USAir Inc. filed suit yesterday to break up its three-year-old alliance with British Airways PLC, contending that it had been betrayed by its partner's recent plans to join forces with American Airlines Inc.
The proposed linkage of American and British Air -- which would be the biggest in a series of recent global airline alliances -- would cripple Arlington-based USAir by effectively barring it from the lucrative U.S.-London market, USAir contended in a suit filed in federal court in New York.
British Air, which became USAir's largest shareholder in 1993 by buying a 24 percent stake for $400 million, has repeatedly frustrated the U.S. carrier's efforts to expand service to Britain and other European destinations, the suit alleges. Because of its investment, the British carrier has a strong voice on USAir's board and a powerful say in internal marketing decisions.
On June 11, American and British Air announced plans to combine operations by sharing passengers; coordinating fares, schedules and ticketing; and pooling profits on some routes. With that, USAir, the nation's fifth-largest carrier, suddenly discovered its partner in a rival's arms.
USAir asked the court to order the resignation of the three British Air representatives on the USAir board of directors and the "orderly sale" of British Air's investment in the U.S. carrier.
The suit also seeks unspecified damages, which could be trebled if the court finds the American-British Air agreement violates U.S. antitrust laws, as USAir contends. The agreement is under review by the Justice Department.
"In agreeing to form a mega-alliance with American Airlines, British Airways is violating the requirements of its contract with USAir," said Lawrence Nagin, USAir's general counsel. "We would be put in a weaker position, we would be competitively handcuffed" if the alliance goes through without changes between British Airways and USAir.
Additionally, USAir wants the rights to fly from its hubs at Philadelphia, Pittsburgh, Charlotte and Boston to London. It was required by the federal government to give up its routes to London from Baltimore, Charlotte and Pittsburgh when its British Airways deal was approved in 1993.
In a statement, British Air said it has offered to include USAir in its proposed alliance with American. "Discussions between the airlines on this are now underway," the statement said. Some Wall Street analysts speculated that USAir's suit is a bargaining ploy to extract better terms in such a three-way arrangement. USAir would not comment, referring instead to the demands in its lawsuit.
American Airlines said it was "astonished and mystified" by the suit. The airline noted that its alliance with British Air cannot proceed unless the Clinton administration and the British government agree on a new "open skies" pact deregulating air travel between their countries -- a step that would create new opportunities for USAir and other carriers, it said.
Negotiations between the two governments on a new air agreement resumed yesterday.
USAir's stock closed yesterday at $17.75, up 37 1/2 cents, on the New York Stock Exchange, and the stock of AMR Corp., American's parent, closed at $76.87 1/2, down 25 cents, on the NYSE.
For British Air, the importance of its partnership with USAir pales in comparison with the opportunity to dominate the U.S.-London market with American, said John Ash, managing director of Global Aviation Associates Ltd., a Washington-based research group. American and British Air operate one-quarter of U.S.-London flights. Together, they fly three-quarters of the flights between New York and London's Heathrow Airport and more than 80 percent of Chicago-Heathrow flights, Ash said. USAir has less than 2 percent of the North Atlantic routes. "For that, you throw USAir over the transom," he said.
The rift also reflects USAir Chairman Stephen M. Wolf's dissatisfaction with his carrier's share of its partnership with British Air, Ash said. USAir transfers its Europe-bound passengers to British Air, but gets a small portion of the profits, he added. "They're feeding the cake to their partner," he said. "The relationship has been quite strained for a while."
Steven Lewins, an analyst with Gruntal & Co. in New York, said USAir's lawsuit is "absurd" -- unless it turns out to be a negotiating maneuver to increase USAir's leverage with British Air.
But deregulation of air routes alone will not guarantee access to London's Heathrow Airport for new contestants like USAir, said Brian Harris, an analyst with Lehman Brothers Inc. in New York. "Open skies sounds great," he said. But the opportunity won't be worth much unless British Air is required to give up some of the prime landing rights it now controls at Heathrow, he added. CAPTION: BRITISH RULE The domination of the London market by British Airways and American Airlines is at the heart of USAir's lawsuit. Share of departures from London Heathrow to U.S. airports in June British
18.5% Virgin Atlantic 9.5% Others
4.2% SOURCE: Official Airline Guide