Restrictions On Foreign Ownership May Be Eased

The reports around the Dallas-Fort Worth metroplex started quietly earlier this week, but have since grown more adamant. Despite growing speculation of a potential merger between Ft. Worth-based American Airlines and British Airways, however, a spokesman for AA vigorously denies the rumor.

DFW's NBCi-5 states the merger speculation grew from reports American wished to 'enhance' its current partnership with the British carrier.

"I know some people who are involved in looking, very tentatively, at a merger, and not just between American and British Airways, but some other big carriers and some foreign carriers," aviation consultant Denny Kelly told the television station.

Fueling the rumor is a report in next week's Forbes magazine, which states it may take a foreign carrier's resources to bail out American's parent company AMR Corp. The company lost $861 million in 2005, and will only be marginally profitable this year... if at all.

Despite its financial woes, however, AMR's stock price increased more than any other major US carrier through the end of 2005.

American, the largest US airline, has previously asserted the carrier's fortunes would have been much better had fuel prices not shot up last year -- in fact, the carrier states it would have made money. Unfortunately, those fuel prices don't appear to be going down any time soon.

Current AMR Chief Executive Gerard J. Arpey has tried a variety of cost-cutting and revenue-enhancing measures since taking over from former CEO Don Carty in 2003 -- dropping Saturday-night-stay requirements on low-cost fares, eliminating almost all free meal service and charging for such services as curbside check-in and ticket sales over the phone.

Some have been more successful than others... but Forbes states the overall cost benefits have been negligible. That may make a merger with a foreign carrier more attractive to American, which despite such woes has still managed to avoid bankruptcy in the turbulent times following 9/11.

British Airways has had its eye on American for some time, and both airlines attempted to merge their operations at London-Heathrow in 2002 -- but decided against the move by a ruling that the carriers would have to give up a combined 224 slots at the airport to stay on the right side of anti-monopoly rules.

As a rule, foreign ownership of air carriers has been discouraged through a series of caps and restrictions by US and EU regulators. The regulators are reportedly looking to ease those restrictions, though, on reports the Bush administration wants to lift the current 25 percent cap on voting stock allowed to foreign investors in American companies.

Additionally, Forbes reports lawmakers are looking at several international deregulation measures, including removing restrictions to allow foreign airlines to fly between US cities.

Besides the potential ramifications to American and British Airways, such moves would also clear the way for additional mergers between US and foreign airlines. Could we someday see United Airlines & Lufthansa merging operations? How about Northwest and Air France/KLM? Stay tuned... this may get interesting.

FMI: www.aa.com, www.britishairways.com