USAir: Dilemma in the Making?

January 23, 1993

The revived deal between USAir and British Airways has several virtues. First and foremost, it gives the struggling domestic airline an immediate $300 million infusion of badly needed cash and the potential of $450 million more. While USAir was not doomed without the British investment, it would have continued to be a weak competitor among domestic airlines. A strong, healthy USAir is vital to Baltimore-Washington International Airport, where it is the dominant airline.

Other aspects may turn out to be equally important. The deal strips away the political issue of foreign control, which was the basis for the vigorous opposition to the first agreement by the three big U.S. airlines, American, United and Delta, and the grounds on which the Bush administration was unwilling to approve the deal. British Airways will not now have a veto over major decisions by USAir. Now the debate will focus clearly on what was always the gut issue: reciprocity.

The three major U.S. airlines argue that British Airways should not get vastly increased access to the lucrative market here by virtually merging its operations with USAir without more landings for them at London's Heathrow Airport. Heathrow is the leading international hub in the world. British Airways jealously guards its 35 percent share of the traffic there. It is ruthless against domestic competition and hard-nosed about keeping more foreign flights out. Its unwillingness to budge on this issue doomed the initial deal with USAir.

Perhaps this issue can be set aside for a while as the Clinton administration, already committed to reciprocity, negotiates with the British. There is less time pressure. All that is now required is U.S. approval of the two airlines' ability to issue tickets between places they serve as if they were a single airline and to jointly operate USAir's London flights. Joint ticketing is permitted under the existing U.S-British air accord and should be routinely approved. USAir already has similar deals with other foreign airlines, including Alitalia.

British Airways' investment in USAir strengthens this country's airline industry by bolstering domestic competition. That is a potent argument in favor of their gradual merger. However, if domestic airline competition is to be enhanced at the expense of international airline competition, advocates of free trade will be presented with a troubling dilemma.

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