Aerial Dogfight With the British : USAir deal poses new challenges for U.S.

In terms of international airline competitiveness, the skies are not always so friendly. The competition for desirable routes is often cut-throat, the resolution of these conflicts often bumpier than landing in turbulence.

But give British Airways credit. It managed to refashion its bid for USAir in such a manner that if the Clinton Administration had not approved part of the deal, the United States would have been reneging on its treaty with Britain that governs aviation rights and privileges between the two countries.

Honoring the agreement is important because Washington expects other countries to abide by their bilateral air agreements with the United States. So the U.S. Transportation Department had little choice but to clear the first phase of British Air’s three-part, five-year plan to invest $750 million in troubled USAir. British Air’s initial $300-million investment gives the London carrier a stake of nearly 20%--within the allowable 25% U.S. limit on foreign ownership of voting stock. British Air withdrew its original bid for a single investment of $750 million after the Bush Administration indicated its opposition.

To create new leverage for the United States, Transportation Secretary Federico Pena has set conditions on the deal. British Air will not be allowed to proceed with any additional investments unless the British government allows U.S. carriers greater access to Heathrow and other British airports. And Pena also limited the two carriers’ plan to share computer flight codes and aircraft to one year, pending review. In fact, Pena justified U.S. approval of the initial British Air investment as “the hook” for getting the British to negotiate an “open skies” agreement so that U.S. carriers have a fair chance in vying with the British carriers operating across the Atlantic.

Maybe. Let’s hope the Administration’s strategy for reciprocity works. British Air gains U.S. access via USAir, which, although in bad financial shape, perhaps could have survived without the British cash. Other beleaguered U.S. carriers have been forced to turn to foreign partners. KLM Royal Dutch Airlines has an arrangement with Northwest; Air Canada is buying a stake in Continental Airlines.

Pena has now signed off on part one. The second and third parts, which would raise British Air’s stake to 44%, will depend on Congress raising the 25% cap on foreign ownership. Pena believes that Congress will not raise the cap without assurances of a liberalized treaty. Assurances? Indeed U.S. negotiators must push for no less than a new pact. Otherwise the British may wind up snookering the Clinton Administration.