British Airways buys into USAir $750 million deal would boost BWI's beleaguered main airline

July 22, 1992|By Thomas Easton | Thomas Easton,New York Bureau Staff writers Gilbert A. Lewthwaite and Ellen James Martin contributed to this article.

NEW YORK -- British Airways flew to the rescue of sagging USAir Group Inc. yesterday, purchasing nearly half of the Arlington, Va.-based carrier for $750 million and laying the foundation for an operating relationship that would, in effect, create the world's largest airline.

"The alliance between USAir and British Airways makes us No. 1 in the world -- I'd like to say that one more time, No. 1 in the world -- in terms of passengers carried," said USAir Chief Executive Seth Schofield.

The immediate impact of the deal on Baltimore-Washington International Airport was not clear yesterday, but the link between the two carriers raised the possibility of increased international traffic through USAir's hubs, including BWI.

"This is not going to shrink BWI," Mr. Schofield said during a news conference at New York's Pierre Hotel. "In fact, it will increase it."

State and industry officials were upbeat about the benefits that could result from the combination of the two airlines, which requires the approval of U.S. and British regulators.

Frank Traynor, press secretary to Gov. William Donald Schaefer, said the British Airways purchase could enhance the position of BWI and Maryland's quest to play a larger role in the international marketplace.

"We can only hope that increased international flights and the stature of BWI as an international airport could grow out of this purchase," Mr. Traynor said.

Baltimore-area travel executives 0

also were hopeful about the British Airways move, which they said could give USAir the wherewithal to improve customer service and, possibly, to broaden service out of BWI.

"USAir has lost a lot of money. The infusion of capital by British Airways will give them some deeper pockets to continue to maintain and build upon their service levels and to expand to different parts of the world," said Larry Swerdlin, co-owner of Burton Travel in Owings Mills. He said greater financial strength could enable USAir to hire more flight attendants and provide better food.

Although not faulting USAir's service standards, Mr. Swerdlin said British Airways, with longer average flights, has learned to provide "wonderful service" to its customers and that its service orientation could rub off on USAir.

Among the few operational changes already agreed upon by the two carriers is British Airways' assumption of USAir's London flights from BWI, as well as other USAir flights to London from Charlotte, N.C., and Philadelphia. In flying those routes, British Airways will lease planes and crews already being used on those routes by USAir.

The two companies forecast a tight operating relationship that ultimately could encompass almost every facet of their business but would stop short of a full merger, which is impermissible under U.S. law.

Eventually, British Airways executives said, the relationship could do for an airline what Coca-Cola did for soft drinks: create an international brand with global marketing and, most important, global appeal.

In response to the deal, USAir, the largest carrier at BWI with nearly two-thirds of the market, has begun to adjust its strategy to make it almost totally a domestic airline.

British Airways -- highly profit

able and overtly on the prowl for a U.S. partner -- had been the expected suitor. The company's search came after a dozen years during which, by almost any standard, it completed an impressive turnaround from a money-losing carrier into a world leader in cash and style.

The airline recently reported a 120 percent leap in profits, to $544 million for the year that ended in March, defying the global decline of the airline industry, which lost more than $1.5 billion last year.

The alliance would open 231 cities in the United States, Canada and the Bahamas to the British carrier, most of whose trans-Atlantic traffic ends on the East Coast.

USAir's horizons would widen through British Airways' 151 destinations in 70 countries.

Under the terms of the deal, British Airways would receive securities convertible into 44 percent of USAir's outstanding shares, four seats on USAir's 16-member board and, most important, the prospect of linking USAir's large domestic route system with British Airways' extensive international routes.

The agreement is expected to take three to five months to conclude.

Overseas carriers are barred by U.S. law from transporting passengers within the United States or owning more than 25 percent voting control of a domestic carrier.

The agreement between USAir and British Airways has been drawn up to satisfy U.S. laws while still providing British Airways with substantial influence over USAir's operations.

Shareholders immediately registered their approval, as shares of both companies rose in heavy trading, USAir closed at $14.125 up $1.125, and British Airways closed at $50.625, up $1.

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