161
THE APRIL 2007 U.S.–EU “OPEN SKIES”
AGREEMENT: A DREAM OF
LIBERALIZATION DEFERRED
Christian Westra*
Abstract: The April 2007 Open Skies Agreement between the United
States and the European Union has been hailed as a landmark in aviation
deregulation. Under the terms of the agreement, any U.S. or EU airline
may fly between any city in the United States and Europe—a major depar-
ture from the byzantine restrictions that previously characterized transat-
lantic air travel. Nevertheless, in several key respects, the treaty stops short
of full deregulation. This Note assesses the probable impact of the Open
Skies Agreement and explores why EU negotiators were willing to com-
promise on several of their core objectives.
Introduction
On April 30, 2007, the first aviation agreement between the
United States and the European Union (EU) was signed in Washing-
ton.1 Hailed by European Commission Vice-President Jacques Barrot
as a “centerpiece for today’s reinvigorated transatlantic relationship,”2
the U.S.–EU Open Skies Agreement (Open Skies Agreement)3 marks
a clear departure from the web of tangled bilateral treaties that have
governed transatlantic aviation since World War II.4 For the first time
in the history of modern aviation, any U.S. or EU airline will be per-
mitted to fly between any city in the United States and Europe.5
* Christian Westra is Executive Note Editor of the Boston College International & Com-
parative Law Review and a joint degree candidate at the Fletcher School of Law & Diplo-
macy.
1 2007 O.J. (L 134) 4–41 [hereinafter Open Skies Agreement].
2 EU News Release, Open Skies: Jacques Barrot in Washington to Sign Historic Avia-
tion Deal at the EU-US Transatlantic Summit (Apr. 30, 2007), http://www.eurunion.org/
News/press/2007/2007044.htm (last visited Nov. 13, 2007).
3 See generally John Bruton, The Sky’s the Limit for Trans-Atlantic Air Travelers, Seattle
Times, June 23, 2006 (noting that in Europe, the treaty is generally referred to as “Open
Aviation Agreement”).
4 See Robert M. Hardaway, Of Cabbages and Cabotage: The Case for Opening up the U.S. Air-
line Industry to International Competition, 34 Transp. L. J. 1, 2–12 (2007).
5 Open Skies Agreement, supra note 1, art. 2(a); see also EU Backing for “Open Skies”
Deal, BBC News, Mar. 22, 2007, http://news.bbc.co.uk/2/hi/business/6477969.stm (“any
162 Boston College International & Comparative Law Review [Vol. 32:161
Yet, just how significant is this departure in treaty law for airline
passengers? Michael O’Leary, chief executive officer of the European
low-cost airline Ryanair, has gone so far as to proclaim the advent of
fifteen dollar transatlantic tickets by 2010.6 Others have heralded the
Open Skies Agreement as a first step towards opening the U.S. domes-
tic aviation market to foreign competition.7 In reality, however, unless
the European Union manages to wrest more concessions from the
United States in the next round of Open Skies treaty negotiations,
such prognostications are likely to go unmet.8
This Note begins in Part I by providing historical context on the de-
velopment of aviation regulatory law, offering a comparative view of
trends in the United States and Europe before examining the transatlan-
tic regulatory order. Part II discusses the negotiations leading up to final-
ization of the Open Skies Agreement and examines the most significant
provisions of the treaty, namely those related to cabotage—the right to
transport passengers within a given country—and foreign investment
control. Part III analyzes the key concessions made to seal the Open
Skies Agreement. Finally, Part IV concludes by arguing that passengers
on both sides of the Atlantic would have benefited had the European
Union realized more of its strategic objectives. Major issues for consid-
eration during the second round of open skies negotiations, which is
scheduled to commence by the end of 2008, are highlighted in closing.
I. Background
A. The United States
For most of the Twentieth Century, the U.S. government smoth-
ered airline competition under a thick blanket of legislative regula-
tion.9 In the early years of U.S. commercial aviation, foreign invest-
EU-based airline will be allowed to fly from any city within the EU to any city in the US,
and vice versa”).
6 Nicola Clark, A Flight of Fantasy: €10 to Cross the Atlantic, Int’l Herald Trib., Apr. 14,
2006, at 11.
7 U.S. Airline Group Backs “Open Skies” Potential, Reuters, Mar. 22, 2007, http://www.
reuters.com/article/tnBasicIndustries-SP/idUSN2235098020070322 (noting some Euro-
pean carriers hope Open Skies Agreement will eventually lead to “full liberalization of the
U.S. domestic air market”).
8 See Dan Bilefsky & Nicola Clark, EU Backs U.S. Deal on Atlantic Air Routes: “Open Skies”
Accord Should Lower Fares but Draws Criticism, Int’l Herald Trib., Mar. 23, 2007, at 1.
9 See Hardaway, supra note 4, at 2–12; see also Christopher McBay, Airline Deregulation De-
serves Another Shot: How Foreign Investment Restrictions and Subsidies Actually Hurt the Airline
Industry, 72 J. Air L. & Com. 173, 175–80 (2007).
2009] The U.S.–EU Open Skies Agreement 163
ment in U.S. airlines was heavily restricted.10 The Air Commerce Act
of 1926 (ACA) mandated that U.S. citizens own at least fifty-one per-
cent of any aircraft registered in the United States.11 Moreover, the
ACA also stipulated that the board of directors of any U.S. airline be
comprised of at least two-thirds U.S. citizens.12 Anxious to safeguard
U.S. neutrality in the aftermath of World War I, Congress sought to
block foreign control of U.S. aircraft that might conceivably be co-
opted into armed service abroad.13
The Civil Aeronautics Act of 1938 (CAA) went considerably fur-
ther in restricting competition.14 As an additional bar to foreign in-
vestment, the CAA required that U.S. citizens own or control at least
seventy-five percent of the voting rights in any U.S. carrier.15 Beyond
fixing prices for air transportation in a manner akin to the way in
which the Interstate Commerce Commission fixed prices for U.S. rail-
roads,16 the CAA also established “virtually absolute barriers to entry”
for new competitors.17 Although new entrants into the U.S. market
could theoretically obtain permission to fly, in reality the Civil Aero-
nautics Board established under the CAA did not allow a single new
competitor to enter the market between 1938 and 1975.18 During that
period, the U.S. aviation industry grew by a staggering 23,800 percent,
even as the five largest carriers operating in the United States enjoyed
a de facto oligopoly.19
By the 1970s, pressure for deregulation had reached a breaking
point.20 During the 1975 Kennedy hearings on aviation deregulation,
industry experts testified that regulated airfares were between forty
and one-hundred percent higher than they would be without gov-
ernment price fixing, with a resultant cost to consumers of roughly
10 See Hardaway, supra note 4, at 2–12.
11 McBay, supra note 9, at 175.
12 Id.
13 Id.
14 See Hardaway, supra note 4, at 4.
15 McBay, supra note 9, at 176.
16 See Hardaway, supra note 4, at 3 (noting how ICC obligated government to do “dirty
work of fixing prices” in much same way that CAA would obligate government with regard
to aviation industry).
17 See id. at 4.
18 Paul Stephen Dempsey, The Rise and Fall of the Civil Aeronautics Board—Opening Wide
the Floodgates of Entry, 11 Transp. L.J. 91, 115 (1979).
19 Hardaway, supra note 4, at 4 (citing Stephen Breyer, Regulation and Its Reform
206 (1982)).
20 See id. at 3–4; see also McBay, supra note 9, at 178.
164 Boston College International & Comparative Law Review [Vol. 32:161
$3.5 billion annually in excess fares.21 Congress responded with the
Airline Deregulation Act of 1978 (ADA), which eliminated govern-
ment price fixing and opened the aviation industry to new entrants.22
Over the next few decades, a host of new airlines entered the U.S.
market and fares fell considerably.23 Nevertheless, foreign investors
were still barred from taking any more than twenty-five percent of vot-
ing stock in a U.S. carrier.24
B. Europe
In 1957, the European Economic Community (EEC)25 was estab-
lished under the Treaty of Rome.26 Although the Treaty of Rome
granted the EEC the authority to create “the framework of a common
transport policy”27 within Europe, it limited this authority to rail, road,
and inland waterway transport.28 The Treaty of Rome permitted pan-
European regulation of maritime and air transport, but only in the
event of a unanimous vote by the Council of Europe (Council).29
Despite the language of the Treaty of Rome, throughout the
1970s and 1980s a number of European Court of Justice (ECJ) deci-
sions lent support to the notion that the EEC had some power to
regulate maritime and air transport within its member states, even
without universal Council approval.30 By 1987, the question had been
made moot by the Single European Act, which formally amended the
Treaty of Rome to change the Council’s voting system from a unani-
mous system to a qualified majority system.31
21 Hardaway, supra note 4, at 4.
22 See id. at 4.
23 See id. at 5.
24 McBay, supra note 9, at 176.
25 The European Economic Community was formed in 1952. In 1992, the term “Eco-
nomic” was removed by the Maastricht Treaty, which made the newly-termed European
Communities one of three pillars of the European Union, along with Common Foreign
and Security Policy and Police and Judicial Cooperation in Criminal Matters.
26 Treaty Establishing the European Community, Nov. 10, 1997, O.J. (C 340) 3 (1997)
[hereinafter Treaty of Rome].
27 Id.
28 See Jacob A. Warden, “Open Skies” at a Crossroads: How the United States and European
Union Should Use the ECJ Transport Cases to Reconstruct the Transatlantic Aviation Regime, Nw. J.
Int’l L. & Bus. 227, 232 (2003).
29 Id.
30 See id. at 232–33 (citing Commission v. French Republic (French Seaman) (1974)
(holding that general principles of Treaty of Rome could be applied to maritime travel);
Ministere Public v. Lucas Asjes (Nouvelles Frontieres) (1986) (holding same to be true with
regard to air travel)).
31 Id. at 233.
2009] The U.S.–EU Open Skies Agreement 165
Aviation deregulation followed between 1987 and 1992 with en-
actment of the “three packages,” a series of regulatory reforms.32 Al-
though the “first package” had little real impact, the “second pack-
age” increased the power of airlines to set fares and allowed for
expanded travel within Europe.33 By 1997, when the provisions of the
“third package” had come into force, all EU Member States enjoyed
full cabotage rights to fly routes within other EU countries.34 As in the
United States, a number of new low-cost airlines emerged to chal-
lenge the dominance of established legacy carriers.35
C. Transatlantic Aviation
As the U.S. Third Army rumbled toward Nazi Germany in the
closing months of World War II, trade negotiators from the Allied
powers set about laying the foundation for a postwar transatlantic
aviation order in Chicago.36 Affirming the central precept of the 1919
Paris Aeronautical Convention—that states maintain sovereignty over
their airspace—the 1944 Chicago Convention established the princi-
ple that although nations are free to bar foreign carriers from com-
mercial access to their airports, they may not restrict foreign carriers
from entering their national airspace.37 As the strongest commercial
aviation power, the United States pushed for further liberalization in
air travel, although it was unable to achieve a broader multilateral
consensus.38
Instead, scores of bilateral agreements between the United States
and other nations were enacted following the Chicago Convention.39
The most significant of these early agreements was the 1946 “Bermuda
I” agreement between the United States and Great Britain, which
32 Id.; see also Monica E. Antezana, The European Union Internet Copyright Directive as Even
More Than It Envisions, 26 B.C. Int’l & Comp. L. Rev. 415 (2003) (illustrating another ef-
fort at EU integration).
33 Warden, supra note 28, at 233–34.
34 Id. at 234.
35 Among the most successful early low-cost European carriers were Selios Haji-
Ioannou’s UK-based Easyjet and Ireland-based Ryanair. See Ryanair Profits Take Off, BBC
News, August 9, 2002, http://news.bbc.co.uk/2/low/business/2175319.stm.
36 See E. Rebecca Kreis, A Comparative Analysis of the Aviation Network Within the European
Community and the Ad-Hoc Network Between the United States and Central America, 24 Transp.
L.J. 303, 305–11 (1997) (illustrating origins of early European aviation treaties during first
decades of twentieth century).
37 Id. at 307–09 (noting that Convention on International Civil Aviation signed at Chi-
cago in 1944 established nine so-called “freedoms of the air”).
38 See id. at 308.
39 Id. at 311.
166 Boston College International & Comparative Law Review [Vol. 32:161
served as a model for hundreds of subsequent bilateral aviation agree-
ments around the world.40 Under Bermuda I and its progeny, fares and
tariffs were set by an international body, the International Air Trans-
port Association.41 Consequently, throughout much of the postwar pe-
riod, airlines traveling international routes competed not on price but
on “capacity and service frequency,” with the result that international
air travel remained beyond the means of most U.S. and European trav-
elers.42
In 1977, the Bermuda I agreement was amended as “Bermuda
II.”43 Under Bermuda II, only two U.S. airlines—American Airlines
and United Airlines—were permitted to service London’s Heathrow
Airport.44 In addition, non-stop service from Great Britain to America
was restricted to a fixed number of “gateway cities” in the United
States.45 The agreement represented a successful effort by British pro-
tectionists to eliminate the supposed “excess capacity” of U.S. carriers
traveling to Britain.46 Although the U.S. government pushed strenu-
ously for looser regulation, the British controlled access to Heathrow,
Europe’s busiest airport, and thus exercised considerable leverage.47
Despite the highly restrictive nature of Bermuda II, transatlantic
aviation became increasingly open following passage of the U.S. Air-
line Deregulation Act of 1978.48 Airline alliances49 and code sharing
agreements enabled U.S. carriers to circumvent restrictions on air
travel within Europe by partnering with EU carriers.50 Moreover, bi-
lateral open skies agreements between the United States and individ-
ual European countries began to proliferate, enabling transatlantic
service to new U.S. cities.51
40 See Warden, supra note 28, at 230.
41 Id. at 230–31.
42 Id. at 231.
43 Kreis, supra note 36, at 311–12.
44 See US Airways Group v. British Airways, 989 F.Supp. 482, 485 (S.D.N.Y. 1997) (de-
scribing “nature” of U.S.-U.K. airline industry as of late-1990s).
45 Air Service Agreements Between the United Kingdom and the United
States, Select Comm. on Env’t., Transp. and Regulatory Affairs, Eighteenth Re-
port (2000), http://www.parliament.the-stationery-office.co.uk/pa/cm199900/cmselect/
cmenvtra/532/53206.htm#note38.
46 Kreis, supra note 36, at 311–12.
47 See id. at 312.
48 See id. at 312–14.
49 See Hardaway, supra note 4, at 24 (discussing Oneworld, SkyTeam and Star Alliance).
50 See Kreis, supra note 36, at 312–14.
51 Warden, supra note 28, at 236–37.
2009] The U.S.–EU Open Skies Agreement 167
The first of these bilateral agreements, a 1992 treaty between the
United States and the Netherlands, permitted unrestricted landing
rights within each signatory’s territory.52 Prior to the agreement,
flights between the United States and the Netherlands had been lim-
ited in number and restricted to certain airports.53 As a result of the
agreement, Dutch carrier KLM found itself at a significant competi-
tive advantage as compared to other European carriers.54 KLM not
only enjoyed the flexibility to chart routes anywhere in the United
States to meet market demand; as a further incentive to the Dutch
government, the U.S. Department of Transportation also exempted
KLM from U.S. antitrust restrictions in its alliance with Northwest Air-
lines.55 Other bilateral Open Skies agreements soon followed between
the United States and various members of the European Union.56 By
2007, bilateral agreements had been concluded with sixteen EU
Member States.57
Although the bilateral Open Skies agreements negotiated between
the United States and individual European countries may have helped
to liberalize transatlantic aviation, they nevertheless fell flat in the face
of European integration.58 The ECJ signified its disapproval in a series
of consolidated rulings in 2002.59 Noting that bilateral Open Skies
agreements between the United States and the European Union con-
tradicted the spirit of the “three packages” reforms, the ECJ held that
EU Member States entering into such agreements “infringed the rules
on the division of powers between the Community and the Member
States.”60 The court extended its condemnation to the Bermuda II
52 Agis Salpukas, U.S. and Dutch Agree on a Pact to Aid Airlines, N.Y. Times, Sept. 5, 1992,
at A1.
53 See id.
54 Warden, supra note 28, at 236–37.
55 Kreis, supra note 36, at 314 (noting immunity as method of enticing countries to en-
ter into open-skies agreements).
56 In addition to its open skies agreement with the Netherlands, the United States ne-
gotiated similar agreements with Austria, Belgium, Denmark, Finland, Germany, Luxem-
bourg and Sweden. See Alford & Champley, The Impact of the 2007 U.S.–EU Open
Skies Air Transport Agreement, Int’l Trade Admin. Occasional Paper no. 07–001 2
(2007), http://trade.gov/media/Publications/pdf/openskies_2007.pdf.
57 Id.
58 See Press Release, Europa, Open Sky Agreements: Commission Welcomes European
Court of Justice ruling (Nov. 5, 2002), http://europa.eu/rapid/pressReleasesAction.do?
reference=IP/02/1609&format=HTML&aged=0&language=EN&guiLanguage=en [hereinaf-
ter Commission Welcomes ECJ Ruling] (last visited Nov. 7, 2007).
59 Cases C-466/98-C-469/98, C-471/98-C-472/98, C-475/98-C-476/98, Comm’n v. UK,
DK, S, FIN, B, L, AUS, G, (31 Jan. 2002).
60 Id. at Concluding Observations.
168 Boston College International & Comparative Law Review [Vol. 32:161
agreement.61 Yet even if the ECJ was unambiguous in its criticism of
bilateral aviation treaties negotiated by individual EU Member States, it
did not rule out a broader Open Skies agreement between the United
States and the European Union as a whole.62 On the contrary, the ECJ
explicitly endorsed the notion.63 As European Commission Vice Presi-
dent for Transport and Energy Loyola de Palacio commented, “it is
clear from the Court’s ruling that we will all have to work together in
Europe to identify and pursue our objectives jointly.”64
I. Discussion
It took five years for the United States and the European Union
to emerge from the rubble of the ECJ’s 2002 rulings.65 Finally, in the
spring of 2007, the United States and the European Union concluded
a comprehensive Open Skies treaty.66 The U.S.–EU Open Skies
Agreement, signed on April 30, 2007 in conjunction with a U.S.–EU
summit in Washington, took effect on March 30, 2008.67 Although it
touches on many aspects of commercial aviation, from code sharing
to security, the most contentious provisions of the treaty relate to
cabotage and foreign airline ownership rights.68
Article 3 of the Open Skies Agreement deals with cabotage.69
Under Article 3(c)(i), U.S. carriers have the right to fly from Europe
to the United States via “intermediate points” in any EU Member
State.70 For example, American Airlines may fly from Berlin to Am-
sterdam before continuing on to Boston.71 Likewise, under Article
3(c)(ii), EU carriers are free to fly from any point in the European
Union to any point in the United States without necessarily touching
their “home country.”72 A British Airways flight, in other words, may
61 Id.
62 Commission Welcomes ECJ Ruling, supra note 58.
63 Id.
64 Id.
65 Press Release, U.S. Mission to the EU, U.S., EU Agree to Reduce Regulatory and
Trade Barriers (Apr. 30, 2007), available at http://useu.usmission.gov/Article.asp?ID=
74174DC1–203C-48EA-87F6-C58557DEB56A [hereinafter U.S., EU Agree to Reduce Barri-
ers] (last visited Nov. 1, 2007).
66 Open Skies Agreement, supra note 1.
67 Id.
68 See Don Phillips, “Open Skies” Reality Still Proves Elusive, Int’l Herald Trib., June 5,
2006, at 10 (discussing cabotage and airline ownership rights).
69 Open Skies Agreement, supra note 1, art. 3.
70 Id. art. 3(c)(i).
71 See id.
72 Id. art. 3(c)(ii).
2009] The U.S.–EU Open Skies Agreement 169
fly from Madrid to Chicago without landing in London.73 Notably,
however, Article 3 does not authorize EU carriers to fly between
points in the United States before returning to Europe.74 Thus, Virgin
Atlantic may not operate flights within the United States, although it
may take a limited equity stake in U.S. carriers.75
Ownership rights under the Open Skies Agreement are discussed
in Article 6 of the treaty and elaborated in Annex 4.76 U.S. investors
are guaranteed the right to participate as minority shareholders in
any EU carrier, provided that the carrier is majority-owned and con-
trolled by EU Member States or nationals.77 EU investors may hold up
to 49.9 percent of total equity in a U.S. carrier, but are limited to
twenty-five percent voting equity.78 On a case-by-case basis, ownership
by EU nationals of fifty percent or more of the total equity of a U.S.
carrier is permitted under the agreement, although such ownership
“shall not be presumed to constitute control of that airline.”79 Not-
withstanding the other provisions in Annex 4, the European Commu-
nity reserves the right to limit investment by U.S. nationals in the vot-
ing equity of EU carriers “to a level equivalent to that allowed by the
United States for foreign nations in U.S. airlines.”80
The issue of foreign ownership rights is not technically linked to
the concept of cabotage, but European negotiators insisted from the
beginning that the European Union would not implement an open
skies agreement unless the United States relaxed its “regulatory grip
on airline investment.”81 While foreign investors may participate pas-
sively on the corporate boards of U.S. carriers, they have nonetheless
been historically restricted under the CAA from taking an active role
in most operational decisions.82 As a prerequisite to any Open Skies
agreement, European negotiators demanded that their U.S. counter-
73 See id.
74 Id. art. 3.
75 See John Hughes, Branson, Rejected or Not, May Win in U.S. Airline Bid, Bloomberg, Dec.
5, 2006, http://quote.bloomberg.com/apps/news?pid=20601109&sid=aQs7zO5NbyQw (not-
ing that this is essentially what UK-based Virgin Atlantic has done by putting up twenty-five
percent of the initial $177 million investment to start Virgin America).
76 Open Skies Agreement, supra note 1, art. 6 & annex 4.
77 Id. art. 2.
78 Id. annex 4, art. 1(a).
79 Id. annex 4, art. 1(b).
80 Id. annex 4, art. 3.
81 Phillips, supra note 68, at 10.
82 Id.
170 Boston College International & Comparative Law Review [Vol. 32:161
parts agree to loosen their restrictions on foreign investment.83 Early
on, at least, it seemed this might happen.84
U.S. and EU negotiators reached a preliminary Open Skies
agreement in November 2005.85 The terms of the tentative agreement
granted each U.S. and EU carrier the right “to fly between every city
in the EU and every city in the United States,” and “to operate with-
out restrictions on routes or capacity.”86 EU Commission support for
the agreement was predicated upon U.S. congressional approval of an
administrative rule proposed by the Department of Transportation
(DOT) to allow foreign investors a greater role in the management of
U.S. carriers.87 Under the proposed DOT rule, foreign investors from
Open Skies partner nations would be free to make “operational deci-
sions” on issues such as rates and routes, although they would still be
prohibited from having control over “security, safety and defense is-
sues related to the airlines.”88 According to the DOT, the proposed
rule would reinterpret, rather than replace, the ownership require-
ments of the CAA.89
After a preliminary Open Skies agreement was negotiated in No-
vember 2005, the proposed DOT rule was submitted to Congress for
comments.90 Officials from the DOT testified at length in favor of the
proposal.91 Nevertheless, this did little to allay congressional concerns
83 See id.
84 See Press Release, U.S. Mission to the EU, Airline Foreign Control Rule Might Be De-
layed, U.S. Official Says (Apr. 25, 2006), http://useu.usmission.gov/Article.asp?ID=CE
1729F4-EFBB-451F-ABA7–163A2766A059 [hereinafter Foreign Control Rule Might be
Delayed] (last visited Nov. 1, 2007) (discussing preliminary November 2005 open skies
agreement).
85 Id.
86 Id.
87 See Press Release, U.S. Mission to the EU, U.S, EU Reach Long-Sought Accord To Lib-
eralize Air Traffic U.S. Mission to the European Union (Mar. 2, 2007), http://useu.
usmission.gov/Article.asp?ID=E315F141–7EFD-4CBB-B249-F7F5FED60445 [hereinafter U.S.,
EU Reach Long-Sought Accord] (last visited Nov. 1, 2007).
88 Press Release, Andrzej Zwaniecki, U.S. Mission to the EU, U.S. Remains Committed
to Airline Deal with Europe, Officials Say (Aug. 17, 2006), http://useu.usmission.gov/
Article.asp?ID=CDF512F7–24CA-47EC-A090-D4B050658B16 [hereinafter U.S. Remains Com-
mitted to Airline Deal] (last visited Nov. 1, 2007).
89 Id.
90 Press Release, Andrzej Zwaniecki, U.S. Mission to the EU, House Approves Morato-
rium on Airline Foreign Ownership Rule (Mar. 17, 2006), http://useu.usmission.gov/
Article.asp?ID=A2DF41A5-F981–4C72–9636-E02FEF1C3C3A [hereinafter House Approves
Moratorium] (last visited Nov. 1, 2007).
91 Press Release, Andrzej Zwaniecki, U.S. Mission to the EU, U.S. Officials Urge Congress
Not to Block Airline Investment Rule (Feb. 8, 2006), http://useu.usmission.gov/Article.asp?
2009] The U.S.–EU Open Skies Agreement 171
related to labor and aviation security.92 Additional concerns regarding
the breadth of DOT’s power to issue rules reinterpreting established
law were also raised.93 By the end of 2006, the proposed rule had been
withdrawn from consideration.94 “It is necessary now,” said lead U.S.
negotiator John Byerly, “on both sides of the Atlantic to accept the
reality that a major change in U.S. rules governing control of U.S. air-
lines is simply not in the cards.”95
One might infer from the great efforts taken by the White House
to implement the proposed DOT rule that no Open Skies agreement
with the European Union would be feasible without it.96 On the con-
trary, once the DOT proposal was withdrawn from Congress, a U.S.
delegation rushed to Brussels in January 2007 “to discuss possible so-
lutions to the stalemate.”97 Less than two months later, U.S. and EU
negotiators reported a breakthrough—without any change to U.S.
aviation foreign investment law.98 How was the seemingly intractable
gap between the U.S and EU positions closed? What concessions were
made by each side, and just how meaningful were they? Finally, what
implications do these concessions have for passengers on both sides of
the Atlantic?
III. Analysis
On its face, there is little question that the U.S.–EU Open Skies
Agreement favors the United States.99 In terms of cabotage rights, the
agreement is clearly lopsided.100 Although it grants U.S. carriers the
right to fly routes within Europe, the Open Skies Agreement does not
ID=EAF3C76D-580D-49D8–906E-133A1F8245EC [hereinafter U.S. Officials Urge Congress]
(last visited Nov. 1, 2007).
92 See id.
93 See id. (noting “members of the House Transportation and Infrastructure Subcom-
mittee on Aviation uniformly questioned not only the rule itself but even [DOT’s] author-
ity to issue it”).
94 Foreign Control Rule Might be Delayed, supra note 84.
95 Press Release, Andrzej Zwaniecki, U.S. Mission to the EU, U.S., EU to Look at Op-
tions to Finalize Open Skies Deal ( Jan. 17, 2007), http://useu.usmission.gov/Article.asp?
ID=A3BCB68A-DC58–4745-A0E3-F968A435228A [hereinafter U.S., EU to Look at Op-
tions] (last visited Nov. 1, 2007).
96 See id.
97 Id.
98 U.S., EU Reach Long-Sought Accord, supra note 87.
99 See “Open Skies” Agreement Favors U.S., Forbes.com, Mar. 27, 2007, http://www.
forbes.com/business/2007/03/26/open-skies-airlines-biz-cx_0327oxford.html.
100 See Open Skies Agreement, supra note 1, art. 3.
172 Boston College International & Comparative Law Review [Vol. 32:161
permit EU carriers the right to fly within the United States.101 In
terms of foreign investment rights, the picture is murkier.102 U.S. and
EU investors alike are proscribed from gaining “control” of each
other’s carriers.103 On the other hand, while U.S. nationals are limited
to a minority stake in EU carriers, EU nationals may, on a case-by-case
basis, take more than a fifty percent equity stake in U.S. carriers, pro-
vided that the investment is not interpreted as signifying control.104
Given that the discretion to adjudicate on a case-by-case basis will pre-
sumably be vested in the DOT, it is unclear how real the impact of this
provision will be.105 Certainly, the provision is a far cry from the initial
EU demands that engendered the DOT’s proposed rule on foreign
management control.106 The question thus arises: why were EU nego-
tiators willing to accept such unbalanced terms on cabotage in ex-
change for what is arguably a negligible enhancement in foreign in-
vestment rights?
U.S. concessions undoubtedly played some role in bringing EU
negotiators to the table.107 When the U.S. delegation flew to Brussels
in January 2007 following withdrawal of the DOT proposal, it reiter-
ated a number of modest proposals, including one to open some
forms of U.S. government-funded travel to EU carriers.108 The U.S.
delegation also reiterated Washington’s support for granting antitrust
immunity to U.S. and EU carriers entering into airline alliances, even
though the persuasive impact of such assurances was no doubt negli-
gible because the United States already granted antitrust immunity to
most of its bilateral Open Skies partners.109 The U.S. delegation seems
to have gained real ground when it shifted the dialogue on foreign
investment rights from a focus on “control” to a focus on “owner-
ship.”110 Even though the European Union had demanded broader
101 Id. art. 3(c)(i).
102 See id. art. 6 & annex 4.
103 Id.
104 Id.
105 See id.
106 See U.S., EU Reach Long-Sought Accord, supra note 87.
107 See id.
108 See David Jonas, EU, US to Evaluate New Open Skies Deal, Transnational, Mar. 7, 2007,
http://www.thetransnational.travel/news.php?cid=eu-us-open-skies.Mar-07.07 (noting that
since no routes from Washington D.C. were actually included in proposal, British Airways
Chairman Martin Broughton described such access rights as “miniscule concessions dressed
up as significant breakthroughs”).
109 See Kreis, supra note 36, at 314; see also Foreign Control Rule Might be Delayed, su-
pra note 84.
110 See U.S., EU to Look at Options, supra note 95.
2009] The U.S.–EU Open Skies Agreement 173
investment control from the start of negotiations, by January 2007 the
U.S. delegation could point towards Congress’s intractability as a way
of arguing credibly that if the European Union wanted any sort of
Open Skies agreement, it would have to retreat from its initial posi-
tion.111 Ultimately, the proposal to grant EU nationals greater than
fifty percent ownership of U.S. carriers on an ad hoc basis—albeit
without traditional majority shareholder control rights—appears to
have tilted the balance.112
Broader considerations played a crucial role in motivating the
European Union to finalize an open skies agreement with the United
States.113 For one thing, EU negotiators viewed any potential Open
Skies agreement with the United States as simply the first in a series of
commercial aviation agreements.114 The language of the Open Skies
Agreement reflects this understanding.115 Article 21 of the agreement
explicitly calls for “second stage negotiations” and stipulates that ne-
gotiations must begin “not later than 60 days after provisional applica-
tion” of the treaty.116 Among the “items of priority interest” identified
for second stage negotiations are “further liberalisation of traffic
rights” and “foreign investment opportunities.”117 Thus, in the second
stage of negotiations following application of the Open Skies Agree-
ment, EU cabotage rights within the United States, along with
broader foreign investment control rights, will presumably be issues
for discussion.118 Whether this will do anything to alter the current
U.S. position, however, is another matter.119
Perhaps the single greatest motivating factor for EU negotiators
was the perceived economic value of a transatlantic Open Skies
agreement.120 In March 2007, the EU Commission issued a press
statement predicting that if approved, the Open Skies Agreement
111 See id.
112 See id. (noting that following the U.S. delegation’s January 2007 trip to Brussels,
one observer suggested that, “ownership is an area where the U.S. administration can do
something to allay European concerns”).
113 See Press Release, Andrzej Zwaniecki, U.S. Mission to the EU, United States Hails
Aviation Pact with EU as Win for both Sides (Mar. 22, 2007), http://useu.usmission.gov/
Article.asp?ID=61FC06B4-E9C4–4AEE-B906-CA6A8BA34D1C [hereinafter United States
Hails Aviation Pact] (last visited Nov. 7, 2007).
114 Id.
115 Open Skies Agreement, supra note 1, art. 21.
116 Id.
117 Id. art. 21(2).
118 See id.
119 See id.
120 U.S., EU Reach Long-Sought Accord, supra note 87.
174 Boston College International & Comparative Law Review [Vol. 32:161
would “provide for a thirty-four percent increase in trans-Atlantic air
passenger traffic, [generating] up to $16 billion in economic benefits
over five years and [creating] a total of 80,000 new jobs on the two
sides of the Atlantic.”121 Another study prepared for the EU Commis-
sion by the consultancy Booz Allen Hamilton put the economic bene-
fits of a transatlantic Open Skies agreement between $9 billion and
$17 billion over five years.122 Such perceptions seem to have been
genuinely held by the European Union and the U.S. Department of
State.123 Faced with such potentially immense benefits, EU negotiators
were hardly in a position to walk away from negotiations in January
2007, even after the U.S. Congress repudiated the compromise they
had wrested from U.S. negotiators.124
Ironically, the 2002 ECJ rulings concerning bilateral Open Skies
agreements with EU Member States may have also undermined the
European Union’s bargaining position.125 In its 2002 rulings, the ECJ
held that bilateral aviation agreements with individual EU Member
States would no longer be permitted, yet the existing agreements were
not immediately nullified.126 During negotiations leading up to com-
pletion of the Open Skies Agreement, the EU Commission “made
clear that it would ask the [ECJ] to require EU members to terminate
their bilateral agreements with the United States” in the event that no
agreement was reached.127 Undoubtedly, the EU Commission took
this tack in the hope of wresting further concessions from U.S. nego-
tiators.128 Nevertheless, the prospect of unraveling the entire transat-
lantic aviation regulatory order effectively acted as a double-edged
sword, serving, if anything, to underscore the necessity of reaching an
Open Skies agreement, whatever the cost.129
121 Id.
122 See The Economic Impacts of an Open Aviation Area Between the EU and the
US (Executive Summary), Booz Allen Hamilton, at iii (2007), http://ec.europa.eu/
transport/air_portal/international/pillars/global_partners/doc/us/eu_us_study_executive_
summary.pdf.
123 See Alford & Champley, supra note 56, at 3 (noting that “[t]he EU estimates are
reportedly drawn from a Brattle Group study concluded in 2002” and that “State Depart-
ment representatives have indicated they broadly agree with those figures.”).
124 See id.
125 See U.S., EU to Look at Options, supra note 95.
126 Press Release, U.S. Dept. of State, Open Skies Partners ( July 2, 2007), http://www.
state.gov/e/eeb/rls/othr/2007/22281.htm (commenting that bilateral open skies treaties
between United States and EU member states remain “in force” until application of U.S.–
EU Open Skies Agreement).
127 U.S., EU to Look at Options, supra note 95.
128 See id.
129 See id.
2009] The U.S.–EU Open Skies Agreement 175
Moving forward, the European Union will face real challenges as
it attempts to address some of the second stage objectives enumerated
in Article 21.130 It will not, however, be without negotiating power.131
Congress invoked the talisman of aviation security to condemn the
DOT’s proposed rule on foreign management rights.132 There is no
reason to believe that it would not do so again if the White House en-
tertained the notion of granting broader management control rights
to EU investors, let alone cabotage rights for foreign air travel within
the United States.133 Labor groups, in particular, would be adamantly
opposed.134 Nevertheless, EU negotiators have two powerful levers to
pull as a way of drawing their U.S. counterparts to the table.135 First,
the Open Skies Agreement contains an exit provision that permits EU
Member States to suspend cabotage rights for U.S. carriers operating
within Europe if there is no consensus on a second stage accord by
2010.136 Second, the critical issue of airport slot allocations remains
unsettled.137 Currently, slots are distributed to airlines on a legacy ba-
sis that favors carriers which have been flying the same routes for
years.138 If the slot system were altered, however, to permit greater
U.S. carrier access to Heathrow, for example, a powerful incentive
could be created to wrest concessions from the United States.139
Conclusion
The U.S.–EU Open Skies Agreement will undoubtedly benefit
passengers on both sides of the Atlantic. New routes will link hitherto
unconnected cities in the United States and Europe. Artificial restric-
tions on flight routing will be lifted, enabling carriers to chart their
routes in greater accord with market forces. U.S. carriers will soon be
permitted to compete within Europe, offering European travelers
more options for air travel. Whether the economic benefits it yields
130 See Open Skies Agreement, supra note 1, art. 21.
131 See id.
132 House Approves Moratorium, supra note 90.
133 See id.
134 See id.
135 See U.S., EU Reach Long-Sought Accord, supra note 87; see also United States Hails
Aviation Pact, supra note 113.
136 United States Hails Aviation Pact, supra note 113.
137 U.S., EU Reach Long-Sought Accord, supra note 87.
138 See Slot trading under Open Skies—the implications for allocating capacity, EurActiv.com,
Aug. 30, 2007, http://www.euractiv.com/en/transport/slots-trading-open-skies-implications-
allocating-capacity/article-166329.
139 See id.
176 Boston College International & Comparative Law Review [Vol. 32:161
over the next five years are closer to $9 billion or $17 billion, the
Open Skies Agreement will certainly usher in a more competitive
transatlantic aviation order. Indeed, the only clear losers from the
treaty are the carriers that benefited from the former protectionist
regime, most notably British Airways and Virgin Atlantic. It is no co-
incidence that the greatest resistance to implementing the Open Skies
Agreement came from Westminster.140
And yet, despite its promise, the Open Skies Agreement is hardly
an optimal accord. There is little question that EU investors would
have benefited from a more assertive EU negotiating stance, particu-
larly with regard to foreign management control rights. At the same
time, the benefits to passengers—ironically, to U.S. passengers, in par-
ticular—would also have been considerable. With the notable excep-
tion of certain low-cost carriers, the troubled U.S. aviation industry
has been cash-strapped for years and heavily reliant on government
bailouts. Had EU negotiators enjoyed more success in securing tradi-
tional management control rights for EU investors, greater EU in-
vestment in U.S. carriers might have been encouraged, thereby foster-
ing a more financially solvent industry, with potential benefits to
passengers, as well as to stockholders. Spurred by a desire to grow the
market share of their carriers, foreign investors might well have used
their control to offer passengers new routes, better service and more
modern aircraft.
Regardless of how far the current Open Skies Agreement evolves,
transatlantic travel is certain to change. At least in the near term, the
domestic U.S. aviation market is unlikely to benefit from a dramatic
infusion of foreign capital. The North Atlantic market, however, ap-
pears destined to grow and to become ever more competitive. Ryanair
and its progeny will probably never fly between JFK and Heathrow,
but over the next several years they could feasibly launch flights be-
tween Hartford, Connecticut, or Providence, Rhode Island and some
of the satellite airports ringing London. Budget airlines flying out of
mid-market airports would not draw many corporate travelers from
the main urban hubs, but they might well carve out a niche for them-
selves amongst leisure travelers and small business owners. In the end,
this could potentially drive down the price of economy-class tickets on
more established carriers. It is ironic that the United States, a pioneer
140 See Q&A: Open Skies, BBC News, Mar. 22, 2007, http://news.bbc.co.uk/2/hi/
business/6478651.stm (noting that at Britain’s insistence EU ministers pushed to have
implementation of Open Skies Agreement delayed from October 2007 to March 2008).
2009] The U.S.–EU Open Skies Agreement 177
in air travel liberalization, has taken such a resolutely protectionist
position toward foreign ownership rights and domestic cabotage. At
the same time, the United States may ultimately find the costs of in-
tractability untenable.
