U.S. OKs British Airways’ Purchase of Stake in USAir
The Clinton Administration, overriding the objections of the nation’s largest airlines, agreed Monday to let British Airways acquire nearly 20% of USAir and begin sharing transatlantic routes and airplanes with the financially ailing carrier.
Besides the $300 million that British Airways already has paid to acquire 19.9% of USAir, the London-based airline plans to invest another $450 million, contingent on Congress lifting limitations on the foreign ownership of U.S. airlines.
The agreement is the latest example of the globalization of the airline industry and the growing clout of foreign carriers in the large U.S. market, where domestic carriers have been struggling for survival.
The deal is a financial boon for USAir, which had teetered on the brink of bankruptcy and remains one of the most financially troubled U.S. airline carriers.
Transportation Secretary Federico Pena said the Administration was compelled to approve the deal by the terms of an existing aviation treaty between the United States and Great Britain, but remained concerned about the potential impact on the troubled U.S. airline industry.
“U.S. carriers need a new agreement to gain fair access to the British market and beyond,” Pena said.
The decision exposes the limitations the Clinton Administration faces as it seeks to open up restricted overseas markets to domestic airlines. In fact, the Administration’s decision Monday left domestic airlines without any additional access to London’s highly restricted Heathrow Airport and boosted British Airway’s competitive position across the busy North Atlantic.
“It doesn’t sound like the United States has gotten anything in return,” said Harold Sirkin, a transportation specialist at the Boston Consulting Group.
The arrangement, however, offers British Airways and USAir--the nation’s fifth largest carrier--significant benefits. British Airways’ access to the U.S. market will be greatly expanded by linking its transatlantic flights to 38 domestic cities served by USAir. In addition, U.S. passengers flying through British Airways’ massive hub in London can be funneled through the airline’s network to other European destinations.
A previous deal that would have given British Airways a controlling interest in USAir in exchange for $750 million was scuttled by the George Bush Administration last year. Candidates Clinton and Ross Perot denounced the plan during their presidential campaigns.
Approval of British Airways’ initial $300 million investment in USAir and the route-sharing arrangement between the two carriers will remain in effect for one year, at which time the Department of Transportation will have the ability to reconsider.
Unless Britain reciprocates by opening up its markets to U.S. airlines, completion of the USAir deal, as well as a series of additional investments planned by British Airways, may be in jeopardy, Pena said.
The deal had been vehemently opposed by the nation’s big three airlines--American, Delta and United--which complained about their lack of access to London and their inability to continue flights to other European destinations as British Airways does. While several American carriers can fly into London, once they land there they must turn around and go home.
On Monday, however, reaction from the three major carriers was mixed. Stephen M. Wolf, United Airlines chairman and chief executive, called on the British government to respond by opening London terminals to U.S. airline companies.
But Robert L. Crandall, chairman and president of American Airlines, was more vociferous in his opposition to the Administration’s approval of the deal.
“The United States has given the U.K. a clear signal that it anticipates ‘business as usual’ rather than a fundamental revision of the U.S.-U.K. aviation relationship,” Crandall said in a prepared statement.
Crandall added that the new agreement will shift money and jobs from U.S. airlines to British carriers “at a time when the U.S. economy, and U.S. workers, need active, vigorous support.”
The British Airways-USAir partnership is one of many existing relationships between foreign and domestic carriers. KLM Royal Dutch Airlines, for example, owns nearly half of Northwest Airlines and Air Canada has agreed to buy a portion of Continental Airlines.
For British Airways and USAir, the most significant benefits of their new relationship will flow from merging flight schedules in computerized airline reservation systems, which travel agents use to book tickets.
In those reservations systems, flights from 38 U.S. cities to London on separate USAir and British Airways jets will be treated as if they were flown by a single carrier. This type of arrangement--called code sharing--gives the flight more prominent display in the computer reservations systems and also allows for one-stop ticketing and baggage check-in procedures.
“Most people prefer to stay on the same airline when going internationally,” said Thomas Nulty, president of Santa Ana-based Associated Travel Management. “It gives the customer the illusion that they are traveling on the same airline from their point of origin to their destination,”
On May 1, reservation systems will show British Airways as offering service to London from Rochester, Syracuse, and Cleveland via Philadelphia. However, the domestic portions of those flights will be operated by USAir. The Arlington, Va.-based airline says passengers will be advised of the joint flight when they book a ticket.
“It really cements British Airways into the U.S. marketplace,” said Jon F. Ash, managing director of Global Aviation Associates, a Washington, D.C.-based aviation industry consulting firm. “It gives them a very strong hand.”
