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SAS Negotiating to Buy a Stake in Texas Air

From the Washington Post

Scandinavian Airlines System is negotiating to buy a stake in Texas Air Corp.--a deal that would make SAS the first foreign carrier to own an interest in a major U.S. airline.

If the deal is consummated, it not only would provide a much needed boost for beleaguered Texas Air, but would also mark a new, international phase in the mergers and consolidation that followed U.S. airline deregulation.

“It’s been well known that SAS has been on the prowl for an equity stake in one or more foreign carriers for some time,” said a U.S. government source familiar with the airline.

In recent weeks, SAS Chief Executive Jan Carlzon has traveled to Texas to negotiate with the airline holding company run by Frank Lorenzo, industry sources said.

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Although final terms of the deal had not been reached as of Monday night, the talks were said to be progressing, with an announcement possible as early as today.

The law limits foreign carriers to a maximum 25% interest in U.S. airlines and bars foreign companies from owning a controlling interest in American carriers.

Boost for Both Airlines

Texas Air was the volume leader Monday in trading on the American Stock Exchange. The stock closed at $14.375, up 62.5 cents a share.

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While the impact of the agreement depends on details that are still not clear, the pact, if completed, should provide a boost for both airlines.

The deal would add financial strength and a new marketing asset to Texas Air at a time when the holding company that controls Eastern Air Lines and Continental Airlines has been struggling with labor unrest, financial losses and a battered image.

For SAS, the deal should help increase traffic and market share because the arrangement presumably would help feed passengers from the Texas Air system to SAS flights.

SAS is also faced with the prospect of a liberalized Common Market in which European carriers will compete more directly with each other and lose protections that had held back competition.

European carriers also have felt the growing penetration of their markets by U.S. carriers, prompting speculation that there might be mergers on the same scale as those that have occurred in the United States in recent years.

‘Sign of the Times’

“It’s a sign of the times and there will be more such things develop,” said Robert A. Joedicke, a senior analyst with Shearson Lehman Hutton.

Two other foreign airlines have acquired or are attempting to acquire stakes in U.S. airlines. Ansett Airlines of Australia has acquired about a 10% interest in America West Airlines, based in Phoenix. Japan Air Lines has applied to acquire a 20% stake in Hawaiian Airlines.

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Other airlines, such as United and British Airways, have entered into extensive marketing agreements designed to boost business for the airlines involved.

Such agreements also are expected to be part of the Texas Air-SAS deal if it is concluded successfully.

“Certainly all our major carriers are trying to become almost worldwide airlines,” said one Department of Transportation official.

“Ten years ago we actually had regional airlines. Now even the domestic market isn’t necessarily a big enough market for airlines anymore,” the official said.

In the past several years, East Coast carriers and regional airlines have united with other regional airlines as in the case of USAir and Piedmont Aviation. In the last year, those airlines have also focused marketing energy on international travel as the growth in domestic airline travel has slowed.

The Scandinavian airline has sought to build its strength by linking itself to other carriers, initially seeking an interest in British Caledonian, which was later acquired by British Airways.

SAS has a cooperation agreement with Thai Airways International, has discussed ventures with the Belgian airline Sabena and, more recently, has been negotiating with Aerolineas Argentinas for 40% ownership interest. Through those arrangements it hopes to survive competition from stronger, more central European carriers such as Lufthansa and Air France, several airline industry analysts said.

SAS is a combination of the national carriers of Denmark, Norway and Sweden, with the governments of those three countries having a stake in the system.

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The Scandinavian airline flies to New York, Seattle, Los Angeles and Chicago in the United States and has sought to expand its markets in the United States.


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