Heseltine in secret talks with BA over US tie-up

Bob Ayling, the chief executive of British Airways, held secret talks earlier this week with Michael Heseltine, the Deputy Prime Minister, in an attempt to hasten the carrier's tie-up with American Airlines.

BA's proposed alliance with American Airlines has progressed slowly and Mr Ayling is concerned that the general election may scupper the deal. BA's managers say that the earliest that the merger could be signed is this summer.

The airline has also consulted Labour officials and is confident that if Tony Blair takes over as prime minister, the deal will be cleared.

There are several obstacles in BA's way. Not least is the European Commission, which claims to have jurisdiction over the planned tie-up - a claim disputed by British ministers.

Ian Lang, President of the Board of Trade, referred the deal to the Office of Fair Trading. The OFT told BA it must release 168 of its landing slots at Heathrow if the deal is to escape a referral to the Monopolies and Mergers Commission. Experts have estimated that the proposed 168 slots, equivalent to 12 daily round-trip flights, could net BA pounds 180m.

The debate over slot trading has become crucial after European Commissioners said the practice of selling the slots was illegal under European competition law.

However, it is understood that Neil Kinnock, the Transport Commissioner, has proposed a scheme which would allow slots to be valued and put on to an airline's balance sheet - thus allowing BA to "sell" its allocation. This would also boost the balance sheets of many ailing state-owned carriers and increase support for BA from its European rivals keen on borrowing against the value of their slots.

The deal also faces stiff opposition in America. Officials in the UK point out that the American Department of Transport needs to recommend the tie-up and then consult with US airlines - who all oppose BA's plans. Any consultation period would take at least six weeks.

The alliance involves BA and American going beyond simple "code-sharing" arrangements to a deal where the two airlines pool revenues and facilities. Rival carriers in the US have launched an unprecedented attack on the link-up, which would give BA and American 60 per cent of UK-US flight capacity.

US airlines have said that BA and American would still be left with more than 3,000 slots at Heathrow. They have also claimed that other facilities, including security checks, baggage handling and departure gates, are in such short supply that the open skies deal would in practice lead to little growth in flight capacity.

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