Outlook: BA's bruising battle with Brussels

ONE OF the longest running and most expensive regulatory scraps ever to have confronted Europe's competition authorities is about to reach its final denouement after a marathon two years of argument and counter- argument. In the next couple of weeks, the European Commission is due to pronounce on the planned alliance between British Airways and American Airlines. And if, as seems likely, the Commission puts the kibosh on the whole thing by demanding an unacceptably high price for regulatory clearance, British Airways will only have itself to blame. That, at least, is how BA's dogfight with European regulators has been quite widely depicted.

From the start, it can be argued, BA mishandled and mismanaged its case. The result? A commercial alliance which on its initial timetable should by now have been well established, has become so mired in argument with the European Commission that it might not happen at all. By unnecessarily antagonising Karel van Miert, the European Competition Commissioner, BA has ensured a storm force 10 crossing which could put paid to its plans altogether.

In the meantime, the world's favourite airline has missed out on two years of corporate development, two years in which many of its competitors have forged rival, albeit smaller, alliances that pose a serious challenge to BA's present supremacy in the air.

Well, that's the case for the prosecution, but is it actually proven? Certainly BA has not been as adroit as it perhaps should have been, either on the public relations front, where it has been outclassed by Richard Branson and others, or more crucially with Mr Van Miert. Its often combative and provocative approach is in marked contrast to the quiet professionalism with which Guinness and Grand Metropolitan successfully pursued their merger proposal with European regulators.

This is an odd mistake for BA's Bob Ayling to have made, for he is as savvy and switched-on a chief executive as it is possible to find. His style is a complete contrast with that of the profoundly Eurosceptic Lord King, whose battles with the European Commission have left a lasting memory. But it was not a mistake entirely of BA's own making.

BA got off to a bad start with Mr Van Miert by insisting the alliance was not a European jurisdictional matter at all and should be vetted by UK regulators, who could incidentally be expected to take a more sympathetic view. This was not an unreasonable position to take. Certainly it was based on sound legal advice and it was supported by the UK government of the time.

Other similar alliances between American and European airlines had not been deemed to fall within the Commission's remit, and there was no obvious reason to believe Mr Van Miert would use a quite obscure area of European competition law to claw this one back. But then this was the big daddy of code-sharing alliances, the straw that broke the camel's back as it were, and Mr Van Miert's interference was always a possibility. BA then inexplicably exacerbated the situation by insulting Mr Van Miert and his officials, accusing them of "sloppy analysis" and claiming they didn't know what they were talking about.

It's always annoying to have to deal with officialdom but the first rule is that it pays to grovel, however humiliating the experience. For reasons of arrogance and tradition, BA failed this test, though to be fair it was not helped in its endeavour by the UK government, which unexpectedly changed its stance and decided to leave the whole thing to Mr Van Miert.

If this shift of approach had coincided with the change of government to the present, more pro-European regime, it might have been explainable, but actually it preceded John Major's demise.

So what happened was not entirely BA's fault. All the same, a climate of hostility was created which slowed progress and made an acceptable compromise much harder to achieve. Plainly that amounts to a failing on BA's part.

In the end, however, Mr Van Miert is not the type to allow the personal to interfere with the professionalism of his decision-making. Certainly, the idea that BA is being punished for being British, or that Mr Van Miert is deliberately trying to disadvantage BA commercially against rival European airlines, is so much stuff and nonsense.

Mr Van Miert has taken what most people would see as a perfectly reasonable view of the alliance - that since it would have 70 per cent of London to New York traffic and through that a very substantial proportion of all traffic between Europe and the US, it is potentially highly anti-competitive.

However you cut the argument, and BA cuts it in every way imaginable, there is no escaping this underlying truth. From a public interest perspective, Mr Van Miert is therefore right to demand a substantial ceding of Heathrow take-off and landing slots as his price for clearance.

By the same token, however, if Mr Van Miert is to be seen to be even handed he must now as a matter of urgency revisit the Lufthansa/ United, Northwest/KLM and Delta/Sabena alliances. The airline business is still a very long way from being a properly competitive market place, and the first of these alliances seems deliberately designed to shore up the old national monopolies which have for so long ruled this industry. Mr Van Miert's failure to tackle these early code-sharing arrangements is what encouraged BA to seek an alliance with AA in the first place. BA may have overplayed its hand, but its reasons for doing so are entirely understandable.

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