Dan-Air swallowed up by BA: Rivals say competition and choice will be cut by takeover that will axe 1,900 jobs

BRITISH AIRWAYS' takeover of its loss-making rival Dan-Air provoked an outcry from independent airlines last night, with British Midland and Virgin Atlantic warning that it would damage competition and reduce choice. Up to 1,900 jobs will be lost in BA's takeover of the UK's second-biggest airline, for pounds 1. The deal will result in the scrapping of Dan-Air's charter operations and more than half its scheduled route network and further strengthen BA's stranglehold over Heathrow and Gatwick, Britain's two biggest airports.

Lord King, BA's chairman, said he did not expect any objections from competition authorities in London and Brussels because the alternative would be for Dan-Air, which was founded in 1953, to be placed in receivership.

The indications are that the takeover will get the backing of the Office of Fair Trading and ministers, even though the number of jobs saved at Gatwick is not as high as had been expected. Of Dan- Air's 2,000 full-time staff and 300 temporary employees only 400 are being offered jobs with BA - on lower pay and reduced terms and conditions. There are fears that a further 600 jobs could go at FLS, the company that services Dan- Air's aircraft fleet.

John Major and John MacGregor, Secretary of State for Transport, are said to have been anxious not to see Dan-Air collapse, because of the effect on Gatwick. But the Government may face a fresh political row with Brussels if, as expected, the EC competition directorate takes a tough line.

Under the agreement, Dan-Air's charter operations will cease, all but 12 of its fleet of 38 aircraft will be sold and its European scheduled route network will be cut from 28 destinations to 12. Among the routes saved are those between Gatwick and Aberdeen, Athens, Brussels, Madrid, Manchester, Montpellier, Paris, Rome, Toulouse, Vienna and Zurich, and that between Heathrow and Inverness. Operations will continue under British Airways' name.

That will make BA the biggest operator at Gatwick, with services to 45 European cities and the largest share of the precious take-off and landing slots.

BA will take on pounds 35m of Dan-Air's liabilities, estimated at pounds 115m, enabling it to repay bankers, trade creditors and aircraft suppliers. But shareholders in Dan-Air's parent company, Davies and Newman, who funded a pounds 50m rescue package a year ago, will receive nothing.

Asked if BA would pull out rather than make concessions on routes and slots, Lord King said: 'I don't think that is going to arise. Dan-Air, which lost pounds 26m in the first half of this year, would have gone under and all its staff would have lost their jobs had BA not come to the rescue.'

But Richard Branson, chairman of Virgin Atlantic, said the takeover would destroy more jobs than it would preserve in the long term. Virgin was being denied access to Heathrow and Gatwick by BA's increasing domination. If Virgin could get the slots it wanted to expand its long-haul routes and start European scheduled services then up to 1,500 jobs could be created.

Mr Branson, whose rescue talks with Dan-Air collapsed this month, said that to 'redress the balance' he was launching Virgin European Airways and had applied for licences to fly to Paris and Brussels from both Heathrow and Gatwick.

BA insisted that it would walk away from the takeover if it was subjected to lengthy examination by the competition authorities or made contingent upon BA surrendering routes.

But Sir Michael Bishop, chairman of British Midland, said: 'It is quite possible that the EC will require significant concessions from BA for the deal to go through. This could involve the substitution of BA by other British airlines on major routes at both London airports.'

Sir Michael added: 'It is clear from subsequent events that totally inadequate safeguards for other British airlines were adopted by the Government both when BA was privatised and when it later acquired British Caledonian.'

Mr Branson said it was time for a complete review of competition at Heathrow and Gatwick by the Civil Aviation Authority.

Britannia Airways, the UK's biggest holiday airline, said it was raising the BA deal with the Office of Fair Trading on competition grounds.

BA said the agreement was likely to be completed in the next few weeks. In the meantime Dan-Air flights would continue to operate from Gatwick.

David James, the 'company doctor' brought in to rescue Dan-Air two years ago, said he did not feel he had failed. A significant number of jobs would be saved, severance terms would be better, there would be no disruption to scheduled services or uncertainty for passengers and trade creditors owed pounds 43m would be paid in full.

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