.

The EU yesterday expressed disappointment about the failure to get closer to an agreement. "We regret the delay," said Stefaan De Rynck, spokesman for EU Transport Commissioner Jacques Barrot. He added, however, that acting US Secretary of Transportation Maria Cino has promised Barrot the US was still committed to reaching a deal with the EU as soon as possible.

However with Congressional elections due to take place in November the political climate for major concessions may not be right. Several leading US politicians are opposed to relaxing the rules on foreign ownership. Commenting recently James Oberstar, a Democratic congressman who has sponsored a bill blocking a relaxation of the rules said: "This proposed rule constitutes a major change in public policy, and would create serious problems in safety, security, national defence, and loss of US jobs."

An open skies agreement would bring together the world's two largest aviation markets and 60 per cent of global traffic. The Shannon stopover and the restrictions on where Aer Lingus can fly are part of a bilateral agreement between Ireland and the US. This has now been amended but it cannot be implemented until an overall open skies deal is reached.

However European and US carriers have different expectations about what might come from the process. US carriers, particularly Continental, want greater access to London Heathrow, while European carriers want greater access to the US market. European airlines can only fly to the US from their own countries. European carriers want this rule relaxed.