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DE RUEHLO #0255/01 0351015
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P 041015Z FEB 10
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 4857
INFO RUEHMD/AMEMBASSY MADRID PRIORITY 1269
RUEHMT/AMCONSUL MONTREAL PRIORITY
RHMFISS/FAA NATIONAL HQ WASHINGTON DC PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

ID:247169 Cable dated:2010-02-04T10:15:00C O N F I D E N T I A L LONDON 000255NOFORNSIPDISPLEASE PASS TO EEB/TRAE.O. 12958: DECL: 02/03/2020TAGS: EAIR ECON EU SENV SP UK
 
Classified By: Kathleen Doherty, Economic Counselor for reasons 1.4 (b) 
, (d) 
 
¶1. (C/NF) Summary: The British government reiterated its view that the U.S. must lift some restrictions on foreign ownership of U.S. carriers in the U.S.-EU second stage air transport negotiations. UK officials at the Department for Transport noted they agreed to the first stage negotiations with the understanding the U.S. would loosen foreign ownership restrictions in the second stage. They said domestic political pressure to renegotiate the entire agreement was mounting in both houses of the British parliament. Finally, DfT noted that Spain, which will host the next round of air transport negotiations, may be more willing to agree to second stage negotiations if the U.S. Department of Transportation grants Iberia airlines (along with British Airways, American Airlines and others) antitrust immunity. End Summary. 
 
¶2. (C/NF) In a February 3 meeting at the Department for Transport (DfT) offices, EconOffs met with Francis Morgan, Head of International Aviation and Safety, and Simon Knight, Head of Aviation Negotiations. EconOffs delivered the demarche (Ref A) encouraging the UK to take a realistic and pragmatic view of the upcoming round of second stage negotiations in Madrid and indicating that the USG would not change the law limiting foreign ownership and control of U.S. airline carriers in the near future. Morgan responded with some frustration to the latter point, noting that closing second stage negotiations without a USG concession on this issue is “not possible” due to domestic political pressure in Britain. He said both houses of parliament are unsatisfied with the results of the first stage negotiations (see Ref A for background on first stage) and that a House of Commons committee suggested in December that the UK should start from scratch and renegotiate the entire agreement. 
 
¶3. (C/NF) Morgan stated the UK “needs the U.S. to go as far as possible” on loosening foreign ownership restrictions. He said DfT “went out on a limb” when they pushed HMG to agree to open Heathrow Airport up to greater foreign competition in the first stage; which they did, according to Morgan, with the understanding that the U.S. would make concessions on foreign ownership in the second stage. DfT views the first stage as a fair deal for the British, Morgan noted, but the public and parliament saw Heathrow as the UK’s best bargaining chip to leverage negotiations and they feel that DfT squandered it in the first stage agreement. Morgan feels that if the UK were to conclude second stage negotiations without anything to show, the domestic political pressure to pull out of the first stage agreement will increase. He urged the U.S. administration to “think hard on this” and give the UK “some recognition.” Morgan said the U.S. “should be under no illusion (second stage) will be easy. We can’t just close negotiations and wrap it up”, but said there is room for “creativity” and that it all depended on “the proper words.” 
 
¶4. (C/NF) American Airlines, British Airways, Iberia airlines, Finnair and Royal Jordanian Airlines have filed a Joint Application with the U.S. Department of Transportation (DOT) for antitrust immunity (ATI) for airline alliance agreements, which DOT is due to rule on in the near future. While the UK claims it is not drawing a link between what happens with the ATI ruling and second stage talks, Morgan said Spain may see the two as being closely linked. (Note: Spain is hosting the next round of stage two negotiations in Madrid on February 16-17 and also holds the EU presidency until July. End Note.) Morgan also noted that British Airways could walk away from any ATI agreement which is not satisfactory, and if they did that “all bets were off”. 
 
¶5. (C/NF) Comment: The UK’s frustration over the USG’s apparent unwillingness to loosen limitations on foreign ownership of U.S. carriers was expected. Their argument that political pressures may require revisiting of first stage “concessions” is virtually the only card they can play. It is difficult to gauge whether British members of parliament (MP) - or British airlines - would realistically press for a renegotiation of the entire U.S.-EU air transport agreement should there be insufficient progress in second stage talks, as Morgan suggested. British Airways, Virgin and others are already taking advantage - to the extent the current economic climate allows - of the benefits the first stage brought them. In addition, British elections are due this spring and more than one-fifth of current MPs are expected to lose their seats. Should this be the case, many of the old guard who felt the UK gave up too much in the first stage without getting much in return, may not be around to pressure DfT. End Comment.  

SUSMAN