UK SEES FOREIGN OWNERSHIP AS KEY ISSUE IN UPCOMING U.S.-EU SECOND STAGE NEGOTIATIONS IN MADRID

C O N F I D E N T I A L LONDON 000255



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E.O. 12958: DECL: 02/03/2020

TAGS: EAIR, ECON, EU, SENV, SP, UK

SUBJECT: UK SEES FOREIGN OWNERSHIP AS KEY ISSUE IN UPCOMING

U.S.-EU SECOND STAGE NEGOTIATIONS IN MADRID



REF: A. REF A: SECSTATE 9584

B. REF B: 09 LONDON 626



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.



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