British Airways to take pounds 400m stake in USAir

BRITISH AIRWAYS yesterday took a significant step towards its goal of creating a global airline grouping by agreeing to take a dollars 750m ( pounds 402m) stake in USAir, America's fourth-largest carrier.

The link-up will create the world's biggest airline alliance with 80 million passengers, a fleet of 670 aircraft and a combined turnover of pounds 9bn, and will give BA crucial access to the United States market, which accounts for 40 per cent of global air travel.

The investment in USAir is the most important development for BA since its takeover of British Caledonian four years ago, and enables it to realise its long-cherished goal of securing a partnership with a big American airline.

Sir Colin Marshall, BA's chief executive and chairman-designate, described the deal as the first move in a strategy to create a global airline alliance that could eventually include one of the leading Pacific carriers.

Under the complex financial agreement reached yesterday, the British carrier will take 37 million preference shares in USAir, giving BA 21 per cent of its voting rights and 44 per cent of its equity on conversion to ordinary shares.

The approval of shareholders and US regulatory authorities, which restrict foreign ownership of US airlines to 25 per cent, is expected to take at least three months.

The investment gives BA access to a carrier that has 8 per cent of the US market, serves 210 domestic destinations and is the biggest airline at nine US airports, including Washington, operating 2,750 flights a day and carrying 55.6 million passengers a year.

This will enable BA to feed USAir's domestic passengers on to its transatlantic flights while USAir will gain access to one of the world's biggest intercontinental airlines.

BA also plans to take on USAir's existing services from London to Baltimore and Charlotte and introduce a non-stop service to Pittsburgh using USAir crews and aircraft.

Although USAir has lost more than dollars 1bn in the past two years and has dollars 1.9bn in debts, Lord King, BA's chairman, denied the investment was a gamble. 'It's good for customers, it's good for our employees and it's good for our shareholders,' he said. 'It is also good for the economies of both home countries.'

BA estimates that the partnership will generate savings of at least pounds 80m in the short term, rising to perhaps pounds 200m, but Lord King ruled out any job losses as a result.

The British flag-carrier began scouring the US for a partner almost from the moment it was privatised five years ago. Plans to take a minority stake in United Airlines, the second-biggest US carrier, fell through three years ago and earlier this year BA failed to reach agreement on a merger with KLM of the Netherlands, which would have resulted in a link-up with NorthWest Airlines through KLM's minority holding in the US airline.

Although USAir is smaller than United, American Airlines and Delta, it has a strong base on the eastern seaboard, from where two-thirds of all transatlantic traffic originates.

A committee led by Sir Colin and Seth Schofield, the chairman of USAir, is to begin work soon, examining ways in which the two airlines can achieve economies of scale by pooling marketing, operations, finance, purchasing and engineering activities.

Ultimately, however, BA's hopes are thought to be set on a full-scale merger with USAir. Whether this ambition will be realised depends on whether the next US administration agrees to relax restrictions on foreign ownership of US airlines.

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----------------------------------------------------------------- HOW USAIR AND BRITISH AIRWAYS SHAPE UP ----------------------------------------------------------------- USAir BA ----------------------------------------------------------------- Financial * Revenue pounds 3,784m pounds 5,224m Operating profit/loss - pounds 20.9m pounds 344m Pre-tax profit/loss - pounds 165.7m pounds 285m ----------------------------------------------------------------- Scheduled Traffic * Pax Nos 55.0m** 23.8m RPKs 54.6bn** 65.9bn ----------------------------------------------------------------- Fleet (Mar 92) 439** 230 ----------------------------------------------------------------- Employees (Mar 92) 45,281 48,453 ----------------------------------------------------------------- Destinations (Summer 92) 211 151 ----------------------------------------------------------------- * 12 months ended 31 March 1992. ** USAir Inc. -----------------------------------------------------------------

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