Following an aggressive high-tech promotion campaign that included Concorde flybys, laser light shows and fast-moving television ads, the British government will complete the sale of British Airways to the public Wednesday for $1.4 billion.
The highly profitable airline, which boasts of carrying more international passengers than any other carrier in the world, joins a growing list of large West European companies moving from state ownership into the private sector.
Trading in British Airways stock, priced initially at about $1.92 a share, is scheduled to begin simultaneously Wednesday afternoon in London and Wednesday morning in New York.
Two-thirds of the 720 million shares have been allocated to institutions, British Airways employees and foreign investors, and the remaining third will be offered to thousands of small British investors, a strategy in keeping with Prime Minister Margaret Thatcher's privatization program. More than double the expected half-million investors have already applied for the shares to be offered to the British public.
In a market unsettled by recent scandals, neither brokers nor merchant bankers involved in the flotation would elaborate on why the issue is so popular, saying that to do so before the start of trading could violate U.S. law.
However, there seemed to be little doubt that the lure of British Airways is in part the natural attraction of a large airline that in the past two years has accumulated about $580 million in pretax profits, has forecast earnings of $200 million for the year ending March 31 and has one of the world's premier route structures.
New Interest in Market
But the heavy oversubscription is also seen as part of a growing British interest in the stock market.
The sale of British Airways, following the recent selloff of British Gas, means that nearly a third of Britain's state-owned industrial sector has been moved into private hands since Thatcher was elected on a campaign pledge of denationalization nearly seven years ago. According to Treasury Department figures, roughly half a million jobs have been transferred from the public sector to the private sector in this period.
Developments in Britain are seen by some as part of a larger trend spreading elsewhere in Western Europe, driven as much by economic conditions as by political philosophy. At a time of increased budgetary constraints, high tax levels and the longest-running bull markets in memory, the sale of state-owned companies is viewed as a convenient way to raise revenue.
Thatcher's ambitious privatization program has had a dramatic impact on the profile of stock ownership in Britain. The number of individual share owners has increased from about 1.8 million in the early 1980s to an estimated 9.5 million today--a figure equal to 23% of Britain's adult population.
This change is the result of the sale of British Airways and three other major enterprises:
- A $5.8-billion flotation for 51% of British Telecom in December, 1984--at the time, one of the biggest issues ever placed on any stock exchange. As the Thatcher government's first major attempt to sell equity to the small investor, it created more than 1 million first-time shareholders.
- Last October's sale of the Trustee Savings Bank, for $2.3 billion, created another million shareholders and regenerated public interest in privatization after a lull of nearly two years.
- Last December's record offering of $11.5 billion by British Gas followed a prolonged saturation-advertising campaign that drew an estimated 2.5 million investors to the market for the first time.
Broadening share ownership in British industry is part of a long-term Thatcher strategy to generate a greater sense of involvement in the future by the general population. Chancellor of the Exchequer Nigel Lawson boasted recently that the Conservative government had turned Britain into a nation of shareholders.
Further Sales Expected
The government is expected to continue its privatization program later this year by selling the British Airports Authority, which operates Heathrow and Gatwick in London and other airports, and the remaining state-owned shares in Rolls-Royce, which produces mainly aircraft engines. The government has substantially expanded the number of investors in Britain, but the expansion remains extremely thin, with 56% of all investors having only a small holding in one company and 78% in one or two companies.
The British Airways offer has been seen consistently as a vehicle to deepen rather than further broaden share ownership. Transport Secretary John Moore and other senior government officials have emphasized repeatedly that British Airways, a company subject to the whims of international airline competition, was a riskier investment for a first-time investor than the less glamorous but more dependable utilities--gas and telecommunications, for example.
The minimum allotment of 400 shares was specifically set high to discourage those with only small savings. Although the flood of applications has required the government to reduce the minimum allotment to 200 shares and to eliminate institutional investor applications from the public offering, stock exchange officials believe that the issue has drawn few first-time buyers.
The level of investor attraction is viewed in part as a tribute to the airline's dramatic turnaround in recent years, from an era of lethargic overmanning, second-rate equipment, large financial losses and a reputation that led travelers to quip that the initials BA stood for "bloody awful."
Since 1979, the British Airways work force has been trimmed to 39,000 from 60,000, without seriously affecting the route structure, which reaches out from London to 145 cities in 68 countries.
Colin Marshall, who came from Avis as chief executive in 1983, brought with him a new attention to customer relations and to relations with the company staff as well. As a result, morale rocketed and service improved, and the airline has returned healthy annual profits since 1983, while at the same time reducing corporate debt to $530 million from $1.5 billion.
British Airways seems headed for another profitable year, but some observers worried that the vagaries of the airline business might cool investor interest.
"Even a few weeks ago, many commentators were arguing that it would be very difficult," Transport Secretary Moore said last weekend. "I am delighted they have been proved wrong."