LONDON: If planes flew at the speed of airline industry consolidation, they would fall out of the sky. With the sector mired in its most serious financial crisis ever, airline bosses are railing against the slow pace of rationalization: the right to buy other national carriers.
The stakes couldn’t be higher. They go to the heart of a country’s economic well-being. Never mind the colour of a plane’s tailfin, lose your airline to a foreign predator and what guarantee do you have that the new owner will fly to your country’s airport?
Governments may waffle on about safety and security being obstacles to sanctioning takeover of national flag carriers, but it’s the issues of jobs and growth that forces them to keep up the drawbridges.
But with the recent spate of cash-strapped carriers either going under or seeking protection from creditors — Sabena of Belgium, Swiss Air and American Airlines — industry lobbyists say having a national airline is no guarantee of remaining on the world’s flight map.
Last week, tight restrictions on cross-border mergers and acquisitions in the aviation industry were eased. Last Monday the world’s leading airlines made an unprecedented and unanimous call for the abolition of foreign ownership restrictions, urging governments to allow overseas takeovers of struggling national carriers. Dubbed the Washington Declaration, 273 airlines (98 per cent of the scheduled industry) argued that liberalization was essential to the industry’s recovery.
This was followed on Thursday by European Union transport Ministers handing the European Commission a mandate to negotiate an EU-wide air traffic agreement with the United States. Ministers also agreed to give the commission the lead role in negotiating the thousands of air traffic agreements that member nations have with other non-EU countries.
UK Transport Secretary Alastair Darling said travellers could soon see cheaper transatlantic travel. Others see the breakthrough as clearing the decks for a wave of consolidation among European carriers. Within two months, KLM will signal whether it will seek closer links with Air France or British Airways. The City expects the Dutch carrier to choose Air France and its Skyteam Alliance because it has existing links with Delta Airlines of the US.
Analysts are divided as to whether Greece’s Olympic Airlines or Alitalia will become the first national flag carrier to be bought. Olympic is teetering on the edge of bankruptcy and bail-outs by Athens have sparked legal action as a breach of state aid rules by the European Union. Alitalia, analysts say, has little long-haul exposure and its short-haul business is undermined by low-cost airlines. Air France is likely to buy it.
Most see Europe’s three strongest airlines — British Airways, Lufthansa and Air France — becoming increasingly dominant. They all have serious financial challenges, but in many ways British Airways has most to lose. Its ace in the hole is having the most slots at Heathrow airport. At present just four carriers can fly across to New York from Heathrow, the European gateway. The airline may be prepared to relax its stranglehold in return for exemption from anti-trust immunity that will allow it to gradually merge with others. First on its radar could be Iberia Airways, in which BA already has a 9 per cent stake.
Recovery can’t come too soon. Last year airlines lost pounds sterling 8 billion on international scheduled services alone, the biggest ever. Planes often travel at less than half capacity. While the top six car makers account for nearly 80 per cent of production, the world’s top six airlines account for under 30 per cent of their market. “The EU decision is the first step on a very long walk,” said JP Morgan transport analyst Chris Avery.
At present America stipulates that any long-haul carrier must be owned at least 25 per cent in the country from which it is flying from. It also has a ‘Fly America’ policy for all public employees. European carriers are furious at the vast sums pumped into their US competitors by America’s politicians.
While virtually every industry has seen a flurry of mergers and acquisitions, aviation has remained stubbornly ‘old world’. This is not going to change overnight.—Dawn/The Guardian News Service.
