EXECUTIVE SUMMARY

The Thatcher government in the United Kingdom firstly practiced privatization policy in
the world. British Airways was one of the candidates for privatization. In this paper I analyzed the
privatization of British Airways.
In the history section of this paper, I briefly talked about the background of British
Airways, which is full of events. And also, I analyzed the airline market in the United Kingdom
after 80s. Because, after 80s as can be found in this paper, the strict rules of airline regulations
started to smooth. New alliances and also new opportunities started to occur. Thus, these
“advantages” may help British Airways to be better than 80s, which is automatically effect the
result of privatization. It will be difficult to differentiate the effects of the UK airline market
advantages from the privatization analyze. Because of this you can find a brief discussion about
the airline market after 80s, in UK.
The privatization section is, as the name refers, about the privatization of British Airways.
I tried to answer “How, When, and the consequences” of this privatization. The performance
evaluation part of this section can be divided into two categories. Analyzing by the help of
accounting data and the industry comparison. I do not want to analyze the effects of privatization
only by accounting data, which can be easily manipulated by the management. And also, after
privatization, the objective of British Airways changed to “profit maximization”. Thus, the
accounting data may not be helpful by alone. To overcome this issue, I also find analysis regarding
the industry of British Airways. The reaction of competitors, which can show the expectation in
the market after privatization and also the new incentives introduced to the British Airways, may
provide a better look to the case from a different perspective.
The final section “Future of British Airways”; discuss the current issues and also an
outlook to the future. In this part of my paper, I also point-out the lessons that Turkish Airlines
(THY) can take from the privatization of British Airways. These airlines are common on some
historical events, however, current situation of THY is not so bad as BA before privatization. But I
believe that after privatization of THY, it will be considered as a world airline like British Airlines.
 II. II. BACKGROUND OF BRITISH AIRWAYS

A. HISTORY*
When looked to the history of origins of British Airways, it can be seen that, there were
lots of mergers and acquisitions. BA was formed not like a simple firm. “The airline under its
current name was the result of a merger in the 1970s between the United Kingdom’s two publicly
owned dominant carriers, British Overseas Airways Corporation and British European Airways”1
(Ahmed Galal)
We can see that BA’s origins based on the days of the World War I, where the civil
aviation started to occur. The world’s first daily international scheduled air service between
London and Paris begun on 25th August 1919, by Aircraft Transport and Travel Limited. Two
more British companies started to service between Paris and Brussels. These pioneer companies
faced severe difficulties. “Passengers were few, fares high and air travel seldom less than an
adventure. One pilot took two days for the two-hour flight to Paris, making 33 forced landings
along the way. One by one, the fledgling companies ceased operations, undercut by heavily
subsidized French and Dutch competitors.”2(BA web site)
In 1924, Imperial Airways Limited was formed by four main fledgling airlines, Instone,
Handley page, Daimler Airways and British Air Marine Navigation Company Limited. This new
company services to Paris, Brussels, Basle, Cologne and Zurih. Services were widened to Egypt,
the Arabian Gulf, India, South Africa, Singapore and West Africa between 1920s and 1930s. In
these times, small UK air transport firms had grown up. In 1935, they merged, and formed
original privately-owned British Airways Limited, which became a strong competitor of Imperial
Airways, on European routes. By the Government, Imperial Airways and British Airways were
nationalized in 1939 to form British Overseas Airways Corporation (BOAC)2.
British South American Airways, which was operating to long-haul services to South
Africa, merged back into BOAC in 1949. Continental European and domestic flights were flown
by a new airline, British European Airways (BEA). BOAC also started to services to New York
(1946), Japan (1948), and Chicago (1954). “From 1946 until 1960, BOAC and BEA were the
*
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principal British operators of scheduled international passenger and cargo services – and they
preserved Britain’s pioneering role in the industry.”(BA web site). The 1950s saw the world enter
the passenger jet era- led by BOAC, with the Comet flying to Johannesburg in 1952, halving the
established flight time1. “BOAC introduced the world’s first jet airliner, the Comet, in 1952 but
had to withdraw it from service after three crashes in the next two years, and the company
frequently recorded losses”(Ahmet Galal)
Other British airlines began to operate competing scheduled services, after the
establishment of the Air Transport Licensing Board in 1960. In 1967, the Government set up
another study into the industry. It recommended a holding board to be responsible for the two main
airlines, BOAC and BEA, with the establishment of a second force airline. “In 1969 the Edwards
Committee, which had been established in 1967 to consider the future of U.K. aviation,
recommended combining the two airlines under a State Airline Holdings Board, although it did not
advocate an operational merger. It also recommended encouraging the private sector to create a
second force airline, so that the UK could always have a choice when designating airlines for
international routes.”1(Ahmet Galal). As a result, in 1970, Caledonian Airways took over British
United Airways to form British Caledonian (Bcal). Bcal was given a number of international route
licenses, although it remained smaller than BA and financially much weaker.
Two years later, the business of BOAC and BEA were combined under the newly formed
British Airways Board according to 1971 Civil Aviation Act. In January 1973, it was decided that
the entire airline should be under the single name of BA, and the subsidiary corporations were
dissolved in April 1974. Thus, British Airways was formed in 1974. “ Although this merger was
lead initially to substantial financial losses and industrial strife, the new airline inherited its
predecessors’ pioneering path, launching the world’s first supersonic passenger service,
simultaneously with Air France, with Concorde in January 1976.”2 (BA web site)
After the merger, BA was suffered from the problems that are the result of merger of two
organizations and the duplication of some services. Moreover to this, two corporations were
continuing as separate divisions within BA, each controlling its own marketing and operations. In
1977, British Airways was reorganized. Four divisions were established as commercial operations,
flight operations, engineering and planning. “Throughout the period, the British Airways Board’s
objective was to rationalize the operations of BA without resorting to layoffs, a policy that would
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have fitted well with political constraints even if it was not dictated by them.”1 As can be seen
from this argument, it can be said that, this policy would result with overstaffing. And also,
overstaff problem will create low productivity and poor labor relations, which were actually
happened to BA. There were strikes, which caused to loss of 11 Million pound in 1975 and 40
Million pound in 1978.
In 1978, Roy Watts, who became CEO in 1979, prepared a corporate plan with his team.
The plan also complained about the overstaff problem. When compared other airlines in 1976, BA
was only producing 122,000 available tone-km per employee, whereas other airlines were
producing approximately 208,000 available tone-km per employee. British Airway’s earnings were
also low. The airplanes of BA was old, moreover, most of them would fail the noise regulations,
which would be introduced in 1986. The Watts plan offered to overcome these problems by
volume growth. If the industry growth would increase like the current years, he planned to use
same staff to serve the growth volume. Thus, BA would increase its productivity in the future.
However, the oil price shock in 1979 destroyed the assumptions of Watt.
In 1979, during the general election campaign, the Conservative party announced its
intention sell some of the government’s shares in BA to the private sector, which aimed to create a
mixed private and public enterprise like British Petroleum. This can be seen a political movement.
Because of the power of labor unions, Conservative party may face difficulties. However, if they
sell public enterprise to private, they would be able to reduce labor power. “In July, with the
Conservatives in office, Trade Secretary John Nott formally announced this plan and introduced
the Civil Aviation Bill to transform BA from a public enterprise to a company suitable for sale”1.
The Civil Aviation Act 1980 was passed to enable this. By that time BA’s profits had been worsen
(total 141 million pound between 1979-1980) due to oil prices, and fall of passenger demand.
After 1981, John King became the chairman of BA. He planned some actions to
overcome with existing problems. These were; a number of routes were-cut, cargo-only services
were ended, some subsidiary companies and assets were sold. Flying training college was one of
them. More dramatically, large-scale layoffs were applied. In March 1979, there were 57,741
employees whereas in 1984, there were only 39,794 employees. So, Sir John King was trying to
survive the company by downsizing. As a result, there was an immediate impact of this plan, with
a small increase of operating profits. BA’s operating profits also increased in 1983.

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 After this “survival plan”, BA faced with a lobbying campaign by BCal. According to
BCal, “ a divested BA would dominate the UK airline industry to an unhealthy extend”. “BCal
suggested that BA should transfer its domestic flights to UK regional airlines and sell BCal one-
fifth of its routes and planes for ₤200 million, which would reduce BA’s share of scheduled
services among UK airlines from 83 percent to about two thirds”1. Until the report of CAA in
1984, BA was quite. Then BA started forcefully lobbying activities. This war was ended with the
victory of BA. However, moreover to Bcal’s case a new struggle has begun. In November 1984,
BA was threatened with legal action for alleged collusion against Laker Airways, which helped to
postpone the sale of BA. “A criminal investigation was dropped under political pressure from the
UK, but the government could not insulate BA from the risks of the civil case-had the government
agreed to bear BA’s costs, it might have inflated the value of any settlement, while an outstanding
case would certainly have reduced the value of BA, and might make it unsaleable.” 2 . The actions
were settled out of court in summer 1985, but the sale was again postponed in 1986. At last,
British Airways was finally privatized on 30 January 1987, which was after nine years of the
first announcement.

B. AIRLINE MARKET AND ECONOMICS IN UNITED

KINGDOM AFTER 80S

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 Airline Passengers in the UK (passenger miles)
80,0
International
70,0
Domestic
60,0
50,0
40,0
30,0
20,0
10,0
0,0
1977 1979 1981 1983 1985 1987 1989
So
urce : CAA Data

Although there was recession related to the airlines in 70s and 80s, from the figure, it is
very clear that the rate international airline passengers in UK increased rapidly, in contrast to the
rest of the world.
The high costs of heavy fuel consumption at takeoff, airport charges, and the engineering
checks that must be performed after every flight, in total creates a higher average costs per
kilometers in the short flights, when compared with the long ones. BA costs was 7.5 pence per
available seat-kilometer (ASK) on its European routes in fiscal 1990, against a cost of 3.7 pence
per ASK on its international routes (Galal).
To be profitable in flights, a careful scheduling is needed. During 1980s, airlines
increasingly attempted to solve scheduling problem by the use of hub and spoke systems. They
decreased the number of direct flights between minor airports while concentrating on providing
good services to a hub airport, with convenient connections along other spokes to the passengers’
final destinations. “The main motive for changing to a hub and spoke system is to raise the load
factor on an airline’s services, for this is one of the crucial determinants of the relationship
between revenues and costs.”1[1] For example, British Airways’ 70% of passengers were traveling
through London’s Heathrow Airport, while 25% of them changing flights there. And also in 1980,
64% of the passengers who arrived to Heathrow Airport by British Airways and also, changed
flights were with BA, at the same time BA only picked up 36% of the different airline passengers.

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 At Heathrow, where it is BA’s main base, BA is facing a major competitive issue. The
demand for takeoff and landing slots at Heathrow does not meet the current supply. There is a
committee which made up of representatives of the airlines, allocates these slots. They allow using
the slots to each airline as they used them before and the costs are based on the British Airport’s
Authority costs, rather than on the value of those slots to the user. Thus, this practice gives
incumbent airlines an advantageous and very valuable position.
There is also another issue related with the finance of the fleets of the airlines. In the past,
most of the airlines owned the aircraft from the finance leases or rentals. They were rarely able to
finance the costs by their retained earnings. (Perhaps this is because of the requirement of heavy
investments and the short-history of commercial airlines). After 80s, British Airways has
increasingly use its operating leases to purchase its aircraft, whereas the leasing company retains
ownership of the aircraft. And also some of these leases were not for fixed terms, which others can
be extended. This agreement gave a flexible position to BA in its debt financing.
Some changes have been occurred in the airline market in Europe. As a result of
European Community, the travels between member countries is being liberalized. Entry
restrictions on many routes were eased. The automatic government approvals of various categories
of discount fares were applied. Moreover, “fifth freedom” rights were given. It is the right to carry
passengers not passing through the carrier’s home country. “Beginning in 1993, all European
airlines are allowed to fly any route within the Community, including domestic routes, subject to
common licensing requirements.”2[2]
There is not a detailed regulation to international charter flights, which serve 30% of UK
passengers. The bilateral agreements usually don’t cover them. These airlines directly apply to
government for permission to fly. Access between UK and Mediterranean countries is generally
easy and also, cheap travel is allowed without the need to belong any affinity group. Thus, charter
flights have a high market share in this market.
The CAA is responsible for the airline industry’s economic and technical regulation in the
UK such as issuing domestic route licenses. CAA was very restrictive in the 70s. However, in the
80s they gradually became more flexible. By 1985 it was “ready to license competing services by
British Airlines even at the risk of impairment of an existing British service”3[3]. After this point
entering to UK domestic airline market is free, except some services at Heathrow Airport. And
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also “whenever possible the Authority will allow market forces to set or influence the levels of
fares and rates for air transport”4[4]. This shows us that although CAA can disapprove the prices,
they left the control to the market.
From 1977 to 1991 special rules applied to Heathrow, because of overcrowding. An
important restriction was also applied. The airways that were not operating before 1977 at
Heathrow Airport were not allowed to fly there. It really decreases the competition among the
airlines, and also gives a competitive advantage to British Airways. And also whole-plane charters
were banned. Any new domestic services had to be authorized by the Secretary of State for
Transport. 1991 was a turnaround. “In spring 1991 two ailing US carriers sought to sell their
Heathrow routes to stronger rivals that did not have landing rights, and the UK government
decided to end the ban on new airlines to accommodate the newcomers.”5[5] As a result of this other
airlines have entered to the Heathrow.
To summarize we can see that the airline market in UK and also Europe was started to be
more flexible after 80s. This practices increased the competition. Moreover, softening the strict
rules at Heathrow may have affected British Airways badly. But, increased competition forced the
airlines to be more efficient and productive. I want to also point to an issue. The success of the
British Airways after privatization may be also a result of increased competition as a result of new
softened regulations in the airline market and economics, which forces BA to be more efficient.
Before 80s there were protective regulations, which did not require the efficiency in the operations.
It will be really difficult to find out the success after privatization due to the new regulations or the
privatization issue.

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 III. PRIVATIZATION OF BRITISH AIRWAYS

A. A. REASONS BEHIND THE PRIVATIZATION OF BRITISH

AIRWAYS:

As can be noticed from the brief history of British Airways, there were many acquisitions,
mergers, cases, regulations, and strikes, which in total brought problems to BA. All these problems
created the base and reasons for its privatization. In the following paragraphs I want to discuss
some of them.
First of all, being a public enterprise will open the company to the politicians. When a
political part became a government, they will probably employ their supporters to the public
owned enterprises. I believe that BA was also used like this. One of its problems was over-
employment. As mentioned before, BA’s productivity was very low compared to its competitors.
Besides the low productivity, the cost of employees was also a problem, because the earnings of
BA were declining. Seeing public enterprises as a “supply” will always be true. Thus, this
argument can be used for the reason of privatization.
Secondly, the losses of BA were increasing year by year. I think it is the destiny of public
enterprises. Because, SOE’s first goal is not profit-maximization, they are not managed like a
private firm. So, the efficiency, profitability, and debts are not so important criterion for
government managers. This incentive leads huge losses in the future, which is usually offset by the
governments.
The next reason can be based on Thatcher government policy of privatization. They
wanted to decrease the labor unions power. The easiest way is selling the enterprises, which can be
influenced by government, to private owners. Thus, in the future, if the labor party comes to
government, they cannot be so influential as before on the whole economy.
 B. B. METHOD USED IN PRIVATIZATION OF BA
The method used to privatize British Airways, was “fixed-price offer”. And also there was
no “Golden Share” in the privatization of BA6[6]. The term “Golden Share” was first used in
Britain. This share gives a privileged position to government. This share prevents the privatized
company from acquisition by unwanted people.
In the following table, the prices of the offer was given, in the day of privatization:
British Airways’ Stock Prices in The Day of Privatization
Initial Public Offer (p) First Operational Price (p) Revenue%
65 109 68%
Yaşar, Süleyman; (1997): “Özelleştirme (Privati⁺ation)” page 59

In this day 1,100,000 people applied to buy the shares of British Airways. At the end of
the first year after privatization, 420,526 people hold British Airway’s shares7[7].

C. C. PERFORMANCE ANALYSIS OF PRIVATIZATION OF

BRITISH AIRWAYS:

In this section I want to analyze before and after privatization effects of British Airways.
But before starting to analyze section, I want to discuss an issue. Some of the analyses are based
on accounting data of BA, which can be manipulated by the management. And also, the incentive
of BA changed after privatization to profit maximizing, which is aimed to improve profits. Thus,
these benchmarks are based on the trustworthiness of management of BA after privatization.

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 A. A. PROFITABILITY:
One of the tools for analyzing a firm’s performance is the profitability comparison. (The
data of this chart can be found in appendix section)

700 Nominal Profit of BA (£ million)

600
Before Privatization After Privatization
500

400

300

200

100

0
1983 1985 1987 1989 1991 1993 1995 1997
Source: Walker and Vasconcellos8[8] ; Hemmington Scott Limited Web Site9[9]; and British Airways Web site10[10]

When we examine the profits of British Airways, it can be seen that after privatization
their profits boomed. There is an interesting point on the chart. In 1991 BA had an “Exceptional
Item” of £120 million, where its profit before the exceptional item was £250 million. The
beginning of 80s was not a good start for BA. Until 1982 the profits were negative. After 1983 to
1987 the profits were stable. But I think one of the reasons for poor profit performance before
divesture was the “Announcement” of privatization. The management of BA, may not be keen on
the operations, or did not want to make investment. Because, they were sure that BA would be
privatized, thus why did they want to make investment and increase efficiency? I think that the
stability of these years’ profits can be explained in this way.

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 B. STOCK PRICES:
The following chart represents BA’s stock prices in £:

800 BRITISH AIRWAYS BAIR £

700

600

500

400

300

200

100

Source: DataStream, Bilkent

0

02.10.1998
02.10.1987

02.10.1988

02.10.1989

02.10.1990

02.10.1991

02.10.1992

02.10.1993

02.10.1994

02.10.1995

02.10.1996

02.10.1997

It is very obvious that there is a boom in the stock prices of BA. In this analysis we don’t
have stock prices before 1987. It was a public enterprise before 1987. (If it had a corporatization
structure, it may have stockholders). The quickest way to look at the success of a firm is its stock
prices. I mean the historical stock prices are an easy way to evaluate the firm’s success. When we
use this approach, we can clearly say that, after privatization, British Airways was successful.
The next thing that can be concluded from this chart is the profits of initial British
Airways stockholders. When they purchased the stocks at 109 p (the public offer was 65 p
however, in stock exchange the first quotation was 109) in 1987, they were very profitable in the
long run.
 C. C. NUMBER OF EMPLOYEES:

70000 Number of BA's Employees

60000

50000

40000

30000

20000

10000
Before Privatization After Privatization
0
80

81
82

83
84

85

86
87

88

89
90

91

92
93

94

95
19

19
19

19
19

19

19
19

19

19
19

19

19
19

19

19
Source:
11[11]
Yaşar Süleyman the data for this chart is in the appendix section

At first sight we can see that, before privatization, number of employees in BA was
reduced (which was a part of the survival-plan). After privatization it was increased by 31% from
1987 to 1995. As stated in the history of BA, the decline between 80 and 87 was the result of
Watts plan. According to his plan BA was badly overstaffed. Thus, he dramatically reduced the
number of employees.
When we look at the BA’s overall employee trend from 1980 to 1995, it was dropped
6.7%. The decline is not too much. But, there is an important issue in here, BA at 90s, which
became more profitable and one of the leading companies in the world, is operated with same
amount of workforce in the BA of 80s’. This is a good indication of improvement after
privatization of BA.
In the following table, there is a comparison of salary of workers in BA:
Comparison of BA’s Employee Salaries with the Average Salary of the Economy1
Before Privatization After Privatization
182 199
These numbers indicate this analysis: The employees of British airways before
privatization have a salary, which is 82% more than the industry. It is very high. This ratio is

11
increased to 99% after privatization of BA. I think that the employees were much more happier
because of their average salary increase due to privatization.
D. INDUSTRY EFFECTS12[12]:
The authors of this paper found an interesting result of privatization of British Airways.
They analyzed the effect of privatization on the performance of BA by examining the
privatization’s impact on airfares and competitor’s stock prices. They found that stock prices of US
competitors (Pan Am, TWA, Braniff, Northwest, World Air, Delta) fell a significant 7% upon
British Airways’ privatization. Thus, it can be concluded that, these rivals were expecting a
stronger British Airways after it has been privatized. In addition to this research, they pointed out
that closer rivals of British Airways experienced a greater drop in stock prices than more distant
rivals. And also, airfares in markets served by BA fell significantly 14.3% relative to those on
other transatlantic routes upon privatization. The authors concluded “a change from government to
private ownership improves economic efficiency”.
i. Compensation:
This paper also figured out that the privatization of British Airways affected its internal
organization in ways that improved its efficiency and profitability. The compensation structure of
the top management changed considerably. Before the privatization, there was no performance-
based incentive scheme. I think, it is really a bad kind of encouragement for employees, not to
have a performance-based incentive. So, why did the employees want to improve the performance
of BA, although they had no gain from this effort? As a result of the privatization, now the
management was encouraged to increase the performance, because they would benefit from this by
the new incentive plan. In the following chart, the changes of the compensation for each year are
given:

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 Chairman's Compansation

700.000
600.000
Before After
500.000 Privatization Privatization
400.000
300.000
200.000
100.000
0
1987 1988 1989 1991
Sourc
e: Privatization and efficiency article, page293 table of this chart can be found in appendix.

The increase in the salary was amazing. And also 1991-92 salary of £669,350 included
£220,000 as bonus.
Moreover to this, British Airways introduced an Executive Share Option Scheme in 1987,
to align management objectives with stockholder objective. The ESOS provided an incentive
related to the growth and profitability of the company for key employees and executive directors.

ii. Other Industry Measures of Performance:

In this section, performance of privatization of BA was based on, before three-years
average and after three-years average of 1987. The authors13[13] exclude the year of privatization.
The Industry is consist of large US airlines as American Airlines, United Airlines, Delta, US Air,
Pan Am, and TWA. The table for these charts can be found in the appendix section.

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 Available Seat Miles (ASM) in millions

3-Year Average
60000
50000 3-Year Average
40000
30000
20000

10000
0
Before After Industry
Source:
Privatization and efficiency article (Journal of Financial Economics), page 295

There is a 40.77% improvement in available seat miles of British Airways after

privatization. When we looked the industry, the three-years average after privatization is still
higher than BA. This shows us that, the privatization helped to close the gap between the industry
and the British Airways.

Revenue Passenger Miles (RPM) in millions

3-year 3-year average

40000 average
35000
30000
25000
20000
15000
10000
5000
0
Before After Industry
Source:
Privatization and efficiency article (Journal of Financial Economics), page 295

This chart also shows us an improving in revenue passenger miles. This indicator refers to
seat miles used by revenue-generating passengers. So it is a kind of measuring profitability of the
available seats. After privatization, BA was improved its condition about 48.20%, which is very
close to industry average.
 E. E. MARKET SHARE:

Market Share of BA in its Worldwide Market

3,50% 3-Year 3-Year Average

3,40% Average
3,30%
3,20%
3,10%
3,00%
2,90%
2,80%
2,70%
Before After 1990
Source:
Privatization and efficiency article (Journal of Financial Economics), page 296

After the privatization of British Airways, market share, which is a very important
criterion, increased 0.3% after three years and in 1990 it improved 0.50%. This market share is
British Airways’ worldwide market. Thus, a small improvement makes really an important step for
BA.

IV. FUTURE OF BRITISH AIRWAYS:

The airline industry is changing rapidly, and also changes in market organization have
been so affected by world politics, which is in long run uncertain. Thus, predicting future of BA is
a little bit difficult. But I am sure that British Airways will enter to the 2000s years with a
powerful, and stronger position.
In the European aviation, if access to European airports is managed on the basis of
auctions or some other non-discriminatory method once the industry is fully liberalized, there will
be an intensive competition14[14]. Thus, new joint ventures and cross-shareholdings have started in
order to access. For example, British Airways has taken substantial shareholdings from USAir,
Quantas, TAT, (the largest independent French Airline), Deutche BA. I believe that it is a smart
tactic to overcome aviation rules, which are strictly discriminative in the countries. These alliances

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will lead much more strategically improvement for the future of British Airways. There is also a
threat for the local airlines of the countries. BA is one of the most profitable airlines in the world
(thanks to privatization!), in addition to this, its operating costs are lower than many European
airlines, as a result of this, it can really create a threat for the European airlines. To balance this
“unfairness”, the governments may support their local big airlines to compete with British
Airways. The future will show us that.
An important event was happened on February 1, 1999. The “Oneworld” alliance was
formed. American Airlines, British Airways, Canadian Airlines, Cathay Pacific Airways and
Qantas Airways were the members of this alliance. “From then, they will together phase in a wide
range of initiatives designed to provide their 174 million passengers with improved levels of
service and benefits, greater value and increased opportunities for rewards and recognition when
flying to the more than 600 destinations worldwide served by the oneworld carriers.”15[15]. I am
sure that this alliance will give a distinctive competitive advantage to British Airways. The
customers of BA and as a result, the stakeholders will benefit from this alliance. However, in the
following paragraph, some objections to the airline alliances were written.
I have read an interesting article of from “The Economist”. The heading was “Turbulence
in the air”16[16]. This article claims that the alliance of British Airways and American Airlines will
lead risks and problems. It is said that, “if the alliance of BA and AA will happen (however, this
alliance was happened and also expanded by the membership of Canadian Airlines, Cathay Pacific
Airways and Qantas Airways, the author of this article will really be surprised!), airport slots
bought and sold rather than allocated by committee, an airline bosses free to decide where and
when to fly, aviation on the world’s busiest international route could have become likely any other
business, shaped and fostered by market forces”. The article also claims that the passengers will
have to pay more in future.
These were some of the current issues related with the future and destiny of British
Airways. These discussions could not be done, if British Airways was not privatized. I am sure
that, if BA was not privatized we will hear other kinds of news, instead of these issues. We will
hear that BA was financially in problem, strikes in BA, “Britain’s number 1 airline is going
where?” and other kinds of bad news. The privatization helped British Airways to be a world’s
airline. It provided new and broad visions to the company.
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The lessons that can Turkish Airlines (THY) take from Privatization of BA:
In 1984, privatization of Turkish Airlines was planned. In 1994, it became an affiliate of
the Privatization Department. After two years, in 1996, its status of State-owned enterprise would
change when the public share of its capital falls below 50%.
The case of THY, is like the British Airways. Nearly fifteen years passed but it was not
been privatized. However, there is a difference. Currently, THY was going well. It is one of the
fastest growing airlines in the Europe. Like British Airways, THY is also a member of new-
world’s alliances. “Since March 30, 1998 Turkish Airlines has been in alliance with five big
airlines of Europe, Swissair, Austrian Airlines, Sabena, TAP Air Portugal and AOM of France,
under the name of "Qualiflyer Group" which covers several regions and a wide range of joint
activities17[17]”
In this point, a question comes to my mind. If it was fully privatized, what will be its
current situation? From my case study of British Airways, I saw that, privatization helped too
much. Thus, I believe that THY will be more successful and one of the biggest airlines in the
world. Under the state control, it achieved an important milestone. But the vision and the
management of the state are limited. The competition in the airline market is increasing rapidly.
The government may not be able to manage THY in the new century. Thus, THY must also be
privatized.

V. CONCLUSION
Privatization of British Airways was successful. It helped the company to be a world
airline. The success story of the privatized British Airways can be an example for those airlines
that are waiting to be privatized, such as Turkish Airlines.
The next thing that can be concluded from this paper is the answer of “How can be a SOE
which is failing day by day turned into a cash producer (by the tax)?”. The answer is simple,
“privatize it!”. But, Privatization is a broad issue, not all examples can be valid to other countries.
However, the case of British Airways can be used for most of the airlines operated by the
governments in the world. British Airways is a strong example that suggests why government must
not operate an airline, which it has other things to focus on.

17
 VI. APPENDIX:
1) 1) Table of British Airways Nominal Profit in ₤ million
Year Nominal Profit before tax £ million
1983 74
1984 185
1985 191
1986 195
1987 162
1988 228
1989 268
1990 345
1991 130
1992 285
1993 179
1994 280
1995 327
1996 585
1997 640
1998 580
Source: Walker and Vasconcellos18[18] ; Hemmington Scott Limited
Web Site19[19]; and British Airways Web site20[20]
2) 2) Number of Employees in BA (yearly)
Year # Employees
1980 56,866
1981 58,515
1982 53,148
1983 45,927
1984 37,247
1985 38,240
1986 39,635
1987 40,440
1988 43,969
1989 50,204
1990 52,054
1991 54,427
1992 50,409
1993 48,960
1994 51,530
1995 53,060
Source: Yaşar Süleyman21[21]

18
19
20
21
3) 3) Chairman’s Compensation:
Year Compensation in £ (yearly)
1987 52,740
1988 178,050
1989 385,791
1991 669,350
Source: Eckel, Catherine; Eckel, Doug; Singal, Vijal, (February 1997):
“Journal of Financial Economics: Privatization and efficiency:
Industry effects of the sale of British Airways” page 293

4) 4) Operating Performance around British Airway’s privatization:

Three-year average % Change

Performance Before After British Industry Change
Measure Privatization Privatization Airways Relative to
Industry
Available 35,453 49,907 40.77% 47.28% -6.51%
seat miles
(ASMs) in
millions
Revenue 23,734 35,174 48.20% 50.96% -2.77%
passenger
miles
(RPMs) in
millions
Source: Eckel, Catherine; Eckel, Doug; Singal, Vijal, (February 1997): “Journal of Financial Economics:
Privatization and efficiency: Industry effects of the sale of British Airways” page 295

5) 5) Market Share:
Before Privatization After Privatization 1990
(Three-year average) (Three-year average)
3.0% 3.3% 3.5%
Source: Eckel, Catherine; Eckel, Doug; Singal, Vijal, (February 1997): “Journal of Financial Economics:
Privatization and efficiency: Industry effects of the sale of British Airways” page 296