Byers faces legal battle after abandoning 'open skies' talks

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Stephen Byers, the embattled Secretary of State for Transport, was facing a legal challenge on a second front yesterday after BMI British Midland threatened to take him to court for abandoning open skies talks aimed at liberalising the transatlantic air market.

Mr Byers is already being sued by Railtrack shareholders for closing down the network operator. Now the UK's second biggest airline is preparing a legal action for compensation against the Government, arguing that the existing agreement, which governs air services between the UK and US, is illegal and anti-competitive.

Sir Michael Bishop, BMI's chairman, wrote to Mr Byers yesterday demanding "as a matter of urgency" that the UK resume the open skies talks. He also lodged a complaint with the European Commission asking it to investigate the UK government's continued support for the so-called Bermuda II treaty, which permits only four airlines to operate services from Heathrow to the US.

The Department of Transport, Local Government and the Regions withdrew from the open skies talks last Friday night shortly after British Airways and American Airlines announced they had abandoned their transatlantic alliance because of unacceptable US regulatory demands.

Sir Michael said BMI rejected the view that liberalisation of transatlantic routes depended on approval for the BA-AA deal, adding that he was confident Brussels would rule that the "cosy club of airlines which carve up the Atlantic" was illegal. He said that ministers seemed intent on "mollycoddling" BA, even though it had left the public sector 15 years ago. "The Government must not meekly give up on liberalisation just because BA and AA have walked away from their alliance," he added.

Norton Rose, BMI's legal advisers, said that if the Commission ruled the bilateral agreement to be illegal, then it would open the way for action against Mr Byers. "That will provide very good evidence for us to take to an English High Court to seek damages," it added.

BMI claims that the Bermuda II agreement has amounted to a breach of the EU's founding Treaty of Rome since the agreement was signed in 1977. Until 1998, Britain had an opt out in relation to aviation agreements but since then the introduction of the Competition Act, which mirrors the provisions of EU law, had also made Bermuda II illegal, BMI said.

The Advocate General to the European Court of Justice is today due to rule that authority for negotiating future open skies agreements must pass from member states to Brussels. Assuming the court rules in the same way then the new arrangements will take effect in the summer.

BMI said this meant that Britain had a "window of opportunity" for three or four months to strike a deal with the US otherwise it could be 10 or even 20 years before a EU-US open skies deal was signed.