Three days of talks between Hong Kong and the United States over an agreement governing air services across the Pacific have ended without an accord. Failure to come to agreement has dealt a blow to Cathay Pacific Airways' aspirations to begin regular code-share services to US destinations with American Airlines (AA) by the start of its summer schedule next month. It also brings into question how the Airport Authority will proceed with plans for an express cargo terminal at Chek Lap Kok, since extended stopover rights for US cargo carriers would be crucial to potential bids to operate the facility. This week's meeting in Hong Kong was the second this year for representatives from both governments and the respective airlines. They also met in Washington in January. A source close to the negotiations said: 'To be honest, given the large gap that still remains between the two sides, it should not have been surprising from anyone's point of view that an agreement was not reached. 'It also wasn't a good sign that the US negotiators started the proceedings by saying that they hoped progress could be made, instead of expressing a desire to have an agreement.' US negotiators cut their demand from the Washington meetings for cargo fifth-freedom rights for US carriers by nearly half to 145 flights per week. By comparison, the last proposal tabled in Washington called for about 260 cargo fifth-freedom rights a week, or 20 destination points for each US cargo carrier operating in Hong Kong. Fifth-freedom rights allow airlines to make an intermediate stop to pick up cargo and passengers while en route to a final destination. The source said Hong Kong was willing to offer 28 cargo fifth-freedom flights a week, which would expand existing US rights nearly fourfold. 'To put this into perspective, there are about 200 cargo flights a week out of Chek Lap Kok, with Cathay flying 64 of them,' the source said. Earlier demands for expanded fifth-freedom rights for passenger services and 'change of gauge' rights - which allow airlines to change aircraft size at the intermediate stop of a fifth-freedom service - were withdrawn by the US. 'Unfortunately, the US said it wanted to try to simplify the negotiations by focusing the meetings on cargo. But it's Hong Kong's position that everything be negotiated as a whole, since the exchange of concessions between the two sides is not apples for apples,' the source said. What Hong Kong wants in exchange for the expanded cargo access to Chek Lap Kok is the right for Cathay to code-share services to continental US with AA. This would allow Cathay to sell seats on AA flights as if they were Cathay services. At the latest meetings, the US was prepared to offer Cathay such rights to 13 US destinations. No date has been set for the next round of official meetings, although airline-to-airline talks were expected to continue. Negotiators said they believed it would be difficult to bring the sides together again soon. 'There's no reason not to be optimistic that a deal can be had by mid-year, but there will be a lot more dancing first before we meet again in Washington,' a source at one of the US airlines said. One senior US airline official expressed disappointment that a deal could not be reached. 'Why doesn't the Hong Kong Government realise that it has nothing to lose by allowing US cargo carriers more flexibility in operating out of Chek Lap Kok?' he said. 'Who does the Government think they are protecting? One British-owned airline in Cathay, one Sino-British joint-venture in Dragonair and a bunch of expat pilots?' Officially, both sides maintained they were encouraged by the progress made. United Parcel Service, which desperately needs an expanded agreement as it is shut out of the eight existing cargo fifth-freedom rights that US carriers hold in Hong Kong, said it believed a win-win agreement for both sides could be reached.
