Commentary: Old-fashioned horsetrading in the air

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The Independent Online
Whoever wins this November's race to the White House, one of his first tasks will be to preside over a new air services agreement between Britain and the United States.

The present arrangements restrict the number of airlines that may operate between the two countries, the routes they serve and the frequency of services.

The vexed question of whether these arrangements need to be liberalised further had been bubbling quietly for the past year in bilateral talks between US and British officials. But it was put firmly back on the agenda three weeks ago when British Airways announced plans to take a dollars 750m ( pounds 388m) stake in the American carrier USAir.

BA's position is quite simple. It contends that the tie-up with USAir, which would give BA 44 per cent of the airline's equity but only 21 per cent of its voting rights, conforms to existing US aviation law and should therefore be examined in isolation and approved accordingly.

The stance of the three biggest US carriers - United, American and Delta - is equally simple. They argue that, since the deal would give BA effective control over USAir and therefore entry to the vast US domestic market, Britain must reciprocate by granting US carriers wider access to the British market.

The scene is thus set for some old- fashioned horsetrading. When the two sets of officials return to the bargaining table in November after the presidential election, the British team might be advised to exercise caution.

In order to sweeten their proposals the US carriers say that what they have in mind is a complete liberalisation of transatlantic air services. Ostensibly, this has attractions. It could mean lower fares, improved levels of service and more flights into Britain's under-served regional airports.

However, it also has serious drawbacks. First, the experience of deregulating the US domestic market has not been a happy one. It may have lowered fares, but it has also driven an inordinate number of airlines into Chapter 11 bankruptcy protection, undermining the structure of the entire industry and threatening the range of choice on offer to passengers.

Second, liberalisation could well work to the disproportionate advantage of US carriers since there are seven of them plying the Atlantic against Britain's two - BA and Virgin.

It is by no means obvious that Britain needs to offer a quid pro quo to persuade the next US administration to sanction the BA-USAir link-up. George Bush or Bill Clinton may conclude likewise, particularly if the most pressing need, come November, is to prevent USAir joining the ranks of those carriers seeking protection from their creditors.

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