A Transatlantic Airline Deal Hits Antitrust Turbulence

A planned global alliance between British Airways and American Airlines is beginning to meet resistance.

London regulators asked Friday for proof that the two airlines, which already control 60 percent of Britain-US flights, won't stifle competition with their partnership. Meanwhile, a rival airline announced plans to fight the alliance.

In a move that industry sources say caught British Airways chief executive Bob Ayling by surprise, Britain's Office of Fair Trading (OFT) said the two carriers appeared to be planning a merger. If so, it said, the move might have to be referred to the Monopolies and Mergers Commission - a body with power to veto the alliance.

The airlines both deny that they plan to merge or that their partnership, which involves no exchange of assets or equity, is an effective merger.

Under the proposed alliance, British Airways (BA) and American would share profits on routes between Britain and North America and coordinate their services through code-sharing (sharing the routing of passengers) and linked frequent-flyer programs.

Push for open-skies deal

In striking the June 12 deal, BA and American appeared to be calculating that the US would demand an "open skies" agreement in return for granting their planned alliance antitrust immunity.

The United States already has open-skies agreements with many other nations, and has long been demanding one from Britain. Such deals tend to promote fresh competition.

The British government so far has resisted an open-skies deal that would allow more US airlines to use London's Heathrow Airport. BA now controls nearly 40 percent of Heathrow's take-off and landing slots.

Rivals say the planned alliance would be hard to compete with.

Richard Branson, chairman of Virgin Atlantic Airways, will this week fly to Washington and argue that the link-up would be against the interests of air travelers, pushing up fares.

Mr. Branson says he will "shoot down" the proposal in talks with US senators and transport officials. He plans to fly to Washington in a Virgin Atlantic passenger jet with the slogan "No Way BA-AA" painted on the fuselage. Virgin Atlantic currently has about 10 percent of the business between Britain and the US.

Regulatory concern

In ordering the two airlines to justify their plan, John Bridgeman, director-general of the OFT, was responding to a letter from Ian Lang, Britain's trade and industry secretary. Mr. Bridgeman told Mr. Lang that the alliance would amount to a merger if the two airlines' managements "became indistinct."

Chris Tarry, a London-based aviation analyst with Kleinwort Benson, says the link-up could be "the first step in a wider program," perhaps including an equity swap. The number of alliances among big airlines has been rising steadily in the past few years.

BA's Mr. Ayling said last week that the result of an alliance, if it was related to an open-skies policy, would be to increase competition, not reduce it.

The OFT gave BA and American until mid-July to justify the partnership they announced on June 12 - otherwise a full monopolies inquiry might be inevitable. It invited representations from other interested parties.

The influential Economist magazine, advising flyers to "beware" of the proposed alliance, argued for an open-skies policy, but one initiated by the government - not BA and American.