USAir sues its partner, British Air Plaintiff contends alliance with American would hurt competition; 'Astonished and mystified'; Those who oppose link say it would involve 60% of routes to Britain


USAir filed suit yesterday against its partner, British Airways, and American Airlines, saying a proposed alliance between those two giants would hurt airline competition overall and violate the terms of USAir's own alliance with British Airways.

In a suit filed in U.S. District Court in New York, USAir contended that the alliance -- subject to approval by the U.S. Department of Transportation -- would violate U.S. antitrust laws that are designed to protect competition.

Opponents of the alliance, including USAir and other major carriers, claim that AMR Corp.'s American Airlines and British Airways together handle more than 60 percent of the airline traffic between Britain and the United States.

"Our action, taken in response to the proposed British Airways-American Airlines alliance, advances and underscores the absolute determination of USAir to become a viable competitor in key U.S.-U.K. markets and is in the best interest of USAir, its shareholders, employees and the traveling public," Stephen M. Wolf, chairman and chief executive officer of USAir Group Inc., said in a prepared statement.

In June, British Airways and American Airlines announced an agreement to coordinate passenger and cargo business, share frequent-flier programs and to put their own codes on each other's flights, enabling passengers to fly across both carriers' networks as if they were one airline. Three years ago, British Airways entered into a similar arrangement with USAir.

The American-British Airways deal -- scheduled to begin April 1, 1997 -- would be the largest in a series of recent alliances between U.S. and European carriers.

In 1993, USAir and British Airways formed an alliance, with British Airways acquiring a 24.6 percent stake in USAir for $450 million. The deal provided the financially struggling USAir badly needed cash and gave British Airways access to USAir's extensive East Coast network.

As a result of that alliance, the suit says, USAir gave up valuable routes to London, including one from Baltimore-Washington International Airport to Gatwick. It also redeployed aircraft and employees, changed its schedules and took other initiative to boost its partnership with with British Airways.

Aviation analysts said they were surprised by USAir's statement.

"This is an airline [USAir] I would have thought British Airways would have worked with ahead of the American agreement and found some way to settle things with more amicably," said Guy Kekwick, an analyst with Lehman Brothers in London.

BA insisted yesterday that its proposed alliance with American "is consistent with our obligations to USAir." And the airline, which earns roughly $100 million a year in revenues from the alliance with USAir -- quickly sought to downplay the legal squabble with customers.

"For customers, it is business as usual," British Airways said in a statement.

In a written statement, American Airlines said it was "astonished and mystified" by the USAir lawsuit.

The filing of the USAir suit coincided with action yesterday by a British parliamentary panel that urged approval of the deal, saying British Airways needs to keep pace with the growing global alliances, such as the one between United Airlines and Lufthansa.

In its report, the House of Commons Transport Committee -- which has no official role in the process that also requires approval by the British government -- said the alliance would encourage competition and be good for consumers.

The filing by USAir also came on the opening day of a new round of "open skies" talks between the U.S. and Great Britain in Washington in which the U.S. is seeking more landing slots at Heathrow Airport in London.

The U.S. Transportation Department has said that the successful negotiation of an "open skies" agreement is essential if the American-British Airways alliance is to gain approval. Under such an arrangement, Britain's airports would be open to all U.S. carriers and vice versa. Currently, only United and American can fly into London's Heathrow airport.

USAir shares rose 37.5 cents to $17.75, AMR shares fell 25 cents to $76.875 and BA's U.S. American Depositary Receipts rose 37.5 cents to $80.875.

Pub Date: 7/31/96

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