We are indebted to bmi for a short synopsis which follows of the Bermuda II air service agreement signed by the UK and US governments in 1977 and the successor of Bermuda I. bmi (and Continental Airlines) are the two carriers who feel let down by this arrangement which only allows for them to operate from regional airports to the USA. Bermuda I dates from 1946. It was renounced by the British Government 30 years later. Somewhat fearful of a complete breakdown of the, even then, world”s biggest truly international air market the Americans signed Bermuda II in 1977 and, some would argue, have been smarting under its terms ever since.
And why Bermuda you may ask? There are two schools of thought on that one. One group says it is as far as each country”s flying boats could make nearly 60 years ago, whilst the other comment is that the diplomats rather liked the idea of long drawn out negotiations in the British colony. However these days the talks are either held in Washington, or now in the alternative venue Brussels.
In 1991, Bermuda II was revised, American Airlines and United Airlines replacing Pan Am and TWA. In exchange, British Airways gained the right to code-share with a US airline. Virgin Atlantic was also first permitted to operate from Heathrow at this time and also code-share.
Subsequently there were a number of attempts at introducing a more liberalised regime, but major policy disagreements ensured that these efforts were stalled.
It was not until British Airways proposed its alliance with American Airlines in 1996 that the negotiations were given real impetus. An alliance of the size and nature intended by these two airlines would require measures to protect competition and allow new entrants.
”Open Skies” negotiations foundered when British Airways and American said it was not prepared to accept the remedies proposed by the competition authorities to allow the alliance to go ahead. The US dismissed the BA/AA application for anti-trust immunity in July 1999.
Later that year discussions centred on a ”mini-deal” allowing a phased increased access to Heathrow. Despite the prospect of lower fares and greater consumer choice, the two sides were unable over successive rounds during 1999-2001 to pull the trigger on a deal: a situation suiting the incumbent Heathrow airlines.
In November 2002 the European Court of Justice ruled that aviation agreements between certain Member States (including the UK) and the US breached European law.
Under a June 2003 political agreement, the European Commission now has a mandate to negotiate a liberal air service agreement (”Open Aviation Area” ” OAA) with the US on behalf of the UK and the other countries who have not signed an ”open skys” deal, that is Ireland, Spain, Portugal and Greece.
In the meantime, the restrictions of Bermuda II remain in effect for UK/US air services.
The current OAA negotiations began in late 2003. From the outset the US side said that elements of the package were non-negotiable. Both sides are working within a narrow political window with the US elections in November and the present Commissioners terms ending late 2004.
Unless the two sides can reach a compromise deal in this window, the prospect of opening up Heathrow to meaningful competition disappears until late 2005. In this case, the UK government could consider the resumption of talks with the US to discuss a ”mini-deal”.
Even as this piece is being written there are developments with US Transportation Secretary Norman Mineta saying in Prague last Friday that the US and the EU are getting close to agreeing to deal. Mineta said he met last week with EU officials to discuss the deal and that "we really moved the agreement quite a bit".
"I am more than hopeful. I just feel very strongly we will be able to have the details of this agreement wrapped up so that our leaders will be able to sign it at the summit in June," referring to an EU-US summit due to be held in Dublin on June 25-26.
Included in the discussions is the ”fly America” policy, which prohibits travellers funded by the US treasury from using overseas carriers where US airlines are available, and also the ownership rules concerning foreign investment in US airlines. As Sir Michael Bishop has pointed out it is something of a red herring, the Virgin 49% original interest in Virgin Blue now considerably watered down.
Let us hope that reason sees the day and that the expanded market will mean more business for everyone. However there are some who do not take that view and would prefer to leave the status quo. The Dublin meeting will need some positive decisions from a purely PR point of view. An air service agreement could be one of them.