USAIR, BRITISH AIRWAYS ALIGN U.S. rivals urge Clinton to delay $300 million deal


British Airways Plc. invested $300 million in the financially troubled USAir Group Inc. yesterday, completing a limited alliance while setting the stage for a significantly larger stake in the nation's sixth-largest carrier.

But two of the three largest U.S. airlines immediately urged the Clinton administration to delay approval of the deal, saying it would give the British airline an unfair competitive edge.

The investment came just one month after British Airways, anticipating federal opposition, withdrew its $750 million offer, which would have given it control over some major USAir decisions. The control issue had been considered a primary legal barrier to approval from the Department of Transportation (DOT).

"We removed that stumbling block. This is a straight business deal," said Susan Young, a spokeswoman for Arlington, Va.-based USAir, the largest carrier at Baltimore-Washington International Airport.

The Transportation Department, she said, still must approve issues about code-sharing -- under which carriers can connect routes and offer a single fare for a long-haul trip -- and USAir's divestiture of its routes to Britain. Both were part of the agreement signed by the two airlines, and such fine points are normally approved by federal regulators, Ms. Young said.

Under the deal, USAir would continue its daily service from BWI to London but with planes that have the red-and-white British Airways logo.

The alliance, while far less sweeping than the previous $750 million deal, would still link British Airways' trans-Atlantic flights to USAir's large domestic system. In addition, it provided badly needed cash for USAir, which has lost $700 million in the past three years.

But American and United airlines insisted yesterday that the deal would give British Airways access to the largest commercial market in the world without expanding U.S. airlines' ability to land more planes in London, an important gateway to Europe.

"Code-sharing with USAir would give British Airways unique and unilateral advantages in thousands of markets," American Airlines Chairman Robert L. Crandall said.

The Clinton administration, he said, should hold up approval until a new bilateral agreement was struck between Britain and the United States to give carriers "precisely equivalent global competitive opportunities."

But USAir and British Airways said yesterday that the transaction would not be voided even if the DOT rejected the agreement about code-sharing and divestiture. "The money's in the bank," said Ms. Young.

Existing bilateral agreements between the United States and many countries, including Britain, permit linkage of routes and fares.

For example, a Cleveland resident on a London vacation could fly to New York on USAir, and then have his bags automatically transferred to his London flight on British Airways. The schedule and fare would appear under the joint USAir-British Airways symbol on computers used by travel agents.

"If they [federal regulators] say 'No,' they will have broken the treaty between the two countries, because there is an amendment in the bilateral agreement that permits code-sharing," said Ms. Young.

Several airlines have integrated services and code-sharing agreements.

The U.S. government recently gave final approval to an alliance between Northwest Airlines and KLM Royal Dutch.

A bilateral treaty has been signed giving both carriers the right to build up systems in the United States and Europe.

But the largest airlines in the United States clearly are less concerned about competing with KLM than British Airways, one of the world's largest and most profitable airlines.

In December, then President-elect Clinton said the USAir-British Airways deal should hinge on whether U.S. carriers were given more access to British routes and London's Heathrow Airport.

The challenge yesterday from United and American could force Mr. Clinton to deal swiftly with the touchy issue over competition between domestic carriers and international airlines.

Yesterday, however, federal regulators would only say they were reviewing the latest transaction.

Under the terms of the agreement, the British Airways payment provided USAir with badly needed cash, while initially limiting the carrier to 19.9 percent of USAir voting stock.

The $300 million investment involves a new series of preferred USAir stock that will pay a 7 percent dividend. That stock is convertible into USAir common stock at $19.50 a share after four years.

The agreement would also permit British Airways to invest another $450 million in USAir over the next five years through the purchase of two other series of convertible preferred stock. Those options permit the British company to acquire an additional 5.5 percent in USAir voting stock.

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