EU/US boost Open Skies, ownership still a question

BRUSSELS/WASHINGTON (Reuters) - European negotiators said European ownership of U.S. airlines was in sight after three days of "Open Skies" talks but reaction from the United States suggested agreement remained distant.

The U.S. departments of State and Transportation made no mention of lifting ownership limits in summarizing the talks that took place in Brussels.

The two sides agreed to make permanent a 2007 agreement allowing airlines to fly between any EU city and any U.S. city, uniting two markets that account for nearly two thirds of global aviation.

They also agreed to deepen U.S.-EU cooperation in aviation security, safety, competition, and ease of travel.

But loosening U.S. airline ownership limits would require action by Congress, where some key lawmakers are seeking to sharpen provisions limiting foreign control, capped at 25 percent of a carrier's voting stock.

"Our Congress is not ready to grant this. We cannot commit to it," said a U.S. aviation consultant.

European Transport Commissioner Siim Kallas said the draft deal represented a significant breakthrough.

"Both sides have agreed to increase regulatory cooperation, and remove the barriers to market access that have been holding back the development of the world's most important aviation markets," he said.

European carriers would have fresh access to U.S. government business under the "Fly America" program.

In return, U.S. airlines would gain improved market access in the EU and increased share ownership rights from above the current 49.9 percent.

EU transport ministers will be asked to approve the deal at a meeting in June.

While some U.S. airlines would welcome a new-look merger partner and fresh capital, their labor unions, fearful of losing jobs and favorable work rules, have opposed efforts to allow overseas control.

Unionized pilots, mechanics, flight attendants and other ground workers are supported by leading Democrats in Congress who control the legislative agenda and have maintained the political bulwark against ownership changes.

Some U.S. airlines, like UAL Corp's UAUA.O United Airlines, have called for lifting the rules.

"United fully supports this important milestone that reinforces the strong bond that exists between the U.S. and EU, promises greater cooperation on environment, security, competition and other important areas and believe it should serve as a model in other regions of the world," said Glenn Tilton, UAL Corp chief executive.

Continental Airlines CAL.N said it supported aviation liberalization, saying it allows for more competition in the marketplace and paves the way for airlines to expand.

Creating a full EU-U.S. "Open Aviation Area" might generate up to 80,000 new jobs, the European Commission said.

A British Airways BAY.L spokesman expressed disappointment in the slow pace of progress.

"We had hoped that the conclusion of the second stage negotiations would have resulted in the immediate removal of restrictions on ownership and control, Fly America and cabotage," he said. Cabotage is the right to transport of goods or passengers within the borders of another country.

Major U.S. airlines, through their trade group, called the agreement a milestone that promises closer cooperation. But overseas airlines, through their industry group, expressed disappointment on the ownership question.

"The agreement was not a step backwards, but it did not move us forward. The long term financial sustainability of the industry is dependent on normal commercial freedoms," said Giovanni Bisignani, director general of the International Air Transport Association.

(Additional reporting by Deepa Seetharaman and Kyle Peterson; Editing by Dale Hudson, Bernard Orr and Tim Dobbyn)