British Airways cancels $750 million USAir deal Maryland officials upset at collapse of investment plan

December 23, 1992|By Suzanne Wooton | Suzanne Wooton,Staff Writer Ian Johnson of the New York Bureau contributed to this article.

British Airways PLC yesterday scrapped its plan to invest $750 million in USAir, saying the U.S. government was ready to veto the deal, which would have created a global alliance and given struggling USAir badly needed cash.

The alliance -- fiercely opposed by the Big Three domestic airlines, American, United and Delta -- had become entangled in a dispute over British restrictions that govern how often U.S. airlines may fly into London and where they may go from there.

Both British Airways and USair vowed yesterday to explore alternatives. But the future of the alliance clearly depends on the ability of U.S. and British officials to alter agreements governing flights to London.

"The deal is dead right now," said John Lampl, a spokesman for British Airways in New York. He blamed its collapse on political pressure from U.S. airlines who feared competition.

Still, analysts said Arlington, Va.-based USAir is in no immediate financial danger. "A consolidation is taking place in the airline industry, and USAir is only a niche player, but they aren't in such a critical situation that they'll collapse," said David Pizzimenti, of the Nomura Research Institute in New York.

During the past three years, USAir has lost $700 million, prompting the airline to cut flights, furlough workers and seek pay and benefits concessions from most of its 46,000 employees. Since 1990, the number of daily USAir flights at Baltimore-Washington International Airport has dropped from 249 to 192.

But David Shipley, a spokesman for USAir, said the deal was not necessary for USAir's survival, nor is it likely to mean further cutbacks at BWI.

"We still have cash and credit well over half a billion [dollars]. We're not a [bankruptcy] candidate," Mr. Shipley said. "The cash would have made us a much more viable competitor, but it was not critical to our survival."

Among the possible partners mentioned for USAir is Germany's Lufthansa. USAir has previously discussed an alliance with the airline.

The deal's collapse triggered a strong reaction from Gov. William Donald Schaefer. He and other state officials have monitored the deal closely, because USAir is the largest carrier at BWI, handling more than half its 27,000 daily passengers.

"It's a serious, serious, if not devastating, blow to USAir and very bad news for BWI," the governor said.

But, according to Theodore E. Mathison, administrator of the Maryland Aviation Administration which operates the airport, USAir already has made the kind of cuts at BWI that other financially troubled airlines are making at other major airports.

"The real question is USAir's role in competing with other carriers in the international arena, and that is some concern to us," Mr. Mathison said. "It doesn't mean we can't attract other carriers, but certainly, USAir is the feeder airline for us."

Indeed, BWI's future is linked to growth in its international traffic. In 1994, it plans to build a $130 million international terminal.

The alliance would have given USAir access to a global market and would have linked British Airways' trans-Atlantic flights to USAir's large domestic system.

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