BA may revive KLM link-up after transatlantic setback

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British Airways may revive attempts to merge with the Dutch carrier KLM following its decision last night to pull out of a transatlantic alliance with American Airlines in the face of US regulatory opposition.

The collapse of the AA link-up could also spell the early departure of Lord Marshall of Knightsbridge, the BA chairman, who had been the strongest advocate of the deal. Roger Maynard, BA's head of alliances and another key architect of the AA merger, may also be vulnerable.

This is the second time BA has tried and failed to merge with AA since 1996 and almost certainly ends any hopes of BA aligning with a strong US partner. The decision was greeted with a mixture of relief and delight by rival airlines last night. Sir Richard Branson's Virgin Atlantic, the most vociferous opponent of the deal, said: "It is a tragedy that things ever got this far. It was perfectly obvious from 1996 onwards that the BA-AA deal was an attempt by the two airlines to have their anti-competitive cake and eat it. It would have created a monopolistic monster with 70 per cent of the transatlantic market, bringing no benefit for other UK airlines and, more importantly, no benefits for UK passengers."

Virgin added that it would now demand an inquiry into the "millions of pounds of taxpayers' money which has been wasted trying to get regulatory approval for the alliance and the associated open skies deal with the US".

The failure of the BA-AA alliance appears to dash hopes of the US and UK signing an agreement to liberalise air services across the Atlantic which would have allowed BMI British Midland and four more US carriers to start services from Heathrow.

Talks to conclude an open skies deal were due to resume on Monday in a bid to beat the deadline of next Thursday when the Advocate General to the European Court of Justice is expected to declare such agreements illegal.

Although an adverse ruling would not, technically, have stopped the UK and US going ahead with their negotiations, it would have put them in a difficult position.

The budget airline easyJet last night called on Stephen Byers, the Secretary of State for Transport, to postpone the open skies negotiations in Washington next week. "The talks should not now go ahead. Open skies should be negotiated collectively by the European Union because it can get better terms out of the Americans who have tried to divide and rule all along," it said.

EasyJet was concerned that the open skies agreement being negotiated between the US and UK would have given American carriers the right to start short-haul European services from UK airports without any reciprocal right for UK carriers to begin services in the US domestic market.

Ray Webster, easyJet's chief executive, wrote to Mr Byers yesterday saying: "The timing of the talks is atrocious. The pressure to concede precious rights and pre-empt the ruling of the European Court of Justice is blatant."