The advice runs directly counter to the ruling last month from the European Competition Commissioner, Karel Van Miert, and could put the new Trade and Industry Secretary, Peter Mandelson, on a collision course with Brussels.
Mr Van Miert ruled BA and American should be forced to give up 267 slots at Heathrow and Gatwick to rival airlines without compensation.
However, in his advice to Mr Mandelson, the Director-General of Fair Trading, John Bridgeman, said that the slots have "a substantial monetary value" and that it would be "reasonable to allow the alliance to recoup that value on disposal". Industry estimates value the slots at about pounds 500m.
Brussels maintains the sale of slots is illegal under EU rules. But Mr Bridgeman said it was unclear whether this was the case and a decision by Mr Mandelson under article 85 of the Treaty of Rome "could override the EC regulation for the purposes of promoting competition by expressly allowing sale".
According to the OFT, selling the slots would be a more efficient way of allocating them among rival airlines. Although the Commission did indicate that some of the slots could become available under the normal slot allocation process, the OFT says that "a significant proportion" of the total will have to come direct from the alliance.
Mr Mandelson has put the OFT's advice to consultation for four weeks before taking a decision. He stressed that his responsibility for the Millennium Dome, towards which BA is contributing pounds 6m, would in no way influence his decision. "I have considered my position very carefully in relation to BA and, after taking advice from the Permanent Secretary of my department on the legal position, I am satisfied that I can exercise my responsibilities properly in respect of what remains to be done in this case."
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