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BA may give way to secure US deal

British Airways is negotiating with the Office of Fair Trading over new conditions for clearance of its proposed alliance with American Airlines. If BA is prepared to make further concessions on take-off and landing slots at Heathrow, it could head off opposition to the deal from US carriers and pave the way for the alliance to be sealed in the next few months.

United Airlines indicated this weekend that it would drop its opposition to the deal providing the OFT tightened the conditions it imposed on it last month in lieu of a reference to the Monopolies and Mergers Commission.

The draft conditions envisaged that BA would, in effect, give up slots equivalent to 12 round trips a day out of Heathrow. United will argue to the OFT this week that this number should be increased to 15 and that the slots should be given up on specific Transatlantic routes.

United believes that the six routes where BA and American services currently overlap should be targeted for slot concessions. The slots liberated would then be handed to rival carriers to maintain effective competition on the routes.

One of the main concerns about the BA/American deal has been that the alliance would be so dominant on the routes from Heathrow to New York, Boston, Chicago, Miami, Dallas and Los Angeles that competition would be stifled. United will tell the OFT that by taking routes from the alliance and giving them to other carriers, competition will be preserved.

However, United will also argue that BA and American should receive no financial compensation for the slots. It believes that there is an established precedent for incumbent carriers to simply surrender slots. BA has always argued that it should be paid for any slots it concedes.

The OFT will also come under pressure from United to extend the conditions imposed on the deal to cover facilities at Heathrow as well as slots. Ultimately United wants to have its services housed in the same terminal as its partnership airlines, which include Lufthansa, SAS and British Midland. It also wants to be granted fair access to the provision of customer services such as departure and arrivals lounges.

Virgin Atlantic is also concerned that the OFT's conditions were too narrowly drawn. It is expected to continue pressing for the BA/American deal to be referred to the MMC. Virgin has identified a number of important areas where the alliance has anti-competitive implications, which it says were not addressed by the OFT in its draft conditions.

Virgin is concerned that after the early stages of its deliberations the OFT did not consult widely enough and has overlooked crucial issues. It will point to travel agent discounts and corporate travel arrangements as areas that require a full-scale investigation, and will also argue that the conditions on slot concessions are inadequate.