Open skies may clear way for mergers

By Mark McSherry

NEW YORK (Reuters) - The next round of U.S./EU "open skies" talks set to start in May could lay the groundwork for trans-Atlantic airline mergers -- but proponents of greater European involvement in American carriers must overcome hurdles in Washington.

Political opposition to foreign control of U.S. carriers remains strong, but industry executives are wondering how long financially struggling airlines can resist international market forces and consolidation.

U.S. negotiators have long expected Europe to present its case for foreign ownership, which federal law caps at 25 percent of voting stock.

"We approach this with an open mind. This is a very difficult issue. It has to be studied before we commit to any change. Some issues you have to grapple with and grapple with seriously," said John Byerly, a senior State Department official and the chief U.S. negotiator in the upcoming talks.

The first phase of "open skies" took effect March 30 and replaced restrictive treaties dating to World War Two. It allows EU and U.S. airlines to serve any route between the EU and the United States for the first time.

But EU states have threatened to scrap the deal if Washington does not agree by 2010 to a second phase allowing foreign airlines to buy more voting rights in U.S. carriers and permitting them to run domestic services.

Washington also has provisions to suspend the pact.

"Like any other industry, the airlines need the ability to be able to have international mergers and consolidation," said Steve Lott, a Washington-based spokesman for the International Air Transport Association (IATA), a trade group for international airlines.