US turns up heat on BA

Congressmen insist on deal with USAir before link-up with American Airlines can go ahead

USAIR will intensify the pressure on British Airways to settle the dispute between the two airlines this week when it details widespread US political support for its ambitions to participate fully in a liberated transatlantic air travel regime.

Some 75 Congressmen have written to US regulators and the White House expressing their backing for USAir. More than 100 state governors, city mayors and other local organisations have also registered their support for the airline in which BA has a 25 per cent stake.

The political support comes largely from the East Coast corridor that represents USAir's passenger stronghold. It reflects a growing belief in the US that BA will have to resolve its differences with USAir as a pre-condition of approval of its proposed alliance with American Airlines.

Sources close to USAir say the airline is ready to negotiate an amicable settlement with BA. USAir will drop its legal action against BA and support its planned deal with American providing the two carriers can unravel the existing alliance satisfactorily.

USAir stunned BA two months ago when it filed the action against the British carrier alleging that the alliance with American represented a breach of contractual duties.

BA is fighting the action and has filed a motion to have it dismissed. Bob Ayling, BA's chief executive, said: "We believe a continued alliance is in the best interests of both airlines, their customers, employees and shareholders."

However, US legal sources suggest that it will be almost impossible for BA to maintain its current relationship with USAir if it wants to secure anti-trust immunity for its partnership with American. They say the US Justice and Transportation departments would find it difficult to sanction anti-trust immunity for all three airlines.

USAir is concerned that without anti-trust immunity, which was not sought when BA first struck its alliance, it would be extremely exposed to potential legal challenges.

Not only does BA have a 25 per cent stake in USAir, it also has three representatives on the board. If BA does strike an alliance with American, USAir would be the easiest target for anyone wishing to allege anti-competitive behaviour.

BA contends that USAir apparently hopes to escape its obligations under the investment agreement and aspires to a commercial agreement more favourable to USAir.

USAir, however, is fearful that it may be consigned to the role of a regional domestic airline doing little more than feeding passengers on to lucrative transatlantic routes for BA and American. It is concerned that it would be prevented from participating in a new open skies regime, which it actively supports.

None of the letters of support for USAir from US politicians express any opposition to either a BA/American deal or a new open skies agreement between Britain and the US. If BA could secure a settlement with USAir that political support might then be marshalled behind its proposed alliance with American.

Although USAir has made it clear it is prepared to negotiate with BA so far there have been no talks of substance.

Washington lobbyists believe BA is waiting for the verdict of British competition authorities before switching its attention to US issues. The Office of Fair Trading is understood to have recommended a reference of the BA/American alliance but has left the door open for undertakings to be given in lieu of a reference.

BA is prepared to make concessions on routes and slots at Heathrow. If it can secure approval from the British competition authorities then it can address the US issues.

BA has not yet filed any applications with either the US justice or transportation depart- ments. Crucial talks between the US and British governments over a new open skies agreement have also to be kick-started.

The US has said it will not grant anti-trust immunity to the BA/American alliance without a new open skies agreement.

However, the lobbyists believe that BA will make its filings within days of receiving clearance from the British competition authorities. Clearance would also trigger a restart of the deadlocked open skies negotiations.

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