EU clears major tie-ups in ailing airline sector

Europe's competition watchdog cleared the way for major tie-ups in the ailing airline industry on Wednesday, giving green lights to a British Airways and Iberia merger and a trans-Atlantic alliance.

BA, Iberia and American Airlines agreed last year to team up on flights between Europe and North America in order to cope with soaring fuel costs and falling demand.

The British and Spanish airlines also took a step further, signing a merger deal in April to create one of the world's biggest airlines to compete more effectively in the fast-consolidating aviation sector.

"Today's reality is one of increased consolidation in the sector due to the difficulties and changes that the sector has had to cope with," European competition commissioner Joaquin Almunia told a press conference.

The BA-Iberia tie-up will create Europe's second-biggest airline by market value after Lufthansa, combining Iberia's strong position in Latin America with BA's presence in Africa, Asia and North America.

The European Commission said its investigation found that the combined group would face sufficient competition from other carriers on the key routes between London and Spain as well as long-haul flights.

"The Commission therefore concluded that the transaction will not significantly impede effective competition on any of the markets concerned by the proposed merger," the EU regulator said.

BA said the merger is expected to be completed by the end of the year.

In a separate decision, the commission paved the way for a trans-Atlantic joint venture between "oneworld" alliance members British Airways, Iberia and American Airlines after the companies committed to competition safeguards.

The EU regulator had opened a probe in April 2009 over concerns that the alliance could harm consumers on trans-Atlantic routes.

To ease concerns, the airlines offered to free up landing and take-off slots at London Heathrow airport to facilitate the entry or expansion of competitors on routes between the British capital and New York, Boston, Dallas and Miami.

The commission said it decided to close its investigation after a market test concluded that the airlines had offered "suitable" remedies.

"This is a pragmatic decision so that we can get the joint business up and running as soon as possible," said BA chief executive Willie Walsh.

"The slot commitments provide a further guarantee that there will be no possible loss of competition as a result of our joint business," he said.

BA said it expected the US Department of Transportation to decided "shortly" whether to grant the airlines anti-trust immunity, with the hope of launching the joint business in the autumn.

The commission decided to make these commitments binding for 10 years and said it would appoint a trustee to oversee their implementation.

Almunia said the decision ensures that "the around 2.5 million passengers that use the London-New-York and other affected routes each year continue to benefit from a choice of frequencies and competitive prices."

Airlines have turned to alliances as takeovers and tie-ups are fraught with difficulty, with many countries imposing limits on foreign ownership so as to favour the national carrier and protect their domestic markets.

The alliance system was set up in part to get around such hurdles and to allow cooperation so that member airlines could enjoy the advantages of scale provided by belonging to a bigger group.

Airlines were pummeled by the global recession, losing nearly 10 billion euros last year. But the International Air Transport Association (IATA) said they would be profitable this year for the first time since 2007.

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