BA tie-up causes rift over EU rules

There were signs of a rift between the British government and the European Commission last night over who should investigate the proposed alliance between British Airways and American Airlines. The President of the Board of Trade, Ian Lang, said he was altering the law to enable UK authorities to examine the deal under EC competition rules. The DTI said the move, which does not need to be referred to Parliament, would be made by the end of the week.

It threatens to challenge the European Commission's on-going investigation into the alliance, and other similar tie-ups between European and US carriers, including United Airlines and Lufthansa, and North West and KLM.

But Mr Lang said yesterday: "I have concluded that I have a duty to consider the proposed alliance.... I believe this will increase the possibility of reaching an early decision to provide all concerned, including third parties, with the maximum legal certainty."

DTI officials will now conduct an in-house investigation under EC law, which will run in parallel with the existing inquiry by the Office of Fair Trading. The OFT is investigating whether the alliance effectively amounts to a merger despite the lack of any equity stake by either firm. The US Department of Justice is also conducting an investigation under American anti-trust rules.

The tie-up involves British Airways and American Airlines pooling revenues, marketing and ticket sales. It would give the combined group around 60 per cent of flights between Heathrow and the US and raise their share of the market on some routes to 100 per cent. Rivals, including Richard Branson's Virgin Atlantic, United Airlines, Delta and Continental are bitterly opposed to the deal.

BA wants combined services to start next April, but had feared the EC probe would cause a substantial delay. The airline had argued that the Commission had no power to examine alliances with other carriers outside the European Union.

A BA spokesman said: "This is a welcome development. It clarifies the legal position over which competition authority on this side of the Atlantic has competency in this matter and gives a clear indication that the review will be conducted speedily."

But experts in EC law doubted whether Mr Lang had the power to overtake the EC's inquiry. "The DTI is trying to get in first and claim the patch from the EC," said Ulrich Bourke, a partner with City solicitors Clifford Chance. "There will now be a jurisdictional battle between the UK government and the EC."