War Over the Atlantic

One day last week a note bearing the seal of Her Britannic Majesty's Government arrived at the U.S. State Department. It announced a unilateral British decision to chop the frequency of U.S. airline service between Chicago and Miami and London by one flight a week beginning this winter. The note was the most serious salvo to date in what promises to be a bitter, high-stakes U.S.-British commercial battle that may eventually involve every airline flying the rich North Atlantic route.

At talks beginning next month in London, the British aim to rewrite the so-called Bermuda agreement. That pact, originally signed in 1946, sets the ground rules for commercial air traffic between the U.S. and Britain and is also the model for bilateral air agreements that the U.S. has with more than 60 other countries. The British have several demands, including rights to add new U.S. cities, notably Atlanta and Houston, to the ones that British Airways now serves --New York, Washington, Boston, Philadelphia, Chicago, Detroit, Los Angeles and Miami. Most important, the British want to be given, by bureaucratic fiat, a bigger slice of the scheduled air traffic between the U.S. and Britain--a route that will be flown by some 1.8 million passengers paying $500 million this year.

Within the limits of the existing Bermuda agreement, the airlines of both nations are free to schedule as many flights as they think they can profitably fill. (American flights are subject to review by the Civil Aeronautics Board and the State Department.) U.S. carriers--Pan American, TWA and National--now account for some 60% of total airline capacity between the U.S. and Britain. The British want to change this mix to equal shares--not by increasing the number of their flights but by getting Washington to force U.S. airlines to cut back. The British thus want to replace the Bermuda agreement with something closer to the sharing practice prevalent in Europe, where state-subsidized airlines divvy up flight schedules among European countries on an even-Stephen basis and in some cases even pool revenues.

U.S. airline executives are outraged. Says Thomas Taylor, TWA's Washington vice president: "The U.S. Government should tell the British to shove it." They reject London's argument that the Bermuda arrangement has encouraged the overcapacity that results in a year-round average passenger load of less than 60%. They also dispute the British assertion that a cut in total flights would improve all the airlines' earnings; indeed, under such an arrangement the hard-pressed, unsubsidized U.S. carriers would certainly lose. U.S. airlines point out that far from having more than a fair share of the business, the American flight schedules exactly match the actual pattern of travel between the two countries, which is about 60% by Americans and 32% by Britons.

Why such sudden obstreperousness from the British, whose state-subsidized (at about $160 million a year) airline already earns a modest profit on its routes to the U.S.? One big reason is British Trade Secretary Edmund Dell, a hard-headed former Treasury minister who has made a career of slashing bloated subsidies to his country's nationalized industries and is also under orders from Prime Minister James Callaghan to try to get more export earnings out of British Airways. If Dell succeeds in busting the Bermuda agreement, some other Europeans might be unhappy. Overall, American airlines get only 38% of the traffic between the U.S. and Europe; KLM, Sabena and SAS have up to 90% of the traffic between their countries and the U.S. If Britain gets its 50-50 split, says a U.S. Government analyst, "you can bet your sweet bippy that the U.S. will renegotiate its bilateral agreements with other European countries to secure the same deal."

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