Bid to Privatize British Airways Runs Into Snag : Disagreement With U.S. Over Route Rights Cited

The British government of Prime Minister Margaret Thatcher is having a garage sale to return government-owned enterprises to private hands. Jaguar, the car maker, and British Telecommunications are among those that have already been snapped up.

But the Conservative government is running into some obstacles in disposing of its major airline, British Airways. A disagreement with the United States is holding up what is called the privatization of the carrier.

British carriers say they are not being allowed to compete with their U.S. counterparts on equal terms. And, until the dispute is settled, British officials say, they will not be able to obtain an adequate price for British Airways’ stock. In March, as a result, they postponed putting the airline in private hands.

Specifically, the British feel that they should be allowed not just to transport passengers across the Atlantic but also have the right to fly routes within the United States. After all, they maintain, the big U.S. carriers such as Pan American World Airways and Trans World Airlines cross the Atlantic to Britain, then use it as a hub for flights elsewhere in Europe.

But British Airways, which, for example, has a London-to-New York flight that continues to Baltimore and Pittsburgh, is prohibited from selling seats for flights from one U.S. city to another. (One-quarter of the airline’s total business is transatlantic.)

“If the American government really believes in deregulation,” said Colin Marshall, chief executive of British Airways, in an interview last week, “it should, in fact, be open to foreign airlines to fly within the domestic market of the United States and enable them to carry passengers within that market. There is an imbalance which is clearly in favor of the U.S. carriers to the potential detriment of the British airlines.”

But, to the U.S. side, the British argument is not convincing. The U.S. negotiators say it is the British who are protectionist.

One American who has observed the negotiations said U.S. carriers operate only one or two flights onward from London to the Continent. Also, he said, the United States insists that when Britain’s highly profitable Concorde flights and cargo operations are included, the U.S.-Britain transatlantic airline business is in balance.

The American source, who asked not to be identified, said the United States feels that if Britain allowed U.S. carriers to make more flights out of London, it would offer more flights within the United States.

Others Also Unhappy

But other European nations echo the British complaint. Karl-Heinz Neumeister, secretary general of the Assn. of European Airlines, complained last Thursday at a news conference in Brussels that American carriers can fly to far more cities in Europe than European airlines can fly to the United States.

Privately held British Caledonian Airways, 35% of whose traffic is on the North Atlantic route, also postponed going public this year “because of uncertainties posed by the North Atlantic,” Alastair T. Pugh, executive vice chairman, said recently. The capacity of flights between the United States and Britain is governed by a 1978 agreement that expires in July.

Negotiations on a new agreement are under way, with a meeting scheduled for this week in London.

The dispute between the two nations is holding up the privatization of British Airways because the government feels that it would hurt the price of the shares and, thus, damage the government’s prospects of profiting from the sale.

Marshall said he is certain that the squabble will be settled and that sooner or later the sale of British Airways will take place.

“We all recognize that there will be some give and take,” he said, adding that “when governments negotiate, there is compromise.”

The carrier also faces other, more immediate, problems, he said, noting that in the last seven weeks its transatlantic business has fallen off by 20%.