February 27 2000 BUSINESS NEWS

Blair snubs BA and Virgin on open skies

David Parsley

A TRADE WAR in the skies seems to have been averted after what appears to be an about-turn by Tony Blair.

The prime minister has been in touch with Bill Clinton about the "open skies" negotiations that recently collapsed. He is understood to have rejected attempts by
British Airways and Virgin Atlantic to scupper plans to allow British Midland and two American airlines to fly between Heathrow and American airports.

The move came as the White House made further threats of a trade war unless Blair forced British officials to reconsider a deal made in early January.

British and American officials had agreed a mini-liberalisation of the transatlantic skies in Washington at the beginning of the year. But after pressure from Sir
Richard Branson, chairman of Virgin Atlantic, and Bob Ayling, chief executive of British Airways, British officials backed down at the last minute.

Ayling, a close ally of the Labour party, visited Blair and Lord MacDonald, the transport minister, days before American officials travelled to London to complete
the deal. American airlines believe he has too much influence with the government.

Since the deal collapsed, Rodney Slater, the American transport secretary, has been considering a trade war against British Airways and Virgin.

This would include banning Concorde from New York and throwing both airlines out of more congested airports such as New York's JFK, Chicago, Washington
and Los Angeles.

Blair originally offered US Airways a route from Gatwick to Pittsburgh in exchange for Slater's approval of a code-sharing deal between American Airlines and
British Airways.

But both Clinton and Slater rejected this out of hand and pressed on with threats of a trade war. These are thought to have persuaded Blair to back down.

After Blair's change of heart, American and British officials are expected to restart negotiations within a month. The proposed deal involves awarding British
Midland four daily slots from Heathrow to American destinations such as Washington and New York, while Continental Airlines and Delta will each receive two
flights a day to Heathrow.

An agreement would be the first step towards a long-awaited "open skies" agreement. Only British Airways, Virgin Atlantic, American Airlines and United Airlines
have permission to fly between America and Heathrow under the Bermuda II agreement. The mini-deal has become known as Bermuda II and a half.

It will come as a blow to British Airways, whose domination of Heathrow has been cut significantly since Lufthansa took its stake in British Midland. But it may
offer Ayling the best opportunity to relaunch his long-held plans for an alliance with American Airlines.

British Airways and Virgin argue that only a full liberalisation of transatlantic rights is fair. They feel that in recent years such mini-deals have served only to benefit
American interests and not those of British airlines.

British Midland, however, has long been struggling to gain rights to fly from Heathrow to America. So far it has had to compromise with code-sharing deals with
United Airlines from Manchester airport.

A spokesman for Virgin said: "We remain opposed to any sort of mini-deal. We want to see a total liberalisation of air travel. This deal is again whittling away at
Britain's one great bargaining chip - Heathrow - without giving other British airlines the right to launch airlines in America or to carry American civil servants on
official business."