Both airlines confirmed that they had had talks with the CAA. It is understood that a draft deal involves BA paying Virgin pounds 9m compensation. In return, Virgin would drop its High Court suit against BA for alleged misuse of computer information and would not proceed with further legal action in the United States.
Talks between the airlines had broken down over BA's insistence on a 'gagging' clause that would have prevented Virgin's chairman, Richard Branson, from commenting on BA's dirty tricks campaign against the smaller airline.
It is believed that the draft agreement waters down the original gagging clause, but that Mr Branson will agree to draw a line under the affair and not refer to it publicly unless he is provoked by further action by BA or criticism from another source.
Mr Chataway approached the airlines because he believed their marathon feud was damaging the image of British aviation.
A BA spokesman said yesterday that the airline was keen to resolve the dispute. It is understood that Virgin has already agreed to the draft deal, but its spokesman said yesterday: 'We have no idea at this stage whether there will be a settlement. We believe the CAA is waiting to hear from BA.'
Talks between the two airlines were initiated by Sir Colin Marshall, BA's chief executive, after the airline had settled a libel case bought by Mr Branson. BA admitted 'regrettable incidents' that gave Mr Branson reasonable grounds for concern. But the talks broke down when BA insisted that any settlement would require Mr Branson to agree not to raise the subject again.
After the failure of the talks, Virgin brought legal action last month against BA in Britain for alleged copyright infringement, breach of confidence and misuse of confidential information.
BA could face a strike at Gatwick this week if talks over pay and conditions break down, David Warburton, national officer of the GMB general union, said yesterday. He said his members, flight controllers and computer staff, were still in dispute with the airline despite a settlement with cabin crew and ground staff in the Transport and General Workers' Union on Thursday.