British Airways pushes for tough line on Lufthansa deal

Date: 28/10/1999

By Bruce Barnard

THE controversial British Airways-American Airlines alliance has returned to haunt the European Commission only months after the carriers killed the deal because they could not stomach the conditions set by regulators in Brussels and Washington.

Now BA wants the Commission to be as tough on a bid by Lufthansa to acquire a 20&percent; stake in British Midland, the UK's second largest airline.

In an unprecedented public outburst earlier this month, BA claimed regulators were operating double standards, tying its hands while giving free rein to its rivals. It also demanded that Brussels review its stance on the vexed issue of anti-trust immunity for airline alliances.

The fact that BA is rattled by Lufthansa's bid for a minority stake in an airline which only operates short-haul European flights underlines the strategic importance of global alliances as consolidation of the industry enters a decisive stage.

British Midland has 24&percent; of the coveted landing slots at London Heathrow, Europe's biggest airport, and the deal will give Lufthansa access to those in addition to its 70&percent; of the slots at Frankfurt, Europe's second largest airport. Moreover, under the agreement, British Midland will join the Star Alliance, headed by Lufthansa and its US ally United Airlines.

BA, with 34&percent; of Heathrow slots and 4&percent; of Frankfurt's, fears a stitch-up and claims the British Midland deal is “a sell-out to an alliance which has been given anti-trust immunity to share capacity and fix prices across the Atlantic and which carries out volume-related selling of its tickets”.

BA is furious that the Star Alliance has been allowed to dominate Frankfurt while it was prohibited from an alliance with American Airlines “except on terms which would have emasculated it”. The company is already incensed that arch rival Virgin Atlantic leases space to the US' Continental Airlines, giving it access to British traffic.

BA has raised the stakes by claiming that European airlines are taking advantage of the UK's liberal policies to stage an air war in its skies, putting the future of the British airline industry at risk.

The collapse of the BA/AA alliance after the Commission demanded the carriers surrender nearly 250 weekly slots at Heathrow left BA's international strategy in tatters while its rivals were getting their act together. The steady slide in the share price of BA, once the world's most profitable airline, has also undermined morale.

The Commission will get a taste of the brewing Lufthansa/BA row when it begins investigating a hostile €1.11-billion bid by Canadian buy-out specialist Onex to take over Air Canada and merge it with Canadian Airlines. Onex is backed by AMR, the parent of American Airlines, which is also a leading shareholder in Canadian Airlines.

Lufthansa and United Airlines have pledged €452 million to help Air Canada fight the Onex bid and keep it from being dragged into oneworld, the alliance led by American Airlines and BA.