On the surface, the transaction is just another example of a troubled airline looking for a savior. But the deal comes at a time when everyone from politicians to air-freight carriers is questioning whether mergers between U.S. and foreign airlines are good for America. In the short run, such deals seem to benefit consumers. If, for example, USAir and British Airways are permitted to merge their routes as planned, an American traveler can soon check her bags in Champaign, Ill., and fly a single air system through to, say, Rome, or even Lilongwe in Malawi, in southern Africa. Some 12,000 such city-to-city combinations would be made possible by the merger. Wonderful, right? Maybe so, concedes American Airlines CEO Robert Crandall. “But in the long run,” Crandall says, “the BA-USAir merger will shaft all Americans … We’ll be forced to cut back and lay off employees. American choices and incomes will shrink.” That’s the sort of thing you’d expect a rival to say. But Ross Perot and Bill Clinton also attacked the British Airways-USAir hookup during their campaigns. The stand proved a touchy one: some of Clinton’s own people even contend that the 7,000 USAir jobs in North Carolina were a big factor in Clinton’s loss there-the only state he targeted but did not win.
It’s no mystery why America’s ailing airlines are looking for affluent partners abroad: the industry has been in a deep recession for five years. Passenger boardings and mileage earnings per passenger, adjusted for inflation, have been almost flat since 1987. The foreign connections and capital could save several U.S. lines. Some might fail anyway. But as Alfred Kahn, who launched airline deregulation as Civil Aeronautics Board chairman under Jimmy Carter, puts it: “If we had only three or four domestic airlines, I’d be nervous. But I’d feel perfectly safe being supplied by seven or eight world-class companies. These foreign deals are great insurance for America’s fliers.”
While the deals could bail out struggling airlines, they certainly won’t help the stronger American carriers like American and Delta. For one thing, U.S. airlines do not have equivalent access to foreign markets. Most other nations bar foreign airlines from domestic operations. Further, Britain has no airline that an American line could buy and operate in local competition with British Airways. No other large foreign country has a buyable big airline either; almost all are government owned. (U.S.-Canadian air relations have been more open, and American Airlines is seeking a stake in Canada’s second largest carrier.) In addition: Britain and most other big countries severely limit “beyond rights,” which would let carriers like United compete internationally against, say, BA by picking up passengers in London and flying them to cities in other countries. Crandall argues that letting BA buy into the largest air market on earth without giving U.S. carriers the same opportunity abroad is “the equivalent of unilateral economic disarmament.” And foreign airlines are leery of such concessions: a report in The Journal of Commerce last week said British Airways would rather scrap the USAir deal than have the British government grant U.S. carriers broader access to London’s Heathrow airport.
Little wonder, then, that Perot and Clinton opposed the BA-USAir deal. Aware of their objections, Transportation Secretary Andrew Card is negotiating furiously with the British this week to open the British market. Delta, United and Federal Express are poised to join American in suing to block the BA-USAir merger unless more rights for them are forthcoming. The deal could also encounter President Clinton’s opposition after Jan. 20. But despite Washington’s wishes, the future holds fewer-and fewer U.S.-owned-airlines. And that’s a trend no politician can legislate away.
Mergers with foreign airlines are controversial, but the deals may save troubled U.S. carriers.
In 1989 KLM purchased a 49 percent equity stake in Northwest. Now the two are asking the Department of Transportation if they can merge their operations.
British Airways wants to buy 44 percent of USAir’s stock. But the plan has faced opposition from critics ranging from Federal Express to Ross Perot.
The deal, in which a group led by Air Canada would pay $450 million for a stake in Continental, could benefit both airlines, which are struggling.
