BWI: Wings across the Sea

September 15, 1992

Maryland has a triple stake in the proposed alliance of USAir with British Airways. USAir is the major carrier at Baltimore-Washington International Airport, whose future is crucial to the state economy. Marylanders should also be concerned about the plan's impact on the battle for survival among U.S. domestic airlines and on the cost and availability of international air service. The alliance looks like a good deal on all three scores.

The financial health of USAir, which uses BWI as a hub, is critical to air service for this region. The airline has lost money for several years and badly needs a transfusion of dollars. It could be swallowed up by one of the three U.S. airlines still in the black, American, Delta and United. None of them has shown great interest in Baltimore as a major market, and it is doubtful BWI would retain its hub status in a merger. That level of service is key to the economic health of this region, not to mention the substantial public investment in the airport itself. BWI officials are pinning their hopes for further growth on building international traffic. While the $750 million infusion from British Air won't guarantee USAir's viability, it certainly would help.

The three major U.S. airlines are fighting U.S. government approval of the deal. They argue it violates rules against foreign control of a U.S. airline and that it would give the British an unfair competitive advantage unless U.S. airlines were granted similar access to British cities. USAir's lawyers appear to have carefully crafted the deal to stay below the permitted 25 percent stock ownership (though its investment would represent 44 percent of USAir's capital). We suspect this argument would fade away if the big three airlines got reciprocal rights in Britain.

Should the USAir-British Airways deal be held hostage to greater access for the other U.S. airlines? USAir's three big competitors already carry more than half the air traffic over the Atlantic, not to mention the lion's share of domestic travel. At least in Europe, international air travel is being transformed. The old protectionism for each country's own airlines is fading away, and mergers or operating alliances are the order of the day. KLM Royal Dutch Airlines has owned the largest stake in Northwest Airlines for several years and now seeks a merger in all but name. Barriers to air travel within Western Europe will fall next year. American, Delta and United are bucking very strong headwinds.

Still, there are aspects of the USAir-British Airways alliance to be wary about. British Airways would have a veto over major decisions by its U.S. partner. There is a potential threat in the long run that British Airways would swallow up USAir, placing Baltimore's air service at the mercy of a management 3,000 miles away. But the promise of a prosperous airline with strong local ties coupled with easier access to Britain and the rest of Europe makes those risks worth taking.

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