BWI MAY SEE AIRLINE DOGFIGHT USAir-British Airways alliance angers 'Big Three'


In one of the biggest dogfights in U.S. airline history, one certainty emerges: What's bad for USAir is bad for Baltimore-Washington International Airport.

Financially troubled USAir Group Inc., which has lost nearly $700 million in the past three years, wants to combine operations with British Airways PLC, one of the world's most profitable airlines. For USAir, the largest carrier at BWI, the $750 million deal could be crucial for long-term survival.

Without the alliance, the Arlington, Va.-based airline says it can't compete with the "Big Three" -- United, Delta and American. That means little growth, such as new aircraft and expanded routes. And it could mean further cutbacks at USAir hubs such as BWI, where the airline handles more than half the 27,000 daily passengers.

This week, federal regulators are expected to rule on the proposed alliance, which has sparked a multimillion-dollar lobbying campaign. The deal could be in trouble -- it has become entangled in a dispute over expanding the rights of all U.S. carriers to use London's airports. Among the politicians who recently have tied the USAir deal to obtaining greater access to major British markets: President-elect Bill Clinton.

The alliance wouldn't necessarily change BWI's diminished role as a hub for USAir. And given British Airways' strong presence at Dulles International in Northern Virginia, some fear BWI could lose its daily flight to London -- a blow to Maryland's effort to strengthen the airport's international base.

Still, the prospects for BWI are much gloomier if the deal falls through.

"Without this deal, USAir would have to shrink to survive and the likely candidate is BWI," said Jeffrey R. Miller, a Gaithersburg lawyer who specializes in transportation issues.

Global market access

The proposed alliance, first announced in July, comes as U.S. airlines are trying to become more competitive in the international arena and as major airlines around the world are expanding. Last week, for example, British Airways gained 25 percent of Australia's Qantas by outbidding rival Singapore Airlines.

The deal would give USAir access to a global market and would link British Airways' trans-Atlantic flights to USAir's large domestic system. As the nation's sixth-largest airline, USAir serves 40 states and is the largest carrier at several major East Coast airports.

The alliance envisions a seamless operation that would mean greater convenience to fliers. Someone who wants to fly from Salisbury to Istanbul, Turkey, for instance, could book his flight straight through, beginning on a USAir commuter flight to Baltimore. He could get boarding passes for the entire journey in Salisbury and eliminate the current need to transfer from one airport terminal to another in London.

"USAir would become an almost global carrier," said Lee R. Howard, president of Airline Economics Inc., an aviations consultant group based in Washington "And that is rather important for longtime survival into today's airline environment."

Maryland officials are worried about the impact if USAir's survival is threatened.

"Clearly our future is related to USAir's future," said Theodore E. Mathison, administrator of the Maryland Aviation Administration, which operates BWI.

During the past three years, USAir has been forced to cut flights, furlough 6,000 workers, and seek pay and benefit concessions from most of its 46,000 employees.

Its financial woes have played out dramatically at BWI. Since 1990, the number of USAir flights at BWI has dropped from 249 to 192 a day. And the airline has scrapped more than a third of its jet flights, opting for the more cost-efficient commuter flights.

Customer demand, the airline said, is simply not strong enough to support the number of jet flights it once operated at BWI.

"They have effectively de-hubbed Baltimore," said Mr. Howard, the airline consultant.

Still, USAir has a much greater presence at BWI than at Dulles, where it operates only eight flights. And it's unlikely that Dulles, which already serves as a hub for United's domestic operations, could become a regional hub for the USAir/British Airways combination.

"USAir would not consider shifting its hub operation from BWI to Dulles," said Dave Shipley, a spokesman for USAir.

The airline might add flights at National Airport in Washington. But USAir could not expand significantly there, because the

number of landings and takeoffs is restricted.

BWI could lose out

But others caution that the proposed USAir/British Airways alliance could make BWI a loser in at least one important way.

Currently, USAir operates a daily nonstop 767 flight, which can carry 193 passengers, from BWI to London. Under terms of the proposed alliance, USAir would relinquish that route, as well as its Philadelphia-to-London route.

British Airways, which has the authority to operate here and at Dulles, insists it would continue that daily flight out of BWI, under a lease using USAir crews and a USAir plane painted with British Airways' logo. That would bring British Airways to BWI for the first time since 1986; it has two daily flights to London from Dulles.

"The Baltimore hub is intrinsically important to the USAir operation and flights into BWI would feed trans-Atlantic service," said John Lampl, director of public affairs for British Airways in New York. "There's no plan to end that flight."

And though Dulles handles most international flights in the Washington-Baltimore area, there could be enough demand to operate two flights a day from Baltimore to London, he added. That might happen if another airline buys the route that USAir must shed to comply with anti-trust regulations.

Still, Mr. Miller and others say there's reason to worry. "The Baltimore hub is not big enough to support that when you have two flights a day operating out of Dulles and another one out of Philadelphia just 90 miles away," he said.

And BWI officials, while acknowledging that the alliance should be overwhelmingly favorable for the airport, worry about the possible loss of its only daily flight to London. That flight, they say, means $240 million a year to Maryland's economy.

"It makes us a little concerned," said Mr. Mathison, who has alerted Maryland's congressional delegation about the potential downside of the British Airways deal.

Big Three won't let up

The alliance would give British Airways 44 percent of USAir's outstanding stock, including 21 percent of stock with voting rights. Under federal law, foreign interests can own no more than 49 percent of a U.S. airline nor control no more than 25 percent of the voting rights.

The alliance also would create a 16-member "super majority board" with four members appointed by British Airways -- a ratio opponents say would give the British airline veto power over some major decisions that require an 80 percent majority.

U.S. Transportation Secretary Andrew Card has promised a ruling by Thursday. Federal authorities are trying to determine whether governance and control issues in the deal -- such as the special board -- would turn USAir over to a foreign company.

The deal, though, has become mired in a debate over agreements that govern access by U.S. airlines to London, a gateway to Europe.

The Big Three,which have spent hundreds of millions to establish international systems, say the alliance would give British Airways access to the world's largest commercial aviation market, without easing Britain's restrictions on how often U.S. airlines can fly into London and where they can go from there.

Two weeks ago, British Transport Secretary John MacGregor said access to British airports would be liberalized if Congress changed the law that limits the voting rights of foreign investors in U.S. airlines. He suggested that foreign investors be allowed to control as much as 49 percent of a U.S. airline's voting stock, as is the case in Britain.

Yesterday, British Prime Minister John Major and President Bush were scheduled to meet at Camp David, and the proposed alliance was almost certain to be on their agenda.

But changes in bilateral agreements often take years to negotiate -- and USAir doesn't have that much time.

The Big Three aren't easing up.

"British Airways would have this monopolistic control," said Bob Harper, a spokesman for Delta Airlines in Atlanta. "We see the future of all American airlines threatened."

But British Airways and USAir say the Big Three don't want more competition. Says Mr. Lampl, "They are just scared stiff of the competition of a fourth domestic carrier that can compete against them."

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