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UPDATE: British Airways To Start US-Continental Europe Services
Dow Jones
   (Adds more details, BA chairman comments, share price)

   By Rod Stone

LONDON -(Dow Jones)- British Airways PLC (BAY.LN) Wednesday said it is establishing a new subsidiary that will offer flights between continental Europe and New York, in a move designed to capitalize on a new transatlantic air services agreement.

The unit, called "OpenSkies," will start a service from New York to either Brussels or Paris Charles de Gaulle airports from June using a Boeing Co. (BA) 757 plane. OpenSkies will serve both European airports by the end of 2008 with the arrival of a second plane, and the unit is set to operate six 757s on the service by the end of 2009, BA said. The U.K. carrier had announced previously that it planned to start services from the continent to the U.S. under an initiative known as "Project Lauren."

The service is being made possible by an aviation treaty between the European Union and U.S. that comes into force in April. From then, any European airline will be able to fly to any U.S. destination from any E.U. airport and American carriers will have the same entitlement on the continent. Presently, European carriers aren't allowed to fly direct to the U.S. from outside their home countries.

BA isn't the first European carrier to take advantage of the agreement. Air France-KLM (AKH) and Delta Air Lines Inc. (DAK) have announced a revenue-sharing joint venture covering their transatlantic operations that will see Air France offering direct flights to the U.S. from BA's home airport of London Heathrow.

Currently, only two U.K. carriers - BA and Virgin Atlantic Airways Ltd. - and two from the U.S. are allowed to fly direct to the U.S. from Heathrow.

BA is yet to decide whether the new unit will serve New York City from Kennedy Airport or Newark Airport in New Jersey, according to a spokeswoman. This will depend on the runway slot allocation available following a review of capacity at the congested New York areas airports, she added.

All of the 757 airplanes for the new unit will be sourced from the current BA fleet. The British carrier has ordered a number of new fuel-efficient aircraft, including wide-bodied Boeing 787s and Airbus A380s. The 757s will carry up to 82 passengers in three cabins with just 30 economy seats.

In a statement, Chief Executive Willie Walsh said BA is looking to build on the strength of the British carrier's brand in the U.S. and Europe. BA is already a major transatlantic operator into the U.S., but by flying into Paris will be competing head-to-head with Air France-KLM.

Chairman Martin Broughton told Dow Jones Newswires on the sidelines of a company lunch in London that the venture is relatively low-risk given the few number of airplanes involved even if trading gets hit by the economic slowdown. BA is eyeing additional destinations in Europe such as Milan, Frankfurt and Amsterdam, a company spokesman said separately.

BA said it will continue to lobby for further liberalization of the transatlantic aviation market when talks between the E.U. and U.S. take place later in 2008.

The E.U. backed the current agreement, known as 'Open Skies,' on condition that the U.S. agreed to talks aimed at allowing European carriers to take majority stakes in U.S. carriers and enter the domestic American market. This isn't allowed under the initial pact and the E.U. has threatened to unravel the current deal if progress isn't made.

Virgin Atlantic - which is jointly owned by Richard Branson's Virgin Group Ltd. and Singapore Airlines Ltd. (C6L.SG) - has put on hold its plans to start direct flights to the U.S. from continental Europe in 2009. It is concerned that the initial pact might be thrown out as the next U.S. Administration may not agree to open the market further.

The launch of the BA service comes at a time when many analysts expect a slowdown in long-haul business travel during 2008 due to weaker economic conditions. Although a much smaller operator than the likes of BA, U.S.-based business-class-only transatlantic carrier MAXjet Airways Inc. was forced to file for bankruptcy late last year due to high oil prices and a lack of funding.

BA said it will file an application shortly with regulators for the new services.

By 1502 GMT, its shares were down 2.8%, or 8p, at 276p in London while the blue-chip FTSE 100 index was off 1.1%.

Separately, BA also said Wednesday that it will start flights between Heathrow and Hyderabad in India from this October. India is BA's largest market outside of North America.

   Company Web sites:

   -By Rod Stone, Dow Jones Newswires; +44 207 842 9295;

  (END) Dow Jones Newswires
  01-09-08 1028ET
  Copyright (c) 2008 Dow Jones & Company, Inc.
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