SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report: July 30, 1996
USAir Group, Inc.
(Commission file number: 1-8444)
and
USAir, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware USAir Group, Inc. 54-1194634
(State of Incorporation USAir, Inc. 53-0218143
of both registrants) (I.R.S. Employer
Identification Nos.)
USAir Group, Inc.
2345 Crystal Drive, Arlington, VA 22227
(Address of principal, executive offices)
(703) 418-5306
(Registrant's telephone number)
USAir, Inc.
2345 Crystal Drive, Arlington, VA 22227
(Address of principal, executive offices)
(703) 418-5306
(Registrant's telephone number)
Item 5. Other Events
On July 30, 1996, USAir Group, Inc. and USAir, Inc.
initiated a lawsuit against British Airways Plc, BritAir
Acquisition Corp. Inc., AMR Corporation and American
Airlines, Inc. A news release relating to the initiation
of the litigation by USAir Group, Inc. and USAir, Inc. is
attached hereto as Exhibit 99.1. The Complaint, dated
July 30, 1996, which was filed today in the United States
District Court for the Southern District of New York, is
attached hereto as Exhibit 99.2.
Item 6. Financial Statements and Exhibits
(c) Exhibits
Designation Description
99.1 News release, dated July 30, 1996, of
USAir Group, Inc. and USAir, Inc.,
relating to the initiation of
litigation by USAir Group, Inc. and
USAir, Inc. against British Airways
Plc, BritAir Acquisition Corp. Inc.,
AMR Corporation and American Airlines,
Inc.
99.2 Complaint, dated July 30, 1996, as
filed by USAir Group, Inc. and USAir,
Inc. against the parties referenced in
Designation 99.1, in United States
District Court for the Southern
District of New York.
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the registrants have duly caused
this report to be signed on their behalf by the
undersigned thereunto duly authorized.
USAir Group, Inc.
Date: July 30, 1996 By: /s/ Lawrence M. Nagin
Lawrence M. Nagin
Executive Vice President -
Corporate Affairs and General Counsel
USAir, Inc.
Date: July 30, 1996 By: /s/ Lawrence M. Nagin
Lawrence M. Nagin
Executive Vice President -
Corporate Affairs and General Counsel
USAIR SAYS BRITISH AIRWAYS-AMERICAN AIRLINES ALLIANCE
VIOLATES CONTRACT, COMPETITION LAWS
ARLINGTON, Va., July 30, 1996 -- USAir brought
suit today against British Airways and American Airlines
for seeking to undermine USAir's competitive position and
to limit overall competition in U.S.-U.K. markets.
In a suit filed in federal district court in
New York, USAir said that British Airways, in its pursuit
of an alliance with American Airlines, has violated
provisions of its 1993 alliance agreement with USAir to
the detriment of USAir. The suit also states that both
British Airways and American Airlines are in violation of
U.S. antitrust laws that prohibit conduct that harms
competition.
"Our action, taken in response to the proposed
British Airways-American Airlines alliance, advances and
underscores the absolute determination of USAir to become
a viable competitor in key U.S.-U.K. markets and is in
the best interests of USAir, its shareholders, employees
and the traveling public," said Stephen M. Wolf, chairman
and CEO of USAir.
USAir's agreement with British Airways required
both parties' best efforts to complete and advance their
alliance. Consistent with these obligations, USAir
divested itself of valuable routes to London, redeployed
aircraft and employees, altered schedules, invested in
joint marketing initiates, and undertook other efforts to
further its alliance with British Airways. The proposed
accord between British Airways and American Airlines, as
presently constituted, is inconsistent with British
Airways' requirements and obligations under its existing
contracts with USAir, the company said.
USAir said British Airways, acting in concert
with American Airlines, also failed to act in good faith
and breached its fiduciary duty to USAir as a joint
venture partner.
USAir said British Airways is in violation of
U.S. antitrust laws, including the Clayton Act, which
prohibits acquisitions or holdings of stock or assets
that may tend to substantially lessen competition.
USAir also said that British Airways and
American Airlines are in violation of both Sections 1 and
2 of the Sherman Antitrust Act. Section 1 prohibits
agreements that restrain competition. Section 2
prohibits the monopolization or attempted monopolization
of any market.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - x
USAIR GROUP, INC. and :
USAIR, INC.,
:
Plaintiffs, 96 Civ.
:
-against- COMPLAINT
:
BRITISH AIRWAYS PLC, BRITAIR
ACQUISITION CORP. INC., AMR :
CORPORATION, and AMERICAN
AIRLINES, INC., :
Defendants. :
- - - - - - - - - - - - - - - - - x
Plaintiffs USAir Group, Inc. and USAir, Inc.
(collectively, "USAir"), by their undersigned attorneys,
as and for their Complaint allege, upon knowledge with
respect to themselves and their own acts and upon
information and belief as to all other matters, as
follows:
SUMMARY OF THIS ACTION
1. USAir brings this action for damages and
declaratory and injunctive relief against British Airways
Plc and BritAir Acquisition Corp. Inc. (collectively,
"BA"), and against AMR Corporation and American Airlines,
Inc. (collectively, "AA") for BA's breach of contractual
obligations and fiduciary duties to USAir; for AA's
tortious interference with USAir's contractual relations
with BA, as well as for aiding and abetting BA's breach
of its fiduciary duties; and for various violations of
United States antitrust laws, specifically Section 1
(restraint of trade) and Section 2 (monopolization,
conspiracy to monopolize, and attempted monopolization)
of the Sherman Act and Section 7 of the Clayton Act.
2. As alleged more fully below, in January
1993, USAir entered into an Investment Agreement with BA.
That agreement contemplated a series of three investments
by BA in USAir as part of a relationship consisting of a
broad range of closely coordinated and integrated
operations that would be implemented over time ("BA/USAir
Alliance"). At BA's insistence, USAir relinquished its
three route authorities to transport passengers between
the United States and London, even though USAir had only
recently acquired two of those route authorities for $50
million. BA and USAir were able to implement the first
phase of their relationship at that time, pursuant to
which BA acquired approximately 20 percent of the voting
interest of USAir. The remaining two phases of the
Investment Agreement are subject to various conditions,
including approval by the United States Department of
Transportation (the "DOT").
3. On June 11, 1996, BA and AA announced that
they were forming a comprehensive alliance that would
entail a level of integration, cooperation, and sharing
of risks and benefits very similar to the goal of the
BA/USAir Alliance. The alliance announced by BA and AA
represents a fundamental breach by BA of its contractual
and fiduciary duties to USAir. The plans of BA and AA
preclude any prospects for USAir realizing the full
benefits of the BA/USAir Alliance contemplated by the
Investment Agreement that BA is required to use its best
efforts to achieve. AA, which was fully aware of and
familiar with the terms of the Investment Agreement and
the BA/USAir Alliance -- AA had vigorously opposed the
BA/USAir Alliance when it was formed -- has tortiously
interfered with the contract between BA and USAir and has
aided and abetted BA's breach of its fiduciary duties to
its co-venturer, USAir.
4. In the wake of BA's investment in USAir,
the concerted conduct by BA and AA, including but not
limited to their proposed alliance, also constitutes
serious violations of United States antitrust law. BA
and AA have undertaken conduct not only to increase their
dominant position in providing scheduled airline
passenger service between the United States and the
United Kingdom but also to ensure that USAir will not
emerge as a competitive threat to their alliance. Among
other things:
(a) During the past 18 months, BA has used its
contractual relationship to foreclose USAir from
establishing a presence in the markets for scheduled
airline passenger service between the United States and
the United Kingdom, including London's Heathrow Airport.
BA's continued ownership of the largest equity interest
in USAir and BA's three representatives on USAir's board
have impeded and will continue to impede any effort by
USAir to become an independent competitor in these highly
concentrated markets. Given USAir's pre-eminent system
of domestic scheduled airline passenger service in the
eastern United States, USAir is a uniquely positioned
potential competitor into markets between the United
States and the United Kingdom. As long as BA can keep
USAir "in the family," USAir will not be able to compete
with, or be perceived as a credible competitor to, the
BA/AA alliance, and will not be in a position to obtain
the route authorities, slots, and ground facilities
necessary to compete in that service. Moreover, BA's
ownership of USAir and representation on USAir's board
provides it and AA with a "listening post" that may tend
substantially to reduce competition not only between
USAir and the BA/AA Alliance, but also in domestic
markets in which AA and USAir compete. The facts and
circumstances strongly indicate that BA is using its
equity position and representation on USAir's board to
enfeeble USAir as an effective competitor.
(b) BA's and AA's intent to unlawfully
restrain trade and monopolize various markets for
scheduled airline passenger service between the United
States and the United Kingdom is further demonstrated by
their efforts to mislead USAir about the nature of the
relationship that they have been negotiating and to
prevent USAir from establishing a presence in the
affected markets. Their exclusionary conduct toward
USAir is part of their effort to exclude competition
from, and keep fares above competitive levels in, the
various U.S.-U.K. markets in which they operate.
(c) Regardless of whether the agreement
between BA and AA is approved and implemented, their
actions have restrained and will continue to restrain
competition by restricting output and raising prices in
connection with scheduled airline passenger service
between the United States and the United Kingdom. BA's
and AA's conduct has caused and will cause substantial
antitrust injury to USAir, for which USAir is entitled to
treble damages and which, if not enjoined, will cause
USAir and consumers irreparable harm.
JURISDICTION AND VENUE
5. This action arises under Sections 1 and 2
of the Sherman Act, 15 U.S.C. SECTION 1 and SECTION 2, Section 7 of
the Clayton Act, 15 U.S.C. SECTION 18, and common law. This
Court has jurisdiction of this action under Section 4 of
the Sherman Act, 15 U.S.C. SECTION 4, Section 16 of the Clayton
Act, 15 U.S.C. SECTION 26, and 28 U.S.C. SECTION 1331. This Court
has supplemental jurisdiction over claims arising under
state law pursuant to 28 U.S.C. SECTION 1367.
6. Venue is proper in this District pursuant
to 15 U.S.C. SECTION 22 and 28 U.S.C. SECTION 1391(b). Venue in
this District also is proper as to BA pursuant to 28 U.S.C.
SECTION 1391(d) and Section 13.8 of the Investment Agreement,
in which BA has consented to the jurisdiction of, and
irrevocably waived its right to object to venue before,
this Court.
THE PARTIES
7. Plaintiff USAir Group, Inc. ("USAir Group")
is a corporation organized and existing under the laws of
the State of Delaware, with its principal place of
business at 2345 Crystal Drive, Arlington, Virginia.
USAir Group's primary business activity is the ownership
of all the common stock of plaintiff USAir, Inc.,
Allegheny Airlines, Inc., Piedmont Airlines, Inc. and PSA
Airlines, Inc. USAir Group's wholly-owned subsidiary,
plaintiff USAir, Inc., accounts for approximately 92
percent of USAir Group's operating revenues.
8. Plaintiff USAir, Inc. is a corporation
organized and existing under the laws of the State of
Delaware, with its principal place of business at 2345
Crystal Drive, Arlington, Virginia. USAir, Inc. is a
wholly-owned subsidiary of plaintiff USAir Group. USAir,
Inc. is a certificated air carrier engaged primarily in
the business of transporting passengers, cargo and mail.
USAir, Inc. was the fifth largest U.S. carrier, providing
scheduled passenger airline service through more than 100
airports to approximately 143 cities in the continental
United States, Canada, Mexico, France, Germany, Italy,
Spain and the Caribbean.
9. Defendant British Airways Plc is a
corporation organized and existing under the laws of
England and Wales, with its principal place of business
at Speedbird House, Heathrow Airport, Hounslow,
Middlesex, England TW6 2JA. British Airways Plc is
authorized to transact business under the laws of New
York and transacts business in this District at 1180
Avenue of the Americas, New York, New York. British
Airways Plc is the world's largest scheduled
international passenger airline, engaged primarily in the
operation of international and domestic scheduled
passenger airline service. British Airways Plc serves
approximately 169 destinations in 80 countries.
10. Defendant BritAir Acquisition Corp. Inc.
is a wholly owned subsidiary of British Airways Plc and a
corporation organized and existing under the laws of the
State of Delaware, with its principal place of business
at 75-20 Astoria Boulevard, Jackson Heights, New York.
BritAir Acquisition Corp. Inc. acquired ownership of the
shares of USAir stock obtained by British Airways Plc
through an assignment pursuant to Section 13.2 of the
Investment Agreement.
11. Defendant AMR Corporation ("AMR") is a
corporation organized and existing under the laws of the
State of Delaware, with its principal place of business
at 4333 Amon Carter Boulevard, Fort Worth, Texas. AMR,
itself and through its wholly owned and controlled
subsidiary AA, transacts business in this District at 405
Lexington Avenue, New York, New York 10174. AMR is a
holding company, which derives a substantial percentage
of its revenues from AA.
12. Defendant American Airlines, Inc.
("American Airlines") is a corporation organized and
existing under the laws of the State of Delaware, with
its principal place of business at 4333 Amon Carter
Boulevard, Fort Worth, Texas. American Airlines is a
wholly-owned subsidiary of AMR and is AMR's principal
subsidiary. American Airlines transacts business in this
District at 405 Lexington Avenue, New York, New York, and
earns substantial revenues in the District. American
Airlines is one of the world's largest scheduled
passenger airlines and the second largest U.S. carrier.
At the end of 1995, American Airlines provided scheduled
jet service to more than 160 destinations, primarily
throughout North America, Europe, the Caribbean, Latin
America and the Pacific.
BACKGROUND
The Nature of Airline Service
13. Prior to 1978, air transportation was
subject to substantial regulation in the United States.
No person could provide air transportation in the United
States without a certificate of authorization from the
DOT. Certificates authorizing transportation wholly
within the United States could be issued only to citizens
of the United States, and service could be provided only
on the routes authorized by such certificates. In 1978,
Congress passed the Airline Deregulation Act, which
permitted U.S. carriers certificated by the DOT to
provide service on any routes within the United States
without the necessity of obtaining governmental approval.
14. In the aftermath of deregulation, service
patterns of U.S. carriers changed substantially. Rather
than provide only point-to-point service, as had been the
predominant pattern prior to deregulation, various
carriers undertook to establish hub-and-spoke networks.
Such networks allowed carriers to "feed" passengers from
spoke cities to a hub, where passengers could then easily
connect to flights destined for other spoke-cities. In
order to encourage passengers to utilize their respective
networks, carriers have established frequent flyer
programs to build loyalty among their passengers. It is
generally agreed that the establishment of hubs has
increased the number of routing and scheduling options
available to passengers.
15. Unlike domestic service, international
service was and remains subject to substantial government
regulation. Foreign carriers cannot provide service to
the United States without authorization by the U.S.
government and, even then, foreign carriers cannot carry
wholly intra-U.S. passengers, i.e., a foreign carrier may
carry a passenger between a foreign point and the United
States but may not pick up a passenger at a U.S. point
and discharge that passenger at another U.S. point.
Similar restrictions generally govern the operation of
U.S. carriers abroad. Notwithstanding these regulatory
differences, foreign carriers have also developed hubs,
such as BA's hub at Heathrow, to concentrate traffic
flow.
The Nature of U.S.-U.K. Airline Service
16. Air transportation between the United
States and many foreign countries is governed by
bilateral air services agreements. These agreements
often impose restrictions on airline passenger service
that may be offered by U.S. carriers, typically by
limiting the routes that may be flown by U.S. carriers
and the number of U.S. carriers that may serve a route.
17. Airline service between the United States
and the United Kingdom is governed by a bilateral air
services agreement ("Bermuda II") between the United
States and the United Kingdom. Pursuant to Bermuda II,
as amended from time to time, the two governments may
designate airlines to provide scheduled airline passenger
service only between specified "gateway" cities, with
limitations on the number of carriers providing service
from each gateway city and the amount of service they
provide. Scheduled airline passenger service to or from
non-gateway cities is required to connect or stop at a
gateway.
18. There are currently only 26 U.S. gateway
cities from which non-stop service to London is
permitted, and BA is designated to serve 22 of them. BA
is the dominant provider of airline passenger service
between the United States and the United Kingdom. BA is
also the largest provider of scheduled airline passenger
service between the United States and Heathrow.
19. Under Bermuda II, only two U.S. airlines
are permitted to serve Heathrow. AA provides airline
passenger service to Heathrow from five United States
gateways, including such cities as New York, Boston, and
Chicago. Together, AA and BA control approximately 60
percent of the available seats on nonstop flights between
the United States and London, and 66 percent of the
available seats on flights between the United States and
Heathrow. The only other U.S. airline that provides
service between U.S. gateways and Heathrow is United
Airlines ("United"). United provides approximately 15
percent of the seats available on nonstop flights
operated into Heathrow from U.S. gateways.
The Central Role of Heathrow
20. London's Heathrow Airport is the principal
airport for scheduled airline passenger service between
the United States and the United Kingdom. Access to
Heathrow is critical to any U.S. carrier that wants to
compete effectively in U.S.-U.K. service. Heathrow is
the airport of choice for U.S. scheduled airline service
to London, particularly for business travelers, and
revenue yields for U.S.-Heathrow service are higher than
yields for service involving London's Gatwick Airport.
Moreover, London is the largest local market in Europe
for passengers travelling from the United States.
21. Heathrow is also a preferred gateway to
Europe for passengers travelling beyond London to other
destinations in Europe and worldwide because of the
tremendous range of connecting flights it offers.
Carriers serve over 175 international destinations from
Heathrow. Indeed, BA serves more than 100 destinations
from Heathrow.
22. BA's dominance in providing U.S.-U.K.
passenger service is inextricably linked with BA's
dominance of Heathrow Airport. In order for an airline
to serve Heathrow, the airline must have not only the
authority to fly to the United Kingdom, but it also must
have the necessary authorized "slots" at Heathrow. A
slot is the right to have an aircraft take off or land
during a certain time period. Nearly all commercially
viable Heathrow slots, including those for transatlantic
services, are already allocated and unavailable to other
carriers.
23. BA holds the largest share of slots at
Heathrow. BA acquired the majority of its slots when it
was a state-owned monopoly. AA is the largest U.S.
operator at Heathrow.
24. Passengers, particularly business
travelers, strongly prefer to depart or arrive during
particular time periods, and carriers controlling slots
that fall within these periods enjoy distinct competitive
advantages over rival carriers that do not hold such
slots. Restrictions on landings and take-offs, together
with BA's control over a large portion of slots at
desirable times, protects BA from competition to/from
Heathrow and allows BA to perpetuate its market power in
U.S.-U.K. markets for scheduled airline passenger
service.
25. Thus, even if a U.S. airline were
permitted by bilateral agreement to provide service to
Heathrow, it would need sufficient slots at commercially
practicable times in order to operate an effective
competitive service.
26. Even if an airline is able to obtain
regulatory authority and slots, it still may not be able
to operate competitive service unless there are
sufficient facilities such as terminals, counter-space,
gates, and aircraft parking spaces ("ground facilities").
BA has virtually exclusive use of Terminal Four,
Heathrow's most modern and advanced terminal. There are
insufficient ground facilities to support a substantial
expansion in service between the United States and
Heathrow.
The Evolving Nature of International Airline Service
27. Within the past decade, the nature of the
market for international airline passenger service has
begun a transformation. Largely as the result of U.S.
policy initiatives aggressively pursued by the DOT, aimed
at opening up to competition foreign markets that had
operated in a tightly constrained and highly restricted
and regulated environment, the United States has entered
into liberalized air services ("open skies") agreements
with several foreign countries. These agreements
generally remove regulatory restrictions on the number of
flights that may be operated between the signatory
countries and allow any carrier from either country to
serve any route between the two countries if it so
wishes.
28. Because of the size of the U.S.-U.K.
market and the role Heathrow plays as a gateway to
Europe, the United States has long sought to replace
Bermuda II with an open skies agreement that would allow
U.S. carriers greater access to the United Kingdom.
29. The negotiation of open skies agreements
has been closely linked with a second trend in the market
for international airline passenger service -- the
development of alliances between U.S. and foreign
carriers. In the past several years, alliances have been
formed between Northwest Airlines and KLM Royal Dutch
Airlines ("KLM"), United and Lufthansa, and among Delta
Air Lines ("Delta") and Swissair, Sabena, and Austrian
Airlines. These close alliances typically provide for
the establishment of joint marketing, advertising and
distribution networks; coordinated flight schedules,
route networks, and route planning; participation in
frequent flier programs; and coordinated pricing. They
may even go so far as to involve revenue pooling and
profit sharing.
30. "Code sharing" is an integral part of such
alliances. Each airline has a two-letter designator
code, which is used in computer reservation systems and
other databases for booking tickets. Code sharing is the
placing of one airline's two-letter designator code on
schedule displays of another airline's flights so as to
hold out and sell tickets for such service as though it
were its own. Under DOT rules, carriers may apply for
authorization to share one another's code. Pursuant to
such agreements, two carriers providing connecting
service can offer passengers many of the benefits
associated with single-carrier service, such as seat
assignments for each segment, single-source
responsibility for baggage, and responsibility for making
alternative arrangements in the event of missed
connections.
31. Code sharing agreements between U.S.
carriers and foreign carriers are subject to DOT
approval. In deciding whether or not to approve such
agreements, the DOT considers the nature of the bilateral
agreement between the United States and the home country
of the foreign carrier involved. Furthermore, the DOT
has the statutory authority to grant carriers antitrust
immunity that allows them to set fares collectively, pool
revenues, and take various actions that would otherwise
be unlawful. The DOT has stated publicly its policy that
it will not grant antitrust immunity for transactions
involving foreign carriers whose governments do not have
open-skies agreements with the United States. The
benefits to foreign countries of allowing its carriers to
enter into alliances with U.S. carriers is often an
important incentive for entering into such agreements.
32. Open skies agreements are essential to
ensure that alliances between major rival air carriers,
if approved, will not reduce competition contrary to the
public interest standard the DOT must apply in
determining whether to approve an alliance between a U.S.
carrier and a foreign carrier. The DOT considers the
existence of potential competition, i.e., whether other
airlines could enter markets if alliance members were to
provide inadequate service or charge prices above
competitive levels, to be an important factor in
determining whether an alliance is likely to reduce
competition. While most of the new alliances combine
airlines in markets that are already highly concentrated,
the existence of an open skies agreement eliminates one
of the most significant barriers to entry in those
markets and may permit an increase in capacity and
competition. However, entry is also dependent upon the
absence of other barriers, such as restrictions on take-
offs and landings and ground facilities constraints, that
exist at Heathrow and remain a significant impediment to
entry.
Open Skies and the United Kingdom
33. BA will play an important and influential
role in any British government decision to enter into an
open skies agreement. BA was a state-owned entity until
it was privatized in 1987. Although BA is no longer
state-owned, the British government retains a strong
interest in BA's position in the airline industry. In
determining whether to enter into an open-skies agreement
and in deciding on the acceptable terms of such an
agreement, the British government will consider BA's
views and the potential impact on BA's financial
interest.
The Relevant Markets
34. Relevant markets for purposes of analyzing
transactions involving air carriers include scheduled
airline passenger service (a) between the United States
and London, (b) between the United States and Heathrow,
(c) between points of origin and points of destination
("city pairs") in the United States and the United
Kingdom, served on a nonstop basis and (d) between London
and non-gateway cities within regions of the United
States.
35. For a significant number of passengers
travelling between the United States and the United
Kingdom, there is no reasonably competitive substitute
for scheduled airline passenger service. While some
airlines may provide other types of service, such as
charter flights, many passengers require scheduling
flexibility and options that can only be provided by
carriers offering scheduled airline passenger service.
Scheduled airline passenger service thus constitutes a
line of commerce and relevant product market under the
antitrust laws.
36. Various geographic markets are considered
in analyzing the competitive effects of transactions
involving carriers providing scheduled airline passenger
service:
(a) United States-London: More
passengers travel between the United States and London
than between the United States and any other foreign
point. The DOT has characterized service between these
two countries as one of the most important airline
markets. BA accounts for 44 percent of seats offered by
carriers travelling between the United States and London.
AA accounts for 15 percent of available seats. USAir
does not presently provide service between the United
States and London.
(b) United States-Heathrow: Because of
the uniqueness of Heathrow, a significant number of
passengers have such a decided preference for Heathrow
that they are unwilling to consider other London
airports. Heathrow's unique position in Europe as a
connecting point for passengers is unmatched by any other
airport in the United Kingdom. Various carriers,
including AA, have repeatedly and publicly contended that
there is no reasonable alternative for service to the
United Kingdom than access to Heathrow. BA accounts for
48 percent of seats offered by carriers travelling
between the United States and Heathrow. AA accounts for
18 percent of available seats. USAir does not presently
provide service between the United States and Heathrow.
(c) Nonstop City-Pair Service: The
competitive effects of transactions involving air
carriers are often considered at the city-pair level
because passengers usually have a particular destination
in mind and therefore consider only options that involve
their point of origin and their desired destination.
Many passengers are "local" passengers in the sense that
they originate at a gateway and are destined to another
gateway and have a strong preference for nonstop service.
BA and AA dominate service for such passengers in some of
the largest city pairs, whether measured in terms of
service to Heathrow or service to London:
U.S. City Combined BA & AA Seat Share
Heathrow London
Boston 100 percent 80 percent
Chicago 86 percent 86 percent
Los Angeles 52 percent 52 percent
Miami 100 percent 83 percent
New York 65 percent 67 percent
(d) Regional/Connecting City-Pair Service:
Most airports in the United States are not authorized to
have carriers providing nonstop service to London. A
passenger originating or destined to such an airport must
take a connecting flight and is known as a "behind-
gateway" passenger. Behind-gateway passengers may be
able to choose among alternative gateways, i.e. a
Rochester passenger could fly to London via Philadelphia,
New York, or Boston. Because BA and AA serve London from
so many gateways, they compete for behind-gateway
passengers and have substantial market shares in various
regional markets served on a connecting basis. AA and
USAir compete to transport behind-gateway passengers to
U.S. gateways to London, including Heathrow.
The Establishment of the USAir/BA Relationship
37. In 1992, USAir's operations were primarily
concentrated in the eastern United States. In contrast
to its significant domestic presence, USAir operated only
six transatlantic flights each day, three of which were
to London's Gatwick Airport; two of these U.K. route
authorities had been purchased by USAir from TWA for $50
million after the government objected to AA's attempt to
acquire them.
38. USAir's limited international presence
left it at a competitive disadvantage to the three major
U.S.-based carriers, i.e., AA, United, and Delta, which
had many more routes to destinations throughout the
world. The scope of the international operations of AA,
United, and Delta allowed each of them to join their vast
domestic route network with a broad array of
international service, thereby offering passengers a
comprehensive array of destination points on a worldwide
basis. In addition, Northwest Airlines had entered into
an alliance with KLM Royal Dutch Airlines to integrate
their respective domestic and international networks.
39. Recognizing the need to expand its
international presence in order to compete with other
carriers, USAir began to explore the possibility of
joining with a foreign carrier in an alliance that would
allow one another to feed passengers from their domestic
networks to their international flights.
40. BA expressed interest in such an
arrangement, offering USAir the prospect of aligning
itself with a foreign carrier that served Heathrow. On
July 21, 1992, BA and USAir reached an agreement for a
significant investment in USAir and broad integration of
operations. The DOT instituted a proceeding to review
the proposed transaction. After the DOT advised the
parties that the transaction would not be approved in the
form submitted, particularly given the failure of the
United Kingdom to liberalize its bilateral aviation
agreement with the United States, BA terminated the
agreement on December 22, 1992. The parties then
undertook to develop a restructured agreement that would
allow BA to make a substantial investment in USAir, and
permit BA and USAir to cooperate without triggering the
need for DOT approval, with the explicit understanding
that additional investments and integration would be
achieved in phases as the necessary governmental
approvals were obtained.
The BA/USAir Alliance
41. By January 1993, BA's and USAir's efforts
bore fruit, culminating in an alliance that would give
rise to the "first truly global airline group," serving
all of the major air transport markets. The general
structure for the BA/USAir Alliance was set out in an
Investment Agreement dated January 21, 1993, between
USAir and BA, whereby BA agreed to a three-phase $750
million investment in USAir (the "Investment Agreement"),
pursuant to which USAir and BA would combine their
efforts first to serve U.K.-U.S. passengers and then
passengers in other markets, including passengers
travelling on USAir from the United States to
destinations in Continental Europe.
42. At the time of the Investment Agreement,
USAir provided service on three routes between London's
Gatwick Airport and Charlotte, Philadelphia, and
Baltimore; USAir had purchased the Philadelphia and
Baltimore route authorities from TWA and operated the
routes for only nine months. Based on its ostensible
concern that operation of these routes would present
antitrust concerns in light of BA's operations between
the United States and London, BA insisted that USAir
divest or relinquish its three U.K. route authorities,
and USAir agreed to do so. BA agreed to lease from USAir
three aircraft and the crew necessary to operate BA's
service to Charlotte, Baltimore and Pittsburgh, and BA
and USAir agreed to share in the profits from those
flights ("Wet Leases").
Phase One
43. On or about January 21, 1993, USAir and BA
entered into the Investment Agreement. Pursuant to Phase
One, USAir issued 30,000 shares of voting preferred
shares to BA, which represented an approximately 20
percent voting interest in USAir, in exchange for $300
million. In addition, USAir agreed to increase the size
of USAir's board of directors from 13 to 16 and appointed
three directors designated by BA.
44. Phase One marked the beginning of USAir's
and BA's joint efforts to serve the U.K.-U.S. market. In
this connection, BA and USAir agreed to implement code
sharing arrangements so that BA could place its code on
selected USAir behind-gateway flights.
Phase Two
45. Pursuant to the Investment Agreement, BA
was granted an option to invest an additional $200
million in USAir, at which time USAir would amend its
certificate of incorporation to provide BA with certain
additional rights ("Phase Two"). The Phase Two option
expired on January 21, 1996, but would be extended until
January 21, 1998, in the event certain conditions are
fulfilled.
46. Phase Two envisioned the expansion of BA's
and USAir's joint efforts beyond the U.K.-U.S. service,
culminating in a comprehensive worldwide plan of
integration of the two carriers' international services
(the "Integration Clause"). The Integration Clause
contemplates action to (i) harmonize brand identities,
product designs, and service delivery standards; (ii)
integrate pricing and inventory controls, sales
promotions, frequent flyer programs, passenger and
baggage handling, cargo operations, and catering; (iii)
develop computer reservation, inventory control, data
networks, and management information control systems;
(iv) implement an extensive code sharing system; and (v)
coordinate training and financial reporting systems,
purchasing and the financing of capital equipment.
Phase Three
47. Pursuant to the Investment Agreement, BA
received an option to invest an additional $250 million
in USAir in exchange for preferred stock ("Phase Three").
The expiration date of the Phase Three option is January
21, 1998. Exercise of the Phase Two option is a
precondition to the exercise of the Phase Three option.
48. To facilitate consummation of all
transactions contemplated by the Investment Agreement and
BA's continued investment in USAir, the Investment
Agreement expressly requires each of USAir and BA to use
its "best efforts" to obtain DOT approval of all such
transactions as promptly as practicable. As stated in
Section 2.6(c) of the Investment Agreement, BA must:
use best efforts to obtain, at the earliest
practicable date, DOT Approval of all of the
transactions and acts contemplated by [the
Investment] Agreement (including without
limitation those acts and transactions to be
performed pursuant to [the integration of
certain of BA and USAir's respective business
operations as contemplated in the Investment
Agreement] and the exercise or enforcement by
[BA] of any and all rights that it may have
pursuant to [the Investment] Agreement. . . .
49. In the same vein, Section 10.1(a) of the
Investment Agreement requires each of USAir and BA to use
"reasonable efforts" to consummate all contemplated
transactions as soon as practicable. Among other things,
Section 10.1 specifically obligates BA to:
use all reasonable efforts to promptly take, or
cause to be taken, all other actions and do, or
cause to be done, all other things necessary,
proper or appropriate under applicable laws and
regulations . . . to consummate and make
effective the transactions and acts
contemplated by [the Investment] Agreement as
soon as practicable.
The Investment Agreement provides that in the event DOT
approval occurs prior to January 21, 1998, each of USAir
and BA may elect to cause BA to complete Phase Two and
Phase Three (the "Mandatory Investment Option"), subject
to certain limitations following sales or transfers by BA
or redemptions or repurchases by USAir.
50. BA fully understood that the key to
obtaining DOT approval of Phases Two and Three would be
the British government's acceptance of a liberalized
bilateral air services agreement with the United States.
The parties also understood and expected that it would be
BA's responsibility to persuade the British government to
take the steps necessary to induce the United States
government to approve Phases Two and Three.
Governmental Review of the Agreement
51. Just days after USAir and BA entered into
the Investment Agreement, AA sought to derail the
restructured BA/USAir Alliance. AA petitioned the DOT to
institute a proceeding to review the Investment
Agreement. AA vigorously opposed the efforts of USAir
and BA to obtain DOT approval of the proposed code
sharing agreement and Wet Leases. Before the DOT, AA
contended that the proposed BA/USAir Alliance would harm
competition and was contrary to the public interest.
52. On March 15, 1993, the DOT issued an order
(the "DOT Order") that substantially rejected AA's
objections. The DOT Order concluded that BA's initial
investment of $300 million did not impair USAir's
citizenship under the applicable law and approved the
proposed code sharing and substantially all of the Wet
Leases.
53. In connection with the 1992 agreement, BA
and USAir had filed notice with the federal antitrust
agencies pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act ("HSR"). The Antitrust Division of the
Department of Justice ("DOJ") analyzed the transaction
under conventional merger standards. During the initial
30-day HSR waiting period, the DOJ considered whether, in
the absence of divestiture or relinquishment of USAir's
U.K. route authorities, the transaction might tend
substantially to lessen competition in the provision of
scheduled airline passenger service between London and
United States cities and metropolitan areas located in
the northeastern and Mid-Atlantic regions of the United
States. At the same time, the DOJ acknowledged that
integration of USAir's and BA's operations could provide
substantial procompetitive benefits. In order to avoid
an extension of the HSR waiting period and because USAir
had already acquiesced to BA's insistence that it divest
or relinquish its U.K. route authorities, USAir entered
into a consent decree with the DOJ to do so. The DOJ did
not object further to the 1993 Investment Agreement.
Implementation of the BA/USAir Alliance
54. Soon after DOT approval of Phase One,
USAir and BA began to implement the provisions of the
Investment Agreement.
(a) Code Share Agreement: USAir and BA
entered into a Code Share Agreement dated January 21,
1993. BA was permitted to place its designator code on
many USAir flights, but USAir could not place its
designator code on BA's flights. The costs of developing
the necessary computer software were shared by the
parties. As of December 31, 1995, USAir and BA had
implemented code sharing with respect to 70 airports
served by USAir.
(b) Relinquishment of USAir's U.K. Route
Authorities: Pursuant to the Investment Agreement and in
anticipation of its long-term relationship with BA, USAir
sought to sell its three U.K. route authorities, but various
parties filed requests at the DOT seeking to have those authorities
issued to them. Ironically, the DOT eventually awarded all three
of the routes to AA, even though AA had been denied regulatory
approval to acquire those same authorities from TWA only
two years before. Pursuant to the Wet Lease, USAir
provided BA with the aircraft and crew necessary to
continue BA's operations on the affected routes.
(c) Election of BA Representatives to
USAir's Board: On January 21, 1993, USAir appointed to
its Board of Directors three individuals designated by
BA. Since that time, BA has continued to have three
representatives on USAir's board. The BA representatives
on the USAir board have received proprietary and
confidentially sensitive USAir information, attended
USAir board meetings, and participated in discussions
regarding USAir's confidential business affairs.
55. In addition, the companies established a
coordination team, subsequently known as the Alliance
Leadership Group, made up of officers of both BA and
USAir. BA and USAir finalized and implemented a number
of projects in furtherance of the alliance (the "BA/USAir
Alliance Contracts"). Among other things, the BA/USAir
Alliance Contracts:
* finalized and implemented the Code Share
Agreement and the Wet Lease;
* linked USAir's and BA's frequent traveler
programs (the "Frequent Traveler Agreement");
* formed and implemented a joint sales and
marketing effort in the United States, pursuant
to which USAir and BA shared the costs and
expenses of maintaining office space and the
development of joint sales contracts;
* created and promoted the trademarked phrase
"Flying the World Together," which the BA/USAir
Alliance used in promoting its joint efforts;
* consolidated sales and marketing in Canada;
* established a joint ground handling agreement
pursuant to which USAir provides BA ground
handling services at various gateways in the
U.S. and BA provides USAir ground handling
services in New York (JFK) and Frankfurt;
* created a joint endeavor whereby USAir and BA
integrated fuel purchasing in the United
States. USAir and BA split the cost of
employee salaries and combined their purchasing
power to achieve economies of scale; and
* formed Airline Technical Services L.L.C., which
markets the maintenance services of BA and
USAir to third-party airline carriers.
* implemented, developed, and coordinated other
business, marketing and operational activities
in Europe, Africa, and North America.
56. Under the BA/USAir Alliance Contracts, BA
and USAir combined their efforts, money, and skill to the
joint endeavor of enhancing their service. As a result,
the Code Share Agreement, Wet Lease, and the BA/USAir
Alliance Contracts created a web of services intended to
benefit the BA/USAir Alliance. USAir and BA both bore
the costs of establishing these services and expected to
profit from the combination of their resources over the
long term.
Subsequent Efforts to Implement the BA/USAir Alliance
57. While the initial efforts to implement the
BA/USAir Alliance met with some success, the efforts
stalled and failed to reach the goals envisioned by
USAir. During 1994 and 1995, USAir approached BA
numerous times seeking to move forward in additional
areas of cooperation and thereby to achieve the benefits
of the BA/USAir Alliance as contemplated by the parties
in January 1993.
(a) Reciprocal Code Sharing: While the
Code Share Agreement permitted BA to place its designator
codes on USAir flights, the agreement was not reciprocal.
USAir could not sell seats to the United Kingdom under
its own designator code on BA flights, thus limiting the
reach of USAir's network and the ability of USAir to
market itself as a global carrier. USAir approached BA
to determine whether it would allow USAir to expand the
Code Share Agreement so that USAir could, in effect, sell
seats on BA flights. Alternatively, USAir suggested that
it would apply for, and itself fly, route authorities
between the United States and London. BA refused to
cooperate with either proposal, initially citing doubts
about the ability of USAir to obtain necessary regulatory
authority and then citing the prospect of private
antitrust suits. Ultimately, the real motivation for
BA's continued refusal became evident: BA feared that
USAir would become an independent competitive threat to
an alliance between BA and AA, by lowering fares.
(b) European Cooperation: On numerous
occasions USAir sought access to or assistance from BA in
connection with service to the European continent. USAir
sought BA's assistance in promoting sales and marketing
of USAir's services in Europe. BA failed to provide any
such assistance. USAir also approached BA about
expanding the Code Share Agreement to include flights
between the United States and Europe and points within
Europe. BA refused, again citing antitrust concerns.
AA's Relationship with BA
58. USAir and BA agreed to meet in November
1995 to discuss USAir's proposals for reinvigorating
efforts to obtain the benefits envisioned by the BA/USAir
Alliance. Matters to be discussed included USAir's
desire to code share on BA's flights, initiation of a
marketing and sales relationship in Europe, and
reintroduction of USAir service to London.
59. At their meeting, BA and USAir discussed
the fact that for some time BA and AA had been
negotiating some form of cooperative business
relationship. BA informed USAir that the proposed BA/AA
agreement would include, inter alia:
* a frequent flyer relationship between AA and BA
on terms more favorable to AA than
corresponding terms in the BA/USAir frequent
flyer relationship;
* a code sharing arrangement that would allow BA
to put its code on AA domestic and Latin
American flights and would allow AA to put its
code on BA flights beyond London and on the
flights of regional carriers, such as Deutsche
BA, that are owned by BA.
BA and AA were also actively discussing allowing each to
put its code on the other's flights between the United
States and the United Kingdom in city pairs in which
either BA or AA, but not both, had flights. In other
words, BA admitted it was willing to agree to or, at
least, to discuss cooperation with AA that BA was
unwilling seriously to consider with USAir. At that
point, based on BA's inconsistent behavior and pretextual
rationales, it appeared that the real reason for BA's
recalcitrance in expanding the BA/USAir Alliance was not
due to antitrust or regulatory concerns. Rather, BA's
recalcitrance apparently was due to the fact that USAir's
proposals would have conflicted with the BA/AA
arrangement that BA had been negotiating and would have
presented a potential competitive threat to that
arrangement. While BA was saying "no" to USAir, it was
saying "yes" to AA.
60. In an attempt to assuage USAir's concerns,
BA stated that its Board of Directors would ensure that
USAir would benefit from any arrangement that BA would
enter into with AA and that any such arrangement with AA
would be "competitive" as contrasted with the BA/USAir
Alliance, which would remain "cooperative." When pressed
as to the meaning of this cooperative/competitive
distinction, BA explained that a "competitive"
relationship with AA would preserve competition between
AA and BA in those markets in which AA and BA competed
and would not involve joint pricing, coordination of seat
capacity available for code sharing, or sharing of
economic risk. In a further attempt to defuse the
situation, BA suggested that USAir contact AA about
establishing an alliance with AA.
61. In early January 1996, USAir and BA
officials met in London. USAir told BA that a BA/AA
relationship could cause USAir substantial economic harm.
62. On January 19, 1996, in the midst of its
negotiations with AA, BA announced that it would not
exercise the Phase Two option pursuant to the Investment
Agreement prior to the January 21, 1996, deadline. Under
the terms of the Investment Agreement, BA cannot exercise
the Phase Three option if it does not exercise the Phase
Two option. However, under the Investment Agreement,
subject to certain conditions, each party has the right
to require the other party to complete Phases Two and
Three upon DOT "approval . . . of all transactions and
acts contemplated by the Investment Agreement prior to
January 21, 1998."
63. In February 1996, a USAir representative
met with various BA officials in London. In the course
of discussions, BA disclosed that the British government
was developing its position for upcoming negotiations
with the United States regarding an open skies agreement
and was anxious to have BA's views.
The BA/AA Alliance
64. On June 11, 1996, Robert Crandall, acting
in his capacity as Chairman and Chief Executive Officer
of AMR and AA, announced in New York that AA and BA had
agreed to form a broad alliance that would begin in April
1997, subject to regulatory approval (the "BA/AA
Alliance"). The BA/AA Alliance provided for pooling of
revenues and sharing of profits. AA and BA plan to
coordinate their flight schedules, integrate their
passenger and cargo handling activities between the
United States and Europe, introduce extensive reciprocal
code sharing across each other's networks, and establish
full reciprocity between their frequent flyer programs.
AA and BA anticipate that they will coordinate the
operation of BA's 244 weekly flights from the United
Kingdom to its 22 gateways in the United States and AA's
238 weekly flights from seven U.S. gateways to 12
European destinations, including London, Frankfurt and
Paris. Their alliance is expressly conditioned upon
obtaining an order from the DOT conferring antitrust
immunity in connection with the BA/AA Alliance. BA
agreed to urge the British government to enter into an
open-skies agreement with the United States.
65. To USAir's dismay, and contrary to BA's
repeated assurances throughout 1995 and early 1996 that
it would do nothing to harm USAir or USAir's alliance
with BA, the BA/AA relationship is to be a broad
"cooperative" one. Moreover, the USAir/BA relationship
is to be the more limited "competitive" one, and USAir
will not be included as part of the AA/BA application for
antitrust immunity. Having given up its own routes to
London at the insistence of BA and having been told by BA
that BA could not or would not allow USAir to establish
its own presence in the U.S.-London markets, USAir now
finds itself effectively foreclosed from transporting its
passengers to the United Kingdom.
66. Despite repeated opportunities over a
three-year period to take steps to promote an open skies
agreement between the United States and the United
Kingdom, which both parties understood to be a
prerequisite to Phases Two and Three, BA did not do so.
All of a sudden, BA was willing to push the British
government for an open skies agreement in exchange for
DOT approval and antitrust immunity for the BA/AA
Alliance, which would give BA and AA a dominant position
in various U.S.-U.K. markets. By this time there could
be no doubt that AA had usurped USAir's opportunity to
achieve the benefits contemplated by its alliance with BA.
BA and AA Efforts to Neutralize USAir
67. Throughout the planning and negotiating of
their alliance and preparation to apply for antitrust
immunity, AA and BA have conspired to hide from USAir the
nature, scope, and purpose of the BA/AA Alliance in order
to hinder USAir's ability to take steps to become an
independent and effective competitor in the United
States-London and United States-Heathrow markets, which
AA and BA will dominate if their alliance is approved.
68. USAir has the capability of developing
into a significant competitor in various U.S.-U.K.
markets. USAir currently offers substantial air
transportation service on feeder routes for BA flights
between the United States and Heathrow. USAir is the
leading carrier in the eastern United States, which
generate a substantial majority of U.S. traffic to
Heathrow. In recognition of the potential threat from
USAir, AA and BA have dealt with USAir in a manner
designed to prevent USAir from taking steps that will
allow it to develop a competitive Heathrow service.
(a) During the time that the AA/BA
negotiations were underway, USAir was engaged in
discussions with BA in what USAir believed was a good
faith attempt to further implement the USAir/BA
relationship and to enable USAir to establish its own
presence in the U.S.-U.K. markets. In fact, these
"negotiations" were a charade, designed to "freeze" USAir
by holding out the false promise that the USAir/BA
relationship would improve.
(b) BA and AA continued to try to
neutralize USAir as a potential competitive threat even
after the announcement of their alliance. Although BA
and AA publicly proclaimed there would be "substantial
benefits" for USAir if it were willing to work with them,
numerous media accounts indicate that BA will drop its
alliance with USAir at the appropriate time to obtain
government approval of the BA/AA Alliance.
69. AA and BA have maintained the charade of
including USAir in their plans because they know that as
long as negotiations with USAir continue, they have
neutralized one potential opponent to their proposal,
forestalled the creation of a competitor to the alliance,
and will keep USAir as a bargaining "chit" that can be
given up in negotiations in exchange for regulatory
approval for their alliance. Moreover, in light of BA's
continued ownership of a substantial equity position in
USAir and representation on USAir's board, BA and AA
understand that the United States government will view
USAir as part of the BA "family" and thus, in bilateral
negotiations with the United Kingdom will not seek
authorities, slots and ground facilities for USAir to
begin competitive service between the United States and
the United Kingdom. This would be particularly ironic,
since USAir, by virtue of its hubs in the eastern United
States, would be in a unique position to provide service
competitive to the BA/AA Alliance. If USAir is used as a
"chit" in AA's and BA's negotiations with DOT, USAir will
be severely prejudiced in becoming an effective
competitor in U.S.-U.K. markets.
70. Even if BA and AA were able to obtain
antitrust immunity for their alliance without severing
all ties to USAir, BA and AA intend to "squeeze" USAir
into a short-haul northeast carrier that feeds AA and BA
flights. AA and BA understand that if they can block
USAir from developing long-haul routes from the United
States to Heathrow, over time they will be able to shift
the goodwill that has been developed by BA's code sharing
on USAir flights to AA flights (e.g., by targeting USAir
frequent travelers), which will also weaken USAir's
ability to compete with AA on domestic routes in the
United States. Moreover, BA's substantial equity
position in USAir and representation on USAir's board
will enable it to use its access to sensitive information
to frustrate efforts by USAir to compete with BA, AA, and
their alliance.
Other Anticompetitive Conduct by BA
71. Just last week, Britain's Civil Aviation
Authority ("CAA") criticized the lack of competition in
U.S.-Heathrow service and found it necessary to prevent
any increases in BA's economy-class fares between the
United States and Heathrow because a study indicated that
BA's fares were unreasonably high. BA has reportedly
been told that the freeze will remain in effect until BA
can demonstrate that the fares are more appropriately
related to costs.
Anticompetitive Effects
72. The conduct of BA and AA is specifically
intended to and has and will have the effect of
monopolizing scheduled airline passenger service in
various relevant markets. Collectively, BA and AA will
control approximately 60 percent of seats between the
United States and the United Kingdom, and more than 65
percent of the traffic between the United States and
Heathrow. With their substantially overlapping gateways,
BA and AA will dominate local gateway traffic and, with
their significant respective domestic hubs, their
dominance will be extended to behind-gateway and beyond-
gateway origin and destination points.
73. BA and AA have taken various steps to
prevent USAir from becoming an effective competitor in
these markets by blocking USAir from developing its own
presence in markets between the United States and the
United Kingdom and by deceiving USAir regarding, among
other things, the nature of the negotiations between AA
and BA. BA's continued ownership of a significant equity
interest in USAir and representation on USAir's board
prevents USAir from obtaining the authorities, slots, and
ground facilities necessary to provide service between
the United States and London, including Heathrow; creates
a risk that confidential and competitively sensitive
information provided to BA designees on USAir's board
will be misused in ways that diminish competition between
USAir and AA in domestic city-pairs in which the carriers
compete; and allows BA and AA to foreclose USAir from
becoming an effective domestic and international
competitor.
74. As a consequence of BA's and AA's conduct,
passengers will be adversely affected by higher fares and
less service than would prevail under the BA/USAir
Alliance or if USAir provided service to London,
including Heathrow.
IRREPARABLE INJURY TO USAIR
75. BA has been vigorously pursuing
implementation of the BA/AA Alliance in breach of BA's
obligations under the Investment Agreement and in
violation of the antitrust laws, all to the irreparable
detriment of USAir. BA's and AA's actions have caused,
and unless enjoined, will continue to cause, immediate
and irreparable injury to USAir in one or more of the
following respects:
(a) BA's pursuit of an alliance with AA has
delayed consideration and approval of
Phases Two and Three of the Investment
Agreement, providing AA with a material
advantage over USAir in building and
solidifying a financially beneficial
relationship with BA;
(b) By negotiating and attempting to implement
the BA/AA Alliance, BA and AA have made it
impossible for USAir and BA to get the
necessary government approvals and achieve
the full degree of cooperative integration
contemplated by the Investment Agreement;
(c) Implementation of the BA/AA Alliance would
make BA's performance under the Investment
Agreement impossible;
(d) Implementation of the BA/AA Alliance would
create a risk of anticompetitive effects
from BA's unique position as a partner of
two major U.S. competitors and would
expose USAir to potential liability from
antitrust claims brought by third parties;
(e) Continued participation in the BA/USAir
Alliance will allow BA to misappropriate
USAir's goodwill; and
(f) BA's continued ownership of a significant
equity interest in USAir and service by
its designees on USAir's board impair
USAir's ability to obtain authorizations,
slots, and ground facilities necessary to
provide meaningful service between the
United States and Heathrow.
AS A FIRST CLAIM FOR RELIEF
[Against BA For Breach of Contract]
76. USAir repeats and realleges each of the
foregoing paragraphs hereof as if fully set forth herein.
77. In direct and material breach of Sections
2.6(c) and 10.1(a) of the Investment Agreement, BA has
deliberately failed to take timely and appropriate steps
to consummate and make effective the transactions and
acts contemplated by the Investment Agreement with USAir,
which were intended to create a fully integrated alliance
between BA and USAir. Instead, BA's announced alliance
with AA and its current efforts in conjunction with AA in
securing regulatory approval of their proposed alliance,
impedes and frustrates BA's ability to fulfill its
obligations to attain the fully integrated alliance with
USAir as called for in the Investment Agreement.
78. Moreover, BA's conduct violates its duty
of good faith and fair dealing, implied as a matter of
law, which precludes BA from engaging in conduct that
will deprive USAir of the benefits of the Investment
Agreement. As a result, USAir will be deprived of the
benefits of the Investment Agreement and has suffered and
will suffer damages in amount to be determined at trial.
AS A SECOND CLAIM FOR RELIEF
[Against BA For Breach of Fiduciary Duty]
79. USAir repeats and realleges each of the foregoing
paragraphs hereof as if fully set forth herein.
80. The BA/USAir Alliance, as evidenced by the
Investment Agreement, the Code Share Agreement, the Wet
Lease, and the BA/USAir Alliance Contracts, created a
joint venture between USAir and BA. Pursuant to the
Investment Agreement, the Code Share Agreement, the Wet
Lease, and the BA/USAir Alliance Contracts, BA and USAir
share the economic benefits and risks of their joint
venture, and BA and USAir exercised control over the
joint operations of the BA/USAir Alliance. Both USAir
and BA have contributed property, skill, and knowledge to
the joint venture.
81. As a joint venturer with USAir, BA owes
USAir a fiduciary duty to act with the utmost good faith,
honesty, fairness, and loyalty with regard to the
operation of the BA/USAir Alliance.
82. BA breached its fiduciary duties to USAir
by foregoing business opportunities that would have
benefitted the BA/USAir Alliance solely to advance its
own interests in the BA/AA Alliance. BA has also
breached its duty of loyalty to USAir by utilizing its
regulatory and lobbying capital to benefit the BA/AA
Alliance, rather than to advance the BA/USAir Alliance.
As a consequence, BA has impeded and frustrated the
success of the BA/USAir Alliance, while at the same time
realizing the benefits of the BA/AA alliance. As a
result, USAir will be deprived of the benefits of the
Investment Agreement and has suffered and will suffer
damages in amount to be determined at trial.
AS A THIRD CLAIM FOR RELIEF
[Against AA For Tortious Interference With Contract]
83. USAir repeats and realleges each of the
foregoing paragraphs hereof as if fully set forth herein.
84. At all times relevant hereto, AA was aware
of the existence and terms of the Investment Agreement, a
valid and enforceable contract between USAir and BA.
Despite this knowledge, AA intentionally and improperly
interfered with BA's performance of the Investment
Agreement by inducing BA to breach its obligations to use
best efforts to obtain regulatory approval of all
transactions contemplated under the Investment Agreement
and to use reasonable efforts to consummate all such
transactions as soon as practicable. As a result, USAir
will be deprived of the benefits of the Investment
Agreement and has suffered and will suffer damages in
amount to be determined at trial.
AS A FOURTH CLAIM FOR RELIEF
[Against AA For Aiding and Abetting
Breach of Fiduciary Duty]
85. USAir repeats and realleges each of the
foregoing paragraphs hereof as if fully set forth herein.
86. At all times relevant hereto, AA was aware
that BA, by negotiating and entering into the BA/AA
Alliance, had breached and was breaching its fiduciary
duties to USAir, its co-venturer. Despite this
knowledge, AA aided and abetted BA in BA's breach of
fiduciary duties by negotiating and entering into the
BA/AA Alliance, to the detriment of USAir. As a result,
USAir will be deprived of the benefits of the Investment
Agreement and has suffered and will suffer damages in
amount to be determined at trial.
AS A FIFTH CLAIM FOR RELIEF
[Against BA for Violations of
Section 7 of the Clayton Act]
87. USAir repeats and realleges each of the
foregoing paragraphs hereof as if fully set forth herein.
88. Pursuant to the Investment Agreement, BA
acquired a substantial portion of USAir's equity,
becoming USAir's largest shareholder. As a result of
BA's discussions with AA and their efforts simultaneously
to obtain antitrust immunity for their alliance and to
prevent USAir from becoming a competitor in scheduled
airline passenger service in various U.S.-U.K. markets,
BA's continuing equity interest in USAir substantially
lessens competition in those markets. So long as BA
retains its equity position in USAir and representation
on USAir's board, the United States government will
regard USAir as related to BA; USAir, which would
otherwise be an important potential competitor in such
service, will be unable to obtain the necessary
authority, slots, and ground facilities to provide such
service on a meaningful basis.
89. In addition, by virtue of BA's
representatives on USAir's board, BA will have access to
USAir information that could be used in an
anticompetitive manner by BA and AA, with resulting
reduction of competition not only in service between the
United States and the United Kingdom but also in various
domestic markets in which USAir and AA compete.
90. The effect of BA's equity position in
USAir and BA's representation on USAir's board may be
substantially to lessen competition or tend to create a
monopoly in U.S.-U.K. markets in violation of Section 7
of the Clayton Act.
91. USAir has and will suffer antitrust injury
in its business or property by reason of BA's continued
equity interest and board representation and its
negotiation and implementation of the alliance with AA.
USAir is entitled to treble damages and to obtain
injunctive relief.
AS A SIXTH CLAIM FOR RELIEF
[Against All Defendants For Violations
of Section 1 of the Sherman Act]
92. USAir repeats and realleges each of the
foregoing paragraphs hereof as if fully set forth herein.
93. AA and BA have entered into an unlawful
"contract, combination . . . or conspiracy, in restraint
of trade" in violation of Section 1 of the Sherman Act,
15 U.S.C. SECTION 1. The purpose and effect of this agreement
are to restrain trade in certain markets by excluding
USAir from competing in those markets and by reducing its
ability to compete.
94. As a proximate result of AA's and BA's
agreement in restraint of trade, USAir has suffered and
will continue to suffer antitrust injury to its business
and property. USAir is entitled to recover treble
damages and to obtain injunctive relief as a result of
BA's and AA's violation of Section 1 of the Sherman Act.
AS A SEVENTH CLAIM FOR RELIEF
[Claim Against BA and AA For Violation of -
Section 2 of the Sherman Act,
15 U.S.C. SECTION 2]
95. USAir repeats and realleges each of the
foregoing paragraphs hereof as if fully set forth herein.
96. The conduct of BA and AA constitutes
monopolization, a conspiracy to monopolize, and an
attempt to monopolize scheduled airline passenger service
in various U.S. and U.K. markets, including service
between the United States and Heathrow.
97. As a proximate result of BA's and AA's
monopolization of, conspiracy to monopolize, and attempt
to monopolize one or more relevant markets, USAir has
suffered and will continue to suffer antitrust injury to
its business or property. USAir is entitled to recover
treble damages and to obtain injunctive relief as a
result of BA's and AA's violation of Section 2 of the
Sherman Act.
WHEREFORE, plaintiffs demand judgment against
defendants as follows:
I. Declaring that BA has materially breached the
Investment Agreement and its fiduciary duty to USAir and
awarding actual and punitive damages against BA, in an
amount to be determined at trial;
II. Declaring that AA has tortiously interfered
with the Investment Agreement and has aided and abetted
BA's breach of its fiduciary duties to USAir and awarding
actual and punitive damages against AA, in an amount to
be determined at trial;
III. Awarding treble damages, in an amount to be
determined at trial, for BA's and AA's violations of
Sections 1 and 2 of the Sherman Act and Section 7 of the
Clayton Act;
IV. Enjoining BA from designating representatives
to serve on the USAir board and directing BA to cause its
representatives on the USAir board to resign;
V. Directing BA to sell its equity interest in
USAir in an orderly manner and, until such time as
divestiture is complete, to place its stock in a non-
voting trust;
VI. Enjoining AA and BA, their affiliates, agents,
servants, employees and attorneys, and all other persons
acting in concert with defendants or on their behalf,
directly or indirectly, from taking any further steps to
exclude USAir from competing in scheduled airline
passenger service markets between the United States and
the United Kingdom, including Heathrow, and directing AA
and BA to take such steps, including but not limited to
the transfer of sufficient route authorities, gates,
slots, and other facilities at Heathrow, to enable USAir
to become an effective competitor in those markets;
VII. In the alternative, enjoining defendants,
their affiliates, agents, servants, employees and
attorneys, and all other persons acting in concert with
defendants or on their behalf, directly or indirectly,
from taking any steps in furtherance of or to implement
the BA/AA Alliance as presently constituted or
interfering in any way with the Investment Agreement or
any of the transactions contemplated thereby;
VIII. Awarding USAir the costs and disbursements of
this action together with reasonable attorneys' fees; and
IX. Granting USAir such other and further relief as
the Court may deem just and proper.
JURY DEMAND
Plaintiffs USAir Group, Inc. and USAir, Inc.
hereby demand trial by jury on all claims so triable.
Dated: New York, New York
July 30, 1996
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM
By:_____________________________
Shepard Goldfein (SG 9509)
Jay B. Kasner (JK 7910)
919 Third Avenue
New York, New York 10022
(212) 735-3000
COVINGTON & BURLING
Charles F. Rule
1201 Pennsylvania Avenue, N.W.
P. O. Box 7566
Washington, D.C. 20044
(202) 662-6000
ATTORNEYS FOR PLAINTIFFS
USAIR GROUP, INC. and USAIR, INC.
