America West Airlines, in an unusual deal, has loaned two of its jets with crews to strike-bound Ansett Airlines, an Australian carrier that owns one-fifth of America West's stock.
The transaction comes at a time when Congress is looking into airline acquisitions, including the relationships between foreign and U.S. airlines. Although the deal hasn't aroused any concern, it is an example of how closely U.S. and foreign airlines can work together.
The deal, a first for Phoenix-based America West, was vital to Ansett, crippled by a 2-month-old labor dispute with its pilots. America West had never leased aircraft to another airline and had to postpone expansion plans to make the Boeing 737s available to Ansett.
Yet America West President Michael Conway said he was happy to help Ansett and has no sympathy for the Australian pilots who quit their jobs after failing to win huge wage increases--an action that shut down virtually all of that nation's domestic flights.
"How can we sit idle when an entire country's transportation system sits idle?" he said.
When its fleet was grounded by the strike against all of Australia's domestic airlines, Ansett had trouble finding the aircraft it needed from charter operators and commercial airlines outside Australia. "The fact that we had this connection with America West enabled us to react very quickly," said Ansett spokesman Peter Young. "Early in the crisis, it was quite critical."
Neither Ansett nor America West would say what Ansett is paying for the planes. Conway insisted that Ansett isn't getting a bargain. "The transaction is at arm's length," he said. "There is no special arrangement."
Foreign ownership of U.S. airlines is limited to 25%, and Ansett's investment in America West fits comfortably within the rule. But some members of Congress are concerned that under foreign control, a U.S. airline might shift its emphasis from service within the United States to international service, ignoring many small American cities.
"It's possible a foreign owner would pull planes out of small cities and use them to feed their overseas flights," Sen. Wendell Ford (D-Ky.) said in an earlier interview.
Concerns about foreign influence recently led to a Transportation Department order that KLM Royal Dutch Airlines reduce its $400-million investment in NWA Inc., parent of Northwest Airlines, to $175 million. Transportation Secretary Samuel K. Skinner said KLM's large investment could give it control over Northwest, even though KLM owned just 5% of the voting stock.
Even so, the transaction between America West and Ansett has attracted little attention, largely because it has been overshadowed by huge, debt-financed takeovers involving foreign airlines, such as the failed $6.75-billion buyout of UAL Corp., parent of United Airlines. The airline was to be acquired by its managers and pilots, with substantial help from British Airways. British Airways has since dropped out of the deal, and the employees have dropped their bid for UAL, at least for now.
"How much money is involved in the America West deal? It's peanuts compared to these other transactions," said an aide to Ford, who has introduced legislation that would give the Department of Transportation the power to block a leveraged buyout if it compromised airline safety or gave control to a foreigner. The House is considering similar legislation, but the Administration has said that President Bush would veto it.
Ansett called on America West for help after its pilots resigned. The pilots of Australia's domestic carriers had demanded a nearly 30% wage hike at a time when the government froze wage increases at 6% to fight inflation. In recent weeks, the Australian Labor Commission ratified a new contract for domestic pilots that gives them a 6% wage increase and requires pilots to fly more hours, but few pilots have returned to work.
The sudden pilot resignations crippled air service in Australia, which in desperation opened its doors to foreign airlines to fly travelers within the country. Continental Airlines, one of two U.S. carriers to fly to Australia, has served the domestic market during the strike.
United Airlines, on the other hand, has decided not to serve domestic Australian destinations during the pilots strike. United refused to comment on that decision, but Conway says United didn't want to upset its pilots because management needed their support in the failed effort to buy UAL.
The Air Line Pilots Assn., a powerful union representing pilots at most major U.S. carriers, has denounced non-union Continental for its involvement, calling it a "strikebreaker." But ALPA, which unsuccessfully tried to organize America West's pilots earlier this year, hasn't opposed that airline's involvement.
America West pilots were originally skeptical about the aircraft lease to Ansett. According to a statement from America West's flight advisory board, pilots had been "strongly opposed" to the lease agreement until after a meeting with Conway.