EU to suggest loosening rules on foreign ownership of European airlines - draft

By Julia Fioretti

BRUSSELS (Reuters) - EU regulators will suggest loosening limits on the foreign ownership and control of European airlines to encourage investment from non-Europeans and give a boost to the aviation sector, according to a document seen by Reuters.

Under current rules, foreign investors cannot own more than 49 percent of a European airline, and control of the company must remain in EU hands, something the EU executive says deters investors.

"A relaxation of ownership and control rules should be pursued on the basis of reciprocity through bilateral air services agreement and at the multilateral level," the draft aviation strategy document says.

The Commission is expected to unveil the strategy next month as it seeks to boost the competitiveness of Europe's aviation sector, hobbled by the rise of low-cost players such as Ryanair and easyJet , as well as Gulf carriers and the rise of Asia as a major air traffic hub.

The document notes the commercial and financial importance of airlines and their "significant upfront financial needs" to operate in a competitive environment as reasons to consider the relevance of ownership limits.

The Commission will adopt guidelines on the law on ownership and control of EU airlines to give more legal certainty to investors and airlines.

It will also explore measures to address unfair commercial practices from third countries, since the current law addressing these issues is considered ineffective.

Carriers from the Gulf states, such as Emirates [EMIRA.UL], Etihad Airways and Qatar Airways, have come under fire from some European and U.S. airlines who say they benefit from unfair state aid.

As part of its strategy the Commission will propose the negotiation of EU-level commercial aviation agreements with China, Turkey, Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Qatar, Oman, Mexico, Argentina and The Association of Southeast Asian Nations, according to the document.

The executive will also tackle the issue of airlines employing lower-cost workers overseas to avoid high labour costs in Europe.

Europe's third-biggest budget airline Norwegian Air has for instance circumvented Norway's labour laws by basing some of its crew and jets in countries such as Spain and Thailand.

EU member states will also be urged to complete the "Single European Sky" project, in process for a decade and which would cut costs and emissions by merging national air corridors.

(Editing by Foo Yun Chee and David Holmes)