British Airways to Buy Smaller Rival Caledonian : Move Expected to Bolster Carrier’s Position as a Top International Airline

Five months after being sold to private ownership, British Airways announced Thursday that it had agreed to merge with the country’s smaller international carrier, British Caledonian.

Under the agreement, British Airways will spend about $390 million to buy its rival. Although the move was described as a merger, it is effectively a takeover by British Airways of a key competitor and is expected to strengthen its role as one of the world’s largest international airlines.

British Airways is already Western Europe’s largest airline and claims to carry more international passengers than any competitor.

“The merger . . . gives British aviation an unrepeatable opportunity to create a British airline capable of taking on the world,” British Airways’ chairman, Lord King, said in a prepared statement.

The proposed takeover must be assessed by Britain’s director general of fair trading, Gordon Borrie, before the government can formally approve the action. If he decides that the merger is against the public interest, he could recommend an investigation that would delay the action by at least six months. But aviation analysts considered any delay unlikely.

In the House of Commons, opposition Labor members of Parliament charged that the merger was in direct contradiction to Prime Minister Margaret Thatcher’s professed policy of encouraging competition.

“It is a conspicuous irony that after years of public ownership, when a merger was resisted and competition promoted, privatization should within months lead to merger and stifled competition,” Labor MP Antony Blair complained.

Thursday’s announcement ends a prolonged struggle for survival by British Caledonian, which competes against British Airways on the lucrative North Atlantic routes, including those to New York and Los Angeles. It is the sole British carrier to West Africa and parts of the Middle East.

It also concluded a battle of personalities between the hard-nosed Lord King and British Caledonian’s more flamboyant chairman, Adam Thomson, men said to dislike each other personally.

Under Thomson’s leadership, British Caledonian projected itself as a smaller, privately owned carrier that out-hustled its bigger, more lethargic British competitor.

With 27 aircraft, its fleet was barely one-sixth that of British Airways. Last year, it flew 2.5 million passengers, compared to British Airways’ 20 million.

A series of factors, including last February’s privatization of British Airways, eventually worked against the airline’s survival.

British Caledonian was pushed $23 million into the red last year by a combination of things: a sharp drop in its money-making routes to West African and Persian Gulf states, whose economies were severely affected by the worldwide decline in oil revenues; the suspension of its service to Libya, and the effect on air travel of international terrorism and the Chernobyl nuclear disaster in the Soviet Union.

British Airways posted profits of $260 million last year.

Sources close to British Caledonian said it had conducted informal talks during the past six months with other European carriers, including the Belgian airline Sabena, the Italian carrier Alitalia and the Dutch airline KLM, before entering negotiations with British Airways last month.

Thomson admitted that he felt some regret about the merger but indicated that there was little alternative.