The United States and European Union concluded a new, expanded Open Skies agreement between the two parties which was expected after the initial agreement and was to allow for majority ownership of airlines in one country by an airline of another country.  This exists within the EU today but the US currently limits foreign ownership stakes to no more than 25% and the EU limits them to 49%. 

The next agreement was supposed to allow majority ownership and while this one does do that, there is a major hurdle still in the way.  The legislatures of both parties have to ratify this agreement.  Secretary of Transportation Ray LaHood signed the agreement but I question whether or not this is really going to happen. 

Airlines are a hot topic in the US and both the US and EU have economies that are very different than they were in 2007 when the first agreement was made.  Governments on both sides of the Atlantic have become much more protective of their industries over the past 2 years and airlines are something of a pride thing for both governments.  Although this comes with a stamp of approval from President Obama’s administration, it is somewhat difficult to imagine the current Congress ratifying the agreement. 

I suspect that the present Congress will defer this until after our national elections in November and if there is a party control change, I’ll expect this doesn’t come before Congress before next summer.  A Republican controlled Senate might be more inclined towards this deal but only because the Senate is, after all, supposed to be the voice of reason in Congress. 

I don’t see this as a game changer on either side of the ocean.  In fact, while our big concern is over a major European airline taking control of a US airline, I actually think the opposite is more likely.  I can see someone like American Airlines or Delta wanting to take control of a European partner and I think they have a better chance of financing the deal.  Particularly in Delta’s case.  The new ContinUnited company is going to be busy for a few years getting its act in order but could be an interesting acquisition for Lufthansa.

All in all, there is a new agreement that isn’t in effect and won’t be for some time to come.  Even when it does come into effect, I think ownership across the ocean is much more likely to come in the form of LCCs on both sides taking an interest in each other.  Or a larger carrier taking an interest in acquiring a smaller carrier here. 

Perhaps Virgin Atlantic may want to take full control of Virgin America (not necessarily a bad thing either in my opinion since they have a bit more nerve when it comes to competing.  Or let me point out that Lufthansa already owns a stake in jetBlue and may want to acquire it in full.   Maybe this lets Ryanair form its international division by acquiring an LCC here to provide feed on both sides of the pond.  Whatever happens as a result, it isn’t likely to really occur for another 1 to 2 years.

Filed under: Airline News by ajax
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