Airlines Seek Freer Deal With British

TALKS between the United States and Britain open today in WasThington aimed at revising the existing air-transport agreement.

The Bermuda II agreement, negotiated in 1976, controls the frequency and pricing of airline services between the US and Britain. Liberalizing the accord is a primary goal for US carriers. The airlines chafe at British Airways's lock on the UK market.

A proposed $750-million investment by British Airways (BA) in USAir has forced the debate a step further. Because the two airlines would operate effectively as one, BA would gain almost unlimited access to the US market. The investment would give BA control of 21 percent of the voting stock of USAir.

The chairmen of United, American, Delta, and Federal Express held a news conference last Thursday to protest the proposed deal. "We cannot accept a situation in which BA is allowed to gain unlimited access to the entire United States market while we are denied a corresponding ability abroad," said Stephen Wolf, chairman of United Airlines.

The airline executives say the BA-USAir link would limit international competition that is already too restricted. "The British government sharply restricts the number of flights the US airlines can operate on any given route," said Robert Crandall, president of American Airlines. "The British government exercises unilateral control over all fares on US-UK flights." Impact widely felt

Restrictions affect both passengers and cargo traffic. Frederick Smith, president of Federal Express, described the frustrations his company faces. "While we are free to pick up packages and freight in London, put them on trucks, ferry them across the English Channel, and deliver them in France or Italy, we cannot take those same packages or freight and place them on one of our express freighters and fly them across the channel."

Some airline executives view the BA-USAir deal as providing an opportunity as well as a challenge. "The acquisition has the potential to either reshape the air-transportation industry in an extremely positive way or to reinforce the type of protectionism that impedes progress worldwide," said Mr. Wolf.

In 1944, the first US-UK air-transport agreement set the tone for subsequent bilateral agreements concluded between many countries all over the world. "[The agreement] has for over 50 years set the pace and the direction of international aviation," says Daniel Kasper, director of the transportation practice at Harbridge House, a management consulting firm in Boston. "It became the form that the vast majority of subsequent bilateral agreements were based upon."

"This is a critical time," Mr. Kasper says. "If we blow it, and let the British get the [BA-USAir] agreement without any liberalizing in return, the message that sends to the rest of the world is simple: `Don't negotiate with the US on trade because you can buy them off with the investment route.' " Jobs, jobs, jobs

According to Seth Schofield, president of USAir, the issue at hand is not free trade but saving 47,000 US jobs. "The investment is essential to restore USAir to profitability. It will ensure a long-term future for the company and job security for thousands of Americans," he said in a statement. "The Big Three's desire to expand their market share overseas should not interfere with keeping USAir a competitive US airline." [Separately, 8,300 union machinists went on strike yesterday against USAir, which ha s lost $700 million in the last two years.]

Executives of other airlines have little confidence that the negotiations in Washington will bring free trade. "We have serious doubts as to whether the British government has the desire, much less the willingness, to open its aviation market to US carriers," said Ronald Allen, chairman of Delta Airlines. Yet the desire to advance the BA-USAir transaction may eventually push the countries to liberalize their air-transport accord. If the USAir deal is approved, BA would gain enough advantages to increase competitive pressure on other European carriers, Kasper says. "They will then pressure their governments to liberalize."

Negotiations on the Bermuda II agreement will continue in London on Oct. 20.

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