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The Savvy Traveler

Airlines Forming Partnerships of Survival

February 19, 1989|PETER S. GREENBERG | Greenberg is a Los Angeles free-lance writer

In this age of mergers, failures and consolidations in the airline business, do you ever wonder who really owns the airplane on which you're flying?

The truth is that few airlines own their own planes. Most are financed--leased--because of the capital expenditures involved in buying new planes. For example, it would not be unusual to see a sign bolted to the inside of some cockpit doors that proclaims the aircraft is owned by a consortium of banks.

So much for the planes. But who owns the airlines ? The answers might surprise you. In the last few years, ownership of some carriers has changed rapidly, but the number of owners has decreased as airlines have failed, been sold or merged into larger carriers.

What is beginning to concern many industry observers is not just the mergers and other airline failures but the new ownership agreements and how they might affect the frequency of flights, choice of routes and the cost of your ticket.

Global Alliances

Airlines are forming global alliances in an attempt to secure long-term survival in a deregulated environment. These are more than just marriages of convenience. In some cases the airlines that are tying the knot are participants in shotgun weddings--bonds made necessary because of dismal economic projections. The airlines of the world are uniting.

Two years ago Jan Carlzon, chief executive at SAS, predicted that no more than five European airlines would survive by 1995. The way things are going, Carlzon's prediction might come true two or three years early. And that's just in Europe.

One by one, airlines are forging domestic and global alliances, creating mega airlines out of marketing agreements, route swapping, code sharing and, in some cases, substantial ownership of one airline by another. In most cases the resulting companies are multinational.

The result? Some rather strange bedfellows, and some possibly scary scenarios for the future of air travel.

British Airways has already absorbed British Caledonian. And there are reliable reports that KLM, Aer Lingus, Finnair and Sabena are each quietly looking for a merger partner . . . or to acquire another airline. In West Germany, Air France and Lufthansa have begun joint operations with a new airline, Euroberlin France, with scheduled service from West Berlin to destinations within West Germany.

And that's just the start.

Other significant ownership changes: Ansett Airlines (an Australian carrier) owns a 20% stake in America West. The airline also owns 20% of Ladeco, a Chilean airline.

Fighting Debt

In October, Texas Air (owner of Continental and Eastern), faced with ballooning debt and unable to achieve an operating profit, announced an alliance with SAS.

The "preferential air carrier agreement" would not only link schedules and flights around the world, but the Scandinavians paid $50 million for the right to buy up to 10% of Texas Air within six months. (Under federal law, American air carriers can have a maximum of 25% foreign ownership.)

The agreement was nothing new to SAS. Last year the airline paid about $160 million for a 40% share in Aerolineas Argentinas. Not content with two major airline agreements, SAS struck again in December, buying 24.9% of Britain's second-largest airline group (British Midland Airways, Manx Airlines, Loganair and London City Airways).

In the South Pacific, Qantas is becoming a large shareholder in Air New Zealand (a bid for 100% of the airline by British Airways in partnership with a Japanese tourist development company didn't work out). But Qantas isn't alone in the deal; the Australian airline will own 19.9% of Air New Zealand, American Airlines will own 7.5% and Japan Air Lines will own another 7.7%. The remainder of the airline stock will be divided among a host of other investors.

In the Middle East some airlines are talking privately about mergers. "It's the only way we're going to be able to compete with the mega carriers," says the chairman of one airline. "Individually, we're all too small. But together, we can be a mega carrier, too."

Global Reservations

And American and Delta have agreed to form an "independent" partnership to operate a global agency reservations system. Delta became half-owner of the new $2-billion company by paying $650 million to American.

American is already partnered with British Airways in its Sabre reservations system (American can issue British Airways tickets, and its computer screens display connecting American and BA flights).

And there are strong industry rumors that Northwest and American are quietly pursuing a merger or, at the very least, an agreement whereby American will buy Northwest's Asian routes (a move similar to United's purchase of Pan Am's Asian system four years ago).

Finally Pan Am, once a dominant airline considered America's "flag" carrier, has just publicly acknowledged that to survive it will need a merger partner.

What does all this mean to you?

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