The charge followed a warning from BA that unless the tie-up was approved without strings then the UK would pull out of talks aimed at reaching an open skies deal across the Atlantic.
Appearing before the Commons Transport Select Committee the Virgin chairman said that if the link-up was allowed to proceed it would kill competition and mark a return to the bad old days of state-protected monopolies.
However, BA chief executive Robert Ayling, who gave evidence earlier, dismissed Mr Branson's claims as "myths", insisting that the reality would be more competition, lower fares and a better deal for travellers.
Mr Ayling also rejected any suggestion that BA and American should be required to give up precious take-off and landing slots at Heathrow as the price of regulatory approval for the alliance or offer any other concessions.
However, claiming that the alliance would control 60 per cent of the transatlantic market and 100 per cent of passengers on some UK-US routes, Mr Branson said: "Any appeal by BA that it needs to enhance its already monopolistic position to compete on the world stage is pure emotional blackmail. As it is BA already has monopoly power on the North Atlantic. With American Airlines it will simply kill competition."
In its evidence to MPs, BA argued strongly, however, that the real market place was between Europe and the US. On that basis, the alliance would account for only 24 per cent of passengers between the UK and US since more than half its traffic was from outside the UK.
BA and Britain, Mr Ayling added, risked losing out to foreign airlines and airports in Frankfurt, Amsterdam and Paris, jeopardising a business that employed 50,000 people and had contributed pounds 9bn to the balance of payments in the last five years.
If the alliance with BA did not take place other airlines such as Air France were waiting to step in and take American's hand. "We are not the only bride in town," said Mr Ayling
But Mr Branson rejected BA's claims, saying: "The question here is not whether our aviation industry is to be allowed to continue to play in the first division by further globalisation of BA. It is whether our industry is to be allowed to slip back into the the bottom division characterised by state protection, monopolies and cartels."
The inquiry is just one of four probes into the BA-American alliance. The Office of Fair Trading in this country and the US Justice Department are also investigating and the European Commission has announced it is to review all existing transatlantic alliances including the proposed BA deal.
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