City: Americans should clear BA for landing

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The Independent Online
BRITISH AIRWAYS has long been the world's most profitable and successful airline - streets ahead of its nearest rival. To remain in front, it needs to expand internationally - to forge links and tie-ups with other airlines that will make it not just the most successful airline in the world but also the biggest. So far, however, BA's strategy for global expansion has been thwarted at almost every turn. There have been some minor successes, certainly. Over the past year BA has taken a stake in TAT, a French regional carrier, and in a new German venture, Deutsche BA. In Russia, a partnership has been formed with Aeroflot, and most recently there was the link-up with Qantas of Australia, in which BA is to take a 25 per cent stake.

But in a highly regulated industry still dominated by jealously guarded national monopolies and landing rights, the big prizes have escaped. Two attempts to link with Sabena of Belgium have foundered. Talks about a full-scale merger with KLM of the Netherlands also fell through (though not for regulatory reasons on that occasion). BA has met with similar frustration in the US, the world's largest airline market. First there was an attempt to get closer to United. That rapidly came to grief. Then the preferred partner was to be Northwest, but the failure of talks with KLM, already linked to Northwest, scuppered that. Finally, last week, BA was forced to abandon its proposal to take a 44 per cent stake in USAir, a deeply troubled airline financially but still the sixth largest US carrier.

Negotiations with the US authorities were going nowhere. There was no way the Americans were going to agree to the USAir deal as proposed without a substantial quid pro quo. In the end, what was being demanded was just too high a price to pay, and possibly not in Britain's gift anyway. In return, the US airlines wanted virtually unlimited access to Britain and European markets beyond.

Is BA's attempt to crack the US market a lost cause? That's certainly not what Lord King and his chairman- designate, Sir Colin Marshall, think. They prefer to see last week's setback as 'a minor hiccup' in progress. Once the Clinton administration has got its feet under the table, they intend to be back - this time with a watered-down and, hopefully, more acceptable proposal. BA went a bridge too far with its first effort. It is now clear it was trying to move too fast, too soon. BA would have been restricted to 25 per cent of the voting rights in USAir, but behind the cosmetic mask, the plan would have involved considerable management, marketing and operational integration, a single livery and eventually even a single airline. To the Americans, what was proposed looked like a takeover in all but name - giving BA unlimited access to the US market via the back door. You can't blame BA for trying. Who knows? If George Bush had won the election, it might even have got away with it. But in the end, a foreign takeover of a US airline was never going to be acceptable.

BA's second bite at the cherry will probably look much more like the Qantas deal. Here, BA ends up with 25 per cent of the company, a say in management and some useful marketing arrangements, but essentially Qantas remains an independent Australian airline. Until the rules on foreign ownership are relaxed, BA is going to have to live with such second- best arrangements. If the Americans are sensible about it, they will accept the Qantas role model as a reasonable compromise. Nobody else is going to put money into USAir. At least there is someone out there prepared to come to the rescue of US jobs.

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