Brussels warns of legal action over BA alliance

A simmering feud between the Government and the European Commission over the UK's moves to approve British Airways' proposed alliance with American Airlines exploded yesterday when it emerged that the Commission has threatened Britain with legal action unless it imposes much stricter conditions on the two carriers.

The warning is likely to spark a jurisdictional confrontation between Britain and Brussels over whether Commissioners have the power to impose stricter conditions on the two airlines than those proposed by the UK authorities.

The legal threat came in a letter from Karel van Miert, Competition Commissioner, to Ian Lang, President of the Board of Trade, launching an attack on the report into the alliance by the Office of Fair Trading, the UK competition watchdog.

The OFT has provisionally ruled that British Airways and American should give up 168 of their valuable take-off and landing slots at Heathrow Airport, equivalent to 12 daily return flights, to avoid an investigation by the Monopolies and Mergers Commission.

However, the conditions, which would still leave the alliance with some 3,000 slots at the airport, have been savaged by rival carriers as far too weak.

Mr Van Miert made clear in his letter, sent last Friday, that the Commission wanted to go much further. He said: "We do not consider that the imposition of conditions can compensate for the restrictions of competition which results from the agreement."

He also cast doubt on the whole basis of the discussions under way between the UK and US authorities aimed at signing an "open skies" agreement to liberalise access to Heathrow. The US has said it will only approve the link-up, which would give BA and American 60 per cent of flights between the UK and US, if an open skies deal was successfully concluded.

The letter continued: "The conclusion of an open sky agreement between the UK and the USA remains, for the time being, hypothetical and its content is unknown. It is thus impossible to assess its impact."

In addition, Mr Van Miert confirmed his total opposition to slot-trading, where BA could receive compensation for giving up some slots. The airline has indicated it will accept limited divestiture of slots, but only if it can "sell" them to other airlines, a principle not disputed by the OFT.

He said slot-trading would restrict competition for other airlines anxious to gain a foothold in the market. He indicated that Neil Kinnock, Transport Commissioner, has also concluded that slot-trading was illegal under European law.

Mr Van Miert warned that "if the UK continues its procedure with a view to adopting quickly a decision along the present lines, the Commission may be forced to initiate a procedure under Article 169 of the EC Treaty". Article 169 gives the Commission the power to take legal action against member states.

Rival carriers immediately welcomed the letter as a sign that the Commission was flexing its muscles over its role in approving such alliances. Mike Whittaker, director of international affairs for United Airlines, said: "This move doesn't surprise me at all. The Commission has been looking to establish jurisdiction in this affair and its pretty clear that they're going to use their power over slot allocation to do that."

However, British Airways insisted that the Commission has no authority to disrupt transatlantic link-ups. "Brussels has no powers to block transatlantic alliances or impose conditions. These powers rest with the relevant national regulatory authority, which in our case is the Department of Trade and Industry working through the Office of Fair Trading."

A spokeswoman for the DTI said Mr Lang had not yet received the letter and declined to comment further. However, it is sure to widen the rift with Brussels over the alliance.

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