BA halts further investment in USAir

Stalemate in the skies forces airline to abandon plans for increased share stake in partner
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British Airways has abandoned plans to invest more money in USAir until the UK and US governments settle their long-running dispute over liberalising aviation markets.

BA has until the end of January to decide whether to put another $200m into the troubled American carrier. But it would be unable to lift its shareholding above the 25 per cent limit on foreign ownership imposed by US regulators.

The British flag-carrier has already paid $400m for 24.6 per cent of USAir, and the option would have enabled it to take that shareholding to 34.8 per cent. But the stalemate in the negotiations to liberalise the Bermuda II treaty governing transatlantic aviation means further investment would be too risky.

The UK government was "puzzled and disappointed" after US negotiators broke off talks last year over more access to Heathrow, Gatwick and the American domestic airline market. A Department of Transport spokesman said yesterday that no further talks were planned.

Analysts were divided over whether the UK airline should put more money into USAir - part of BA's strategy of creating a global network of financial and operational alliances.

BA's new chief executive, Robert Ayling, has not so far gone public on the future of the relationship. But one company source said yesterday: "There is little point in us putting more money into USAir unless we can increase our shareholding." The company has a further option to invest $250m within the next two years.

USAir was badly hit by recession in the American airline industry, but has seen its fortunes slowly improve. Last month Seth Schofield, USAir's departing chairman, said the company was now able to stand on its own two feet and did not need further money from BA.

Under the Bermuda II talks Washington has refused Britain's demand to lift the foreign ownership ceiling. In turn Britain has refused the main US demand for open access to London Heathrow. The last round of talks broke up without agreement in October, closing another chapter in over four years of bitter negotiations.

Last year British Airways wrote off half its investment in USAir, after earlier saying it would not make any additional investment until USAir's financial position had improved. USAir recently moved back into profit as a result of cost-cutting and a generally stronger market, and has predicted it will post a profit for 1995, its first positive result since 1988.

The company made profits of $21.6m in the third quarter, on a 10 per cent increase in revenues, from $1.75bn to $1.87bn. "There can be no doubt that this company is now experiencing a dramatic upturn in its financial performance," Mr Schofield said at the time.

USAir provides BA with an entry into the biggest domestic airline market in the world, and may be central to an eventual link-up with American Airlines.