BA-Virgin dogfight leaves skies clear for US

City & Business

British Airways and Virgin Atlantic may not have realised it but they are actually on the same side. The two airlines are in total agreement that Britain boasts a dynamic and thriving airline industry, which ranks as a genuine global leader. They both agree that this is something to be proud of and that it is worth preserving and developing. Unfortunately they disagree profoundly on how this might be achieved.

BA argued passionately to MPs last week that only through its alliance with American Airlines could it continue to compete effectively in the face of increased competition from other US/European alliances such as those between Lufthansa and United Airlines and KLM and North West. If BA were not allowed to compete effectively on the European stage, it would not only weaken the company but would have knock-on effects on the wider British economy.

This national champion argument was immediately dismissed by Virgin as a smokescreen to mask a more sinister agenda that would see BA exercising an even tighter monopolistic grip on the lucrative Transatlantic routes.

The problem here is that the debate about the merits of the BA/American alliance is being held in the context of the interests of the two airlines, with occasional asides for the benefit of the consumer, not in the context of what is in the best interests of the British airline industry.

If we have got a world-beating industry (we do) that creates wealth and employment (it does) then it is surely worth nurturing. That requires careful consideration in an altogether less heated environment than the one in which the debate is currently being conducted.

The real worry is that there is now a clear linkage between the BA/American deal and the negotiations between the British and US governments over air liberalisation. This is great news for the Clinton administration, which has failed miserably to score significant trade success in opening up overseas markets on behalf of its corporate citizens. The US negotiators will milk this linkage for all it is worth as they pursue the collective interest of US carriers.

Either the BA/American deal is anti-competitive or it is not. Let the appropriate authorities decide using appropriate yardsticks. Only when that judgement is delivered can the separate and broader issue of air liberalisation be discussed.

PFI in need of fillip

IF THE Private Finance Initiative was a football player, it would have been suspended a long time ago for bringing the game into disrepute. Unfortunately the PFI (or Pretty Futile Idea as it is more popularly known) is not subjected to the rigours of professional standards. Hence it has been allowed to wander aimlessly along the borders of the public and private sectors, a concept as confused as it is confusing.

The big problem for the PFI is its rather dubious heritage. The initiative was announced in 1992 by a Chancellor still smarting from our ejection from the Exchange Rate Mechanism who was desperately seeking a "big idea" to bolster his fortunes. The PFI fell conveniently into that category. Unfortunately, its dubious parentage has inhibited its development ever since. Without the all-important sense of purpose at the outset, the PFI became an immediate target for unwitting abuse. On one side of the equation were the politicians, who saw it as a cunning way to reduce capital spending. On the other was the private sector, which saw a lucrative source of new business. Both had misread the PFI and both were sorely disappointed.

Fortunately, amid the mire of uncertainty and misunderstanding, there was indeed the seed of a good idea, which has been painstakingly and carefully nurtured by the Private Finance Panel. Little by little, it has managed to dispel some of the myths and encouraged a change in the culture of both public and private sectors.

The panel's new chairman Alastair Ross Goobey remains convinced that in the long run the PFI can deliver cost savings and improved services for the public sector while still yielding a reasonable return for the private sector. This is not disputed, but as the CBI pointed out quite eloquently this week, there is still much that needs to be done if the PFI's full potential is to be maximised.

That requires an acceptance on both sides that the benefits may not be so great and so obvious as they had once imagined. It also requires more tangible evidence that PFI projects can be translated from theory into practice.

The troubles in securing a PFI-funded hospital project - witness last week's withdrawal by Bovis from the University College scheme - demonstrate those practical difficulties. A successful hospital project is desperately needed.

However, the key project to watch is the proposed redevelopment of the Treasury building in Whitehall. If the architects of the PFI cannot demonstrate quite clearly and cleanly the benefits and mechanics of that initiative, there is not much hope for anybody else.

New order of Rank

ANDREW TEARE, Rank's new chief executive, is clearly prepared to ruffle feathers as part of his strategic review of the group. The premature announcement of the disposal of the Shearings coach holiday business has all the hallmarks of a spat between the new and old guard. Mr Teare's view of Shearings presumably did not coincide with that of Angus Crichton-Miller, the director responsible for the holidays division who has quit in order to consider making an offer for the coach business.

The conclusions of the full review when they are published next month will call for other disposals, most notably Precision Industries.

More important, however, than what stays and what goes will be what the review says about Rank's investment priorities. The Leisure division, following the $410m (pounds 265m) investment in Hard Rock Cafes last month, must be regarded as a key element of Rank's plans.

More intriguing is the film and television division. Since Philip Clement became managing director of the division in March, he has made a great impression on the Hollywood moguls and seems well aware of the division's potential.

The film business can be a graveyard or a gold mine, and a commitment to greater investment would be a brave move. But Rank needs some inspiration, and fortune is said to favour the brave.

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