US regulator set to delay BA tie-up with American Airways

Officials seek data on how a deal would affect fares, capacity and airport slots
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The Independent Online

British Airways' ambitious global alliance plans, which were knocked last week when talks with the Australian flag carrier Qantas fell apart, were dealt a further blow over the weekend when the US Department of Transportation (DoT) requested more details in relation to BA's proposed tie-up with American Airlines.

Rival carriers, especially Virgin Atlantic, which has described the BA/AA tie-up as a "monster monopoly", have been lobbying hard in the US to prevent the deal, which would see BA sign a joint business agreement with its American counterpart and the Spanish flag carrier, Iberia. The DoT over the weekend requested all three to supply details relating to fares and take-off and landing slots, as well as data on how the alliance would affect "capacity and pricing decisions".

The DoT is reviewing the bid to form an alliance that would be exempt from some competition provisions under US law. Antitrust immunity allows carriers to share routes, pricing and scheduling data without actually merging. BA and AA argue that a US/EU treaty reached last March relaxing restrictions on airport access and transatlantic service will boost competition across the Atlantic, benefiting passengers and carriers wishing to begin or expand service.

A previous antitrust immunity attempt by the pair foundered several years ago over US regulatory concerns about access to Heathrow for other airlines.

The US authorities are seeking a reply to their latest request by 15 January, five days before President George Bush leaves office.

The DoT request will be seized upon by some of BA's rivals, especially Virgin Atlantic, which believes that the BA/AA alliance is anti-competitive, and has had "No way BA/AA" emblazoned on its some of its planes. The airline has claimed that it would lead to BA/AA controlling 63 per cent of the Heathrow to New York JFK market. Willie Walsh, the BA chief executive, has accused Virgin of being stuck in the year 1996, referring to BA's first attempt to do a deal with AA.

A spokesperson for BA rejected the idea that the DoT request would cause delays: "As part of normal procedure, we expected requests for further information. We don't anticipate any difficulty in responding to the requests, nor would we expect it to cause a delay. We have said all along that we expect approval well before the end of 2009."

Analysts have been saying for months that the airline industry is overpopulated and is ripe for consolidation, with some, such as the budget airline Ryanair's chief executive, Michael O'Leary, saying that just four European airlines – Air France, British Airways, Lufthansa and Ryanair – will survive the recession.

Mr Walsh has described the last six months as the bleakest he has known during his 30 years in the industry, adding that all groups will be forced to cut routes and capacity.

Mr Walsh has been trying to secure BA's position by negotiating deals with several carriers in recent months. Officials at Iberia, with whom BA has been negotiating since July, were said to have been taken by surprise when the UK group announced it was talking to Qantas at the start of this month.

The talks with Qantas fell apart last week after BA said that it would not agree to Qantas, currently the bigger of the two companies, owning more than 50 per cent of the combined firm.

Under Australian law, Qantas must remain majority-owned by Australian investors and its head office and major facilities must stay in Australia.

BA's pension fund liabilities are also a concern. The group is forced to contribute £131m a year and has seen its deficit increase with the fall in equity markets in recent months.

Bid battle Aer Lingus in defensive manoeuvre

Aer Lingus, the Irish flag carrier, is expected to say this week that it will be profitable in 2009, or at worst break-even, having previously guiding themarket to expect a loss of about €20m.

The move is expected as part of the group's defence against the budget airline Ryanair's hostile bid. Other measures will include restoring flights between Shannon airport and Heathrow, which Aer Lingus stopped in 2007.

Ryanair's €748m bid has been dismissed as "ridiculously cheap" by Aer Lingus's board.

Ryanair is Aer Lingus's biggest shareholder, with a 29.8 per cent stake. The Irish government holds 25 per cent.

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