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Airline sales lure U.S. carriers
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April 21, 1999: 11:35 a.m. ET
U.S. carriers lead the charge as global airline privatization boom takes off
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LONDON (CNNfn) - Warren Buffett said he would rather visit a psychiatrist than buy another airline, and billionaires around the world will tell you it's the quickest way to become a millionaire.
Buying an airline ranks with Russian treasury bills and hedge funds in the sound investment stakes.
But U.S. airlines would beg to differ as they become linked with a string of airline privatizations scheduled over the next six months. These sales also promise to boost the number of overseas airline stocks available to U.S. investors.
United Airlines and Delta Air Lines have emerged as the front-runners to take a stake in South African Airways, and Atlanta-based Delta has also been linked by analysts to a bid for Ireland's Aer Lingus, which also announced its privatization schedule last week.
SAA and Aer Lingus are part of a wave of share sales in the industry that are likely to draw in U.S. airline investors for the first time.
Carriers have in the past shied away from equity investment in favor of looser marketing ties only to find those have broken down easily. "Commercial agreements without equity have been shown to be weak," said Uli Baur, a vice-president at New York-based SH&E, the world's largest aviation consultant, who has worked on over 20 airline privatizations.
Delta was one of the first U.S. carriers to take an overseas stake, with 5 percent holdings in Swissair and Singapore Airlines and an ill-fated stake in the now-bankrupt AeroPeru.
"It is not Delta's policy to look for equity stakes in partners," said Andrew Lobbenberg, planning manager for the carrier's Atlantic region. "But where governments are demanding equity stakes as an entry price for alliances we are willing to investigate."
Airlines also have been put off taking equity stakes by international aviation treaties that bar overseas investors from holding a majority stake in a national carrier. "There's not much point in having a small stake which won't deliver control," said another U.S. executive.
U.S. airlines have only dabbled in equity stakes while European carriers have led the charge to take stakes in privatizing carriers in their own region, Latin America and Asia.
Delta and American Airlines are leading the U.S. charge overseas. Dallas-based American broke the mold earlier this year when it took a 5 percent stake in Spain's Iberia in partnership with British Airways but received significant management control and board representation in return.
While private ownership itself has been shown to be no panacea by the near-collapse of Philippine Airlines this year, Baur said governments are taking a more realistic approach to prepare state-owned airlines for life in the private sector by restructuring them first.
"You don't want to be the last airline to privatize, and the large carriers that are your prospective partners have a choice, so at some point you have to solve your own ills," he said
Most European and Latin American carriers already have been privatized, and Africa and the Middle East are seen as the next big market for the global airline leaders to penetrate.
Delta (DAL) has emerged as a serious contender for SAA after teaming up with its alliance partner Swissair, which already has an alliance with SAA. United's partner Lufthansa had been the long-time front-runner in tandem with Singapore Airlines.
United (UAL) and its partners form the core of a six-airline grouping known as the Star Alliance that has proved successful at boosting sales and cutting costs in the cut-throat airline industry. Membership in Star could prove a crucial lure in securing SAA.
However, Delta and Swissair have formed their own alliance group known as Qualiflyer which ranks third in terms of global sales behind Star and the one world grouping led by American Airlines (AMR)and British Airways (BAY).
The South African government also has said it will seek to float a stake in the airline overseas within two years to fund new aircraft investment and has identified New York as a target market.
The familiarity of U.S. investors with the airline industry already has attracted a number of emerging market carriers to the ADR market, including Lan Chile (LFL), LOT Polish Airlines China Eastern (CEA) and China Southern (ZNH).
The Irish government is close to awarding a mandate for the sale of a 30 percent stake in Aer Lingus, and three other airlines are due to come to the market for the first time this year.
Swissair is expected to take a 30 percent stake in TAP Air Portugal and a 20 percent stake in THY Turkish Airlines while KLM Royal Dutch Airlines and its partner Northwest Airlines may take a 40 percent stake in Royal Jordanian Airlines. Israel's El Al, LOT Polish Airlines and Air India also are working on privatization plans. 
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