BA's Dan-Air deal faces fresh hurdle

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BRITISH AIRWAYS' takeover of Dan- Air was facing a fresh and Eunexpected hurdle yesterday after the European Commission launchTHER write errored an investigation into its impact on the lucrative London to Brussels route.

The inquiry was sparked by a complaint from the Belgian government and could result in BA being forced to cut the number of its flights between the two cities or face punitive fines.

BA last night described the investigation as totally unjustified. 'There is plenty of competition on the route, plenty of operators and plenty of room to expand,' it said.

The Commission ruled six weeks ago that it had no powers to investigate the takeover since Dan-Air's turnover fell below the threshold laid down under the EC's mergers control legislation.

However, Belgium has invoked an article in the legislation that allows it to call on the EC to investigate whether the takeover creates or strengthens a dominant market position in an individual member state. This is the first time the article has been used since the EC merger regulations came into force two years ago.

The investigation delighted rival airlines, with Sir Michael Bishop, chairman of British Midland, describing it as 'good news for consumers, for airlines and for the concept of real competition in Europe'. However the stock market took the news in its stride and BA's shares ended 2p higher at 282p.

A spokesman for Sir Leon Brittan, the EC commissioner for competition, stressed yesterday that the inquiry would be confined to assessing the impact of the Dan-Air deal on the Belgian market.

The investigation will be completed within a month. If the EC finds against BA, it will not have the power to unravel the entire deal but only those aspects that harmed competition in Belgium.

BA consistently said that it would walk away from the Dan-Air deal if concessions were demanded from it by competition authorities.

But there is a precedent for the EC to take action. BA's purchase of a 49 per cent stake in the French regional airline, TAT, was approved by the EC only after the airlines agreed to surrender take-off and landing slots on routes between London Gatwick and Paris and Lyons if other airlines wanted to launch services.

Five airlines fly between London and Brussels operating a total of 33 services a day. BA has 45 per cent of the market. It operates from both Heathrow and Gatwick and has a 49 per cent stake in Brymon Airways which operates from London City airport. The other airlines on the route are the Belgian flag-carrier, Sabena, and British Midland, both of which fly from Heathrow, and Air UK, which operates from Stansted.

The Belgian government's action is thought to have been prompted by pressure from Sabena, which is 40 per cent- owned by Air France. Bernard Attali, the Air France chairman, has been one of the most vociferous critics of the EC, attacking Sir Leon for his initial refusal to examine the Dan-Air takeover and waving through BA's deal with TAT.

The London-Brussels route is one of the busiest in Europe with 800,000 passengers a year flying between Heathrow and Zavantem airport. Sabena has been fighting for more landing rights in London because the route is very profitable.

BA would not say how it would react if the EC ordered it to surrender services.

BA also faces a challenge from a group of US airlines which have urged President Bush to resist overtures for approval of a proposed alliance between BA and USAir when he meets John Major this week.

The heads of American, Delta and United said in a letter: 'We urge you to resist eleventh-hour promises that fall short of a fair and balanced transaction and mortgage the future of the US airline industry'.

A strike by 1,200 BA staff at Gatwick due to start today was called off last night. The strike had been called over pay cuts for former Dan-Air staff.