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Vidya Ram, 10.17.07, 2:35 PM ET


The new Open Skies agreement between American and the European Union may increase the number of airlines allowed to traverse the Atlantic, but with the majority of landing slots controlled by a few carriers, in practice it’s hard for new ones to break in, especially from the U.S. side. The solution? Joint ventures, like the one announced on Wednesday by Air France and Delta Air Lines.

The airlines announced that they had signed a deal to share sales and costs on certain trans-Atlantic routes. The first phase, which will begin in April 2008, will include flights between Air France’s hubs in Paris and Lyon and Delta’s hubs in New York, Atlanta, Cincinnati and Salt Lake City. The airlines will also launch new flights from London’s Heathrow Airport to Los Angeles and Atlanta. In a second phase, all flights between Europe and the Mediterranean, as well as in North America, will be included in the joint venture. The agreement will run till 2016 to begin with, after which it could be renewed every three years.

The airlines said that the venture was expected to generate $1.5 billion in sales annually in the first phase till 2010, after which it could generate as much as $8 billion a year.

These kinds of ventures will enable American airlines to break into the trans-Atlantic busineds, currently dominated by the likes of British Airways and Richard Branson’s privately held Virgin Atlantic. European airlines will also gain much greater access to U.S. domestic flights.

Air France (nyse: AKHnews people ) closed up 33 euro cents (47 cents), or 1.2%, at 26.89 euros ($38.17), in Paris on Wednesday. Earlier in the week airline stocks fell across Europe as the price of oil has surged to new records, crossing the $86 a barrel barrier for the first time on Tuesday. British Airways (other-otc: BAIRYnews people ) ended the day up 10 pence (20 cents), or 2.4%, at £4.28 ($8.72) in London, while Lufthansa (other-otc: DLAKFnews people ) closed up 11 euro cents (15 cents), or 0.5%, at 20.69 euros ($29.37.) in Frankfurt.Delta Air Lines (nyse: DALnews people ) rose by 34 cents, or 1.7%, to $20.42, in midday trading in New York.

“This agreement marks an unprecedented move to offer our customers a greater choice of routes and schedules,” said Air-France KLM Chief Executive Jean-Cyril Spinetta.

ABN Amro analyst Andrew Lobbenberg, said that joint ventures such as the one announced on Wednesday had been expected following an agreement between the American government and the European Commission, which will allow American carriers to fly to airports in the European Union and then on to further destinations.

“Air France can see the benefit of the KLM-Northwest joint venture,” said Lobbenberg, referring to a profitable deal between KLM and Northwest Airlines (nyse: NWAnews people ), under which the American company can use KLM’s hubs while the Dutch airline receives a share of the revenue. The agreement between Air France and Delta is expected to replicate that model. “With regulatory permission Air France is hoping to bind the four of them together,” said Lobbenberg. Air France and KLM are part of the same company, Air France-KLM, although they operate independently from hubs in Paris and Amsterdam. Together they are Europe’s largest airline and have been eyeing a number of potential acquisitions including Alitalia (other-otc: ALAIFnews people ) and Iberia (other-otc: IBRLFnews people ).

Air France-KLM’s Spinetta said that the airlines would begin discussions on a four-way joint venture if the U.S. government gives them the go ahead. America had previously denied their application for antitrust immunity in 2005, but the airlines reapplied in June.