Under the agreement, BA and Dan-Air are expected to pool their European scheduled services from Gatwick by forming a new airline in which BA would take a minority stake. The joint venture would probably be treated as an associate company on BA's balance sheet.
This will result in the scrapping of Dan-Air's loss-making charter operations and the scaling down of its scheduled services to a core of profitable routes using only Dan-Air's fleet of Boeing 737s.
Although the deal is almost certain to involve significant job losses, it will preserve some of Dan-Air's 2,300-strong workforce.
BA hopes that by operating the new airline at arm's length it will overcome competition objections arising from its dominance at Heathrow and Gatwick, Britain's two biggest airports.
But rival airlines, led by British Midland, are certain to oppose the deal vigorously on the grounds that it would increase BA's monopoly stranglehold.
Even if BA is able to escape a reference to the Monopolies and Mergers Commission or the European Commission's competition directorate, it is certain to face a battle through the Civil Aviation Authority, the body responsible for awarding route licences.
Sir Michael Bishop, chairman of British Midland, is expected to insist that since BA will consolidate its European route network from Gatwick it should be forced to surrender routes to the same destinations from Heathrow.
Richard Branson's Virgin Atlantic is also likely to object by applying to the CAA to operate some of the Gatwick routes flown now by Dan-Air.
This could set the scene for a re- run of BA's titanic battle to take over British Caledonian. BA eventually succeeded in gaining control but at the expense of surrendering some Gatwick services.
Dan-Air operates to 21 scheduled destinations, and a service from Heathrow to Inverness three times a day. Rivals are likely to demand that those six take-off and landing slots at Heathrow be handed to other carriers.
A deal had been due to be announced yesterday but was held up by last-minute hitches, understood to revolve around BA's reluctance to take responsibility for Dan-Air's liabilities and concerns over whether Dan-Air could contribute sufficient revenue.
Hopes were rising last night of a breakthrough in UK-US air liberalisation talks as John MacGregor, Secretary of State for Transport, began talks with Andrew Card, his opposite number. The talks, due to end today, could pave the way for BA to complete its dollars 750m investment in USAir.Reuse content