British Airways May Drop Stake in USAir

British Airways will release its annual earnings report Monday amid speculation that it might write off its entire investment in USAir in favor of a new financial alliance with American Airlines.

Last year, British Airways used its annual report to announce that it was writing down half of its $400-million investment in the airline after USAir Group Inc. failed to win contract concessions from its labor unions. British Airways owns 24.9% of USAir.

USAir Chairman Stephen M. Wolf, who took over the airline in January, is expected to announce plans for the carrier at the company’s annual stockholders meeting Wednesday. Wolf has told USAir employees that the airline probably will have to seek a partner--either through a merger with another airline or some form of marketing agreement--for its long-term prosperity.

USAir offered itself for sale late last year to American Airlines Inc. and United Airlines Inc. United, which could use USAir’s strength in the eastern half of the nation to become a dominant carrier in the North Atlantic, expressed interest, but eventually pulled back after its union owners balked at the prospect of having additional debt dilute the value of their stake in United.

Speculation over British Airway’s continued investment in USAir has been fed by reports that British Airways and American Airlines are about to announce a deal that would be more than a simple marketing alliance. One report in the British press said the two airlines would swap 20% of each other’s stock.

If this happens, United might take a second look at USAir as a defensive move, industry sources said Friday.

“We will not comment on rumors,” a USAir spokesman said, adding that the airline “will always act consistent with its own interests.”

Officials for British Airways and American also declined to comment. American Chairman Robert L. Crandall told a news conference after his company’s annual shareholders meeting this week that American has had discussions with several European airlines but that no deal has been made.

Britain’s top aviation negotiator, Tony Goldman, will meet Monday in Washington with Assistant Transportation Secretary Charles Hunnicutt, his U.S. counterpart, to renew talks about liberalizing air service between the two countries.

Transportation Department spokesman Bill Mosely said Goldman and Hunnicutt are trying to find a basis for reopening negotiations for expanded air travel rights between the two countries and that the issue of American and British Airways was not on the agenda.