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To Combat US Air Giants, British Airways Plots Expansion Into Europe

EXECUTIVES of British Airways, privatized in the early years of the Thatcher government, have devised a strategy to develop the airline's strength in Europe.Their long-term aim is to work with other large European airlines and the European Community (EC) to mount a comprehensive challenge to American carriers on Atlantic routes. Under the new strategy, which was outlined to senior officials of the EC early this month, the carrier would shed several of its existing activities so as to free capital for the partial acquisition of other European carriers, including Sabena, the Belgian national carrier. Lord King, British Airways chairman, also wants his company to establish a new airline, Deutsche Berlin, based in the German capital and, if political conditions in the Soviet Union allow, another - Air Russia - flying routes to North America and the Far East. Airline sources say Lord King hopes British Airways will achieve a 40 percent stake in Sabena, a 49 percent holding in Deutsche Berlin (the rest of the cash to come from German banks), and end up owning about 30 percent of Air Russia. Company sources said August 19 that the overthrow of President Mikhail Gorbachev was an unexpected and unwelcome development. But they insisted that the Air Russia project remained on the agenda. If the airline fails to expand beyond its base in Britain, it could be driven off Atlantic routes that reaped huge profits in the 1980s. In 1989-90, British Airways earned British pounds345 million (US$559 million), but in the first quarter of this year profits slumped to British pounds9 million. Company officials ascribe the drop partly to the effects of world recession and the Gulf war. More worrying, however, have been the expanding transatlantic activities of two United States airline giants: American and United. Earlier this year the British government gave both carriers landing rights at London's Heathrow airport. Unlike Pan Am and TWA, which they displaced at Heathrow, American and United have extensive domestic networks in the US, which means that by using them passengers can fly from American cities all the way to Britain without changing airlines. Much of British Airways' business originates in the US. It flies to 17 US cities and has lost profits as large numbers of travelers bought tickets from rival US carriers. King has urged Sir Leon Brittan, vice president of the European Commission in Brussels, to encourage a new structure of airline competition in Europe, with the emphasis on three strong carriers. Airline sources say the King plan is that alongside the German airline Lufthansa and Air France, his company (expanded to include its Sabena, Deutsche Berlin, and Air Russia holdings) would account for the lion's share of the European trade. The three airlines, each with its own European network, would then be better placed to compete with US carriers worldwide. The EC could then negotiate with the US government on behalf of the Community as a whole. Under present arrangements, individual European govern ments negotiate with Washington. To free sufficient capital for investment in the planned expansion, the airline plans to sell off its engine maintenance depot in Wales as well as cargo and catering services. Some of its short-haul routes to British cities are being curtailed. About one-tenth of the current labor force will be shed. King's latest bid to revive British Airways follows a successful 10-year attempt to take it from being a lack-luster, loss-making state-run airline to a world leader in air transport. Billing itself as "the world's favorite airline," the privatized company set out under King to project an image of comfort and high-grade passenger service. A European Community official said the idea of rationalizing Europe's airline industry, much as happened in the US in the Reagan years, "would make a lot of sense." By the end of 1992, the EC plans to abolish internal economic frontiers. In this context, the official said, "it would be difficult to go on justifying the existing structure, which is based primarily on the activities of individual national carriers."

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