Washington's aviation scene is bubbling with potential alliance building and demolition, after the US Department of Transportation tentatively approved the application for antitrust immunity between United Airlines and Lufthansa.

'There is no question that all kinds of conversations are going nonstop and the immunity applications are the big spur,' says one DOT official. The speculation comes as antitrust immunity approvals for Delta and its European partners Swissair, Austrian and Sabena, and for American and Canadian Airlines are moving forward.

Yet most frustrated by the United-Lufthansa approval is Delta and its partner carriers. The group applied for immunity last September, after Switzerland, Austria and Belgium agreed to open skies with the US, and thought approval was assured by DOT and the Justice Department.

However, DOJ's concern over concentration led to the demand on the alliance to exempt the coordination of marketing efforts in the business travel markets between such hubs as Cincinnati and Zürich. Though United and Lufthansa agreed to such requirements in the Chicago-Frankfurt and Washington-Frankfurt markets, Delta complained that its fourway agreement would be denuded. A begrudging acceptance of the 'carve-outs' is expected, but sources say at one point the countries of Delta's partner airlines were considering renouncing their open skies pacts with the US.

The politicking that went behind immunity applications by both Delta and United was immense, and a race between the two began to develop as soon as the US and Germany agreed to an open skies framework in March. It is generally assumed United won the lobbying battle with the DOT's tentative approval in early May. However, it is fair to say that DOT had a much higher priority in finalising an open skies agreement with Germany and Bonn had made immunity for Lufthansa-United a pre-condition for the liberalisation. Adding to the pressure was the Kohl-Clinton summit scheduled for late May in Washington, which was designated as the deadline to ensure high visibility for the formal signing of open skies.

The US has long hoped that antitrust immunity would be a carrot to encourage European countries to enter into fully liberalised air accords. That goal may be achieved even quicker than expected if BA feels enough competitive pressure from United-Lufthansa. One possibility being touted is that BA terminates its three-year-old alliance with USAir, and joins up with American. Because of the scope of such an alliance, the UK is forced to liberalise the restrictive bilateral it has with the US.

KLM could become part of this mega-alliance, depending on the outcome of its spat with partner Northwest. The seven-year-old alliance was considered the world's leading airline partnership, but in the past six months a board-level fracas has revealed a distinct split of corporate cultures.

A senior Northwest source says the corporate line that the boardroom spat has not filtered through to the operational level no longer holds: 'When you start litigating, how do you maintain a level of cooperation in one part of the relationship while fighting to the death in another part? It's inevitable that the board problems are migrating into the alliance itself.'

But another source believes more alliances gaining immunity could prove enough incetive for the two to make up.

Mead Jennings

Source: Airline Business