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Ba Usair: How To Have A Smooth Takeoff


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BA-USAIR: HOW TO HAVE A SMOOTH TAKEOFF

Last August, when British Airways PLC stunned the aviation world with plans to pump $750 million into USAir Group Inc. for a 21% voting stake, the stock market nodded its approval. The Bush Administration, the smart money said, would do likewise.

But four months later, the markets and mavens are worrying. The U.S. refuses to approve BA's purchase until Britain grants open access to all its airports. Britain says it won't do that until BA first gets its hands on USAir. Both sides face a Dec. 24 deadline, when BA can walk away if approval hasn't been granted.

FOURTH PLAYER. The deal is too important--and not just to BA and USAir--to let it slip away. On a grand scale, an agreement between the two countries would serve as a model for France, Germany, and Japan, all negotiating new air-service agreements with the U.S. Closer to home, the jobs of 47,000 USAir employees are at stake. While not so bad off as Northwest Airlines Inc., which on Dec. 7 cobbled together a $250 million loan package that will forestall a Chapter 11 filing, USAir has debt of $2.1 billion and has posted losses in 12 of the past 13 quarters. Without BA's money, predicts analyst James C. Halstead of Swiss Bank Corp., USAir may have to file for bankruptcy protection within a year.

Perhaps more important are the interests of the flying public, which needs a vigorous fourth competitor to keep the heat on the Big Three: American, United, and Delta Air Lines. Successful completion of a BA-USAir deal would also send a reassuring message to struggling carriers such as America West and Trans World Airlines. The dynamics of the airline business are such that the megadoses of capital that these airlines require are almost certainly going to have to be provided by sources outside the U.S.

Clearly, the U.S. government has every incentive to come to terms. So do British leaders, who stand to gain unprecedented access to the huge U.S. market for their country's flagship carrier. And by considering a few common-sense guidelines, both sides could walk away claiming victory.

First, don't let the Big Three botch the deal by cloaking their own agenda in high-sounding talk about the national interest. While they lack an official seat at the bargaining table, U.S. carriers have been lobbying furiously from the sidelines. They're intent on gaining assets--new routes, landing slots, even rights to carry passengers to third countries--for which they aren't willing to pay. American Airlines Inc. and United Airlines Inc., for example, both turned down the chance to buy Dan-Air Services Ltd., a British carrier with routes between London and several of the most desirable European cities, for a mere $60 million. And yet both loudly protest that, with USAir, BA would have freedoms in the U.S. that they don't have in Europe.

Such special pleading shouldn't distract negotiators from their ultimate goal: open skies. But complete freedom--with no limits on routes, fares, ownership, or capacity between and within countries--can't be achieved overnight. A BA deal would provide the framework for a gradual phasing in of open skies.

CONCESSIONS. To get the ball rolling, BA will have to drop its insistence on veto power over major USAir decisions. Britain then must grant unlimited access from U.S. cities to regional airports in Birmingham, Glasgow, and Manchester.

But the linchpin of any serious agreement is access to Heathrow. It is the world's biggest and busiest international airport, where more than 200 carriers pick up passengers bound for all parts of the globe. BA controls 40% of the airport's 233,000 yearly landing and takeoff slots. BA should voluntarily auction off 10% of its Heathrow slots to U.S. carriers. The U.S. should respond by letting BA increase its voting stake in USAir to 49% and allow it to fly beyond U.S. cities to destinations across the Pacific. At the same time, U.S. airlines should gain the right to fly from Britain to the rest of Europe.

Until now, absence of an intelligent spirit of compromise has blocked the BA-USAir tie-up. But Prime Minister John Major has a chance to get serious with President Bush when the two meet in the U.S. on Dec. 18. The clock is ticking.

TABLE: A PLAN TO OPEN UP THE SKIES

If British Airways wants to invest $750 million in USAir Group Inc., the U.S. should allow it--for a price. How a deal might work:

STAGE 1 BA gets 21% of USAir now but drops demand that board moves need an 80% majority. U.S. carriers can fly freely to Manchester, Birmingham, and Glasgow. U.S. gives startups access to key airports

STAGE 2 By 1994, BA boosts stake in USAir to 49%, while auctioning off 10% of its Heathrow slots to U.S. carriers

STAGE 3 By end of 1996, the U.S. and Britain allow unlimited flights within and between countries. U.S. doesn't allow majority control of carriers until EC does, too

STAGE 4 European Community and North American Free Trade Agreement signatories negotiate as trading blocs to remove all limits on flights within and between their cities. Goal: Open skies by 2000

DATA: BWPaula Dwyer


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