The negotiations between senior UK and US government officials are due to last three days and are designed to liberalise air services by allowing any carrier to fly between the two countries.
Approval for the long-delayed British Airways/ American Airlines alliance is dependent upon an open skies deal being agreed.
These are the first talks to have been held since Tony Blair's Government came to power in May last year. A second round of talks is likely to be held in Washington before Christmas. There are, however, a number of issues separating the two sides.
The US wants to conclude a new bilateral agreement modelled on the 31 open skies agreements it has signed with other countries around the world.
However, Britain is urging a number of significant changes. It wants the agreement to address both the issue of "cabotage" - the right of a foreign airline to operate domestic services within the US - and America's foreign ownership limits that prevent non-US companies owning more than 25 per cent of a US airline.
The UK also wants the US to relax its "fly America" policy, which requires government personnel to travel only on US carriers, and it wants the US to allow UK carriers so-called seventh freedom rights - enabling them to pick up traffic in a third country and fly to a destination in the US without stopping off in their home country. This, for instance, would allow BA or Virgin to operate from Paris to New York without going via Heathrow.
A further area where the UK is pushing for concessions is the creation of a disputes resolution panel that would arbitrate in cases where carriers were accused of behaving in an anti-competitive or predatory way.
The US negotiators are likely to press for an undertaking that once Heathrow is opened up to all carriers, US airlines that have been waiting to enter the market will be guaranteed runway slots free of charge. BA and American Airlines have been told to surrender 267 slots at Heathrow and Gatwick in return for regulatory approval for their alliance.
The European Commission has said they must be given away free but the Office of Fair Trading has advised Peter Mandelson, the Secretary of State for Trade and Industry, that he could override Brussels and allow BA to sell the slots, which are worth around pounds 500m.
Despite the outstanding areas of dispute, aviation sources said they were optimistic that agreement could be reached. One senior US airline executive said: "I am reasonably confident of an agreement because the British side understands the commercial imperative of reaching a deal."
The UK negotiators will be led by Norman Ling, head of aviation at the Foreign and Commonwealth Office, and Tony Baker, a senior official within the Department of Environment, Transport and the Regions.
Leading the US side will be David Marchick, Deputy Assistant Secretary for Transportation Affairs at the State Department.Reuse content