British Airways Chairman Is Sure U.S. Will OK UAL Deal
The chairman of British Airways said Tuesday he is confident that the airline’s $750-million investment in UAL Corp., the parent of United Airlines, will receive U.S. regulatory approval.
Speaking at a press conference in London, British Airways Chairman John King said the deal was structured to comply with rules that limit foreign ownership of U.S. airlines. “I don’t believe it poses any major problems for the U.S. regulatory authorities,” he said.
British Airways is backing the $6.75-billion employee buyout of UAL and will own 15% of the airline when the transaction is completed. Federal rules limit foreign investment to 25% of a U.S. carrier.
Department of Transportation officials have recently voiced concern about foreign investment and have said it is possible for a non-U.S. investor to exercise control over an American airline even though its ownership stake is under the federal limit.
Long List of Financial Data
Transportation Department officials want KLM Royal Dutch Airlines, for example, to reduce its stake in Northwest Airlines and give up its seat on Northwest’s board. Alfred A. Checchi, the Los Angeles financier who acquired Northwest in June with help from KLM, is negotiating those changes with the department.
There has been speculation that the Transportation Department might take similar steps with United Airlines, and that British Airways and the United employee group might be forced to restructure the deal, or reduce the price of the $300-a-share tender offer. The department has already asked UAL for a long list of financial information and for an explanation of the relationship between British Airways and United.
King said Tuesday that he has received no indication that the Transportation Department has started to investigate the UAL transaction. “The Department of Transportation is looking at it as a matter of routine, just as it is looking at the KLM and Northwest deal,” he said.
The Transportation Department is expected to announce its decision on Northwest this week.
King also emphasized that British Airways would have only one of 15 board seats and said its influence over the board would be minimal. Three board seats would go to UAL management and three to unions that join the buyout. “It is clear who will have control,” a British Airways spokeswoman said in London.
UAL Stock Up
King said British Airways has formed an internal committee to explore ways that the two airlines can work together. He said British Airways is interested in sharing United’s terminals in Washington, Chicago and San Diego. He added that it is possible that United might share British Airways’ terminal at John F. Kennedy International Airport in New York.
King also said the two airlines might develop joint training facilities and common software for the Galileo computer reservations system. British Airways is one of nine European airlines that own stakes in Galileo. United owns an interest through Covia, a U.S. computer reservations system half-owned by United.
King said British Airways would raise the equivalent of $500 million for the UAL investment through a rights issue for convertible bonds. The bonds are convertible into British Airways stock. King said British Airways would borrow the remaining $250 million.
UAL’s shares closed Tuesday at $276.50, up $2.50, on the New York Stock Exchange.
