Mr Kinnock, who supports the principle of airlines buying and selling take-off and landing slots, had previously maintained that EU regulations probably did allow for the practice. However, following further analysis his department has concluded that its original interpretation of the rules was wrong. A source said: "Mr Kinnock's view has changed since December. It now appears that it's not really legal to trade slots."
The shift is likely to strengthen the position of the competition commissioner, Karel van Miert, who is also investigating the alliance and has insisted that slot trading is contrary to EU law and should be outlawed completely. The widening rift between the competition and transport commissioners will be referred to a hearing of the full Commission by the end of March. However, the source gave little hope of a compromise.
If the Commission decides formally to outlaw slot-trading it could severely weaken British Airways' negotiating position as it attempts to clear regulatory hurdles in the UK, Europe and the US.
The Office of Fair Trading has approved the tie-up with American on condition that the alliance gives up 168 slots at Heathrow over a two-year period, a figure equivalent to 12 daily round trips. The alliance would still be left with some 3,000 slots at Heathrow.
However, the OFT has not objected to British Airways' proposal that it should be allowed to sell off the slots, a move which could net the company pounds 180m.
Industry experts have estimated slots at Heathrow, the world's busiest and most sought-after airport, could be worth pounds 1.5m each.
Opposition to British Airways' slot-trading plans mounted yesterday as three more US carriers - Continental, USAir and TWA - submitted critical responses to the OFT.
Continental, the world's seventh-largest carrier, launched the most outspoken attack on the alliance yet by a rival airline.
Barry Simon, Continental's head of international affairs, said: "The OFT's report is an intellectual and moral disgrace. It must be the result of political pressure."