BA 'near to $3.6bn deal' with American

British Airways remained at the centre of speculation yesterday that it may be on the brink of a deal with American Airlines to create a giant alliance that would also see American swallowing its rival carrier, USAir, where BA has a 24.6 per cent stake.

Such a combination involving all three airlines would be worth some $3.6bn (pounds 2.4bn) and would create a colossus in the world aviation industry. By the same token, however, it would be certain to attract keen attention from government regulators concerned about protecting free competition.

Any tie-up is also certain to be contingent on a breakthrough in long- running talks between the British and United States government for an "open-skies" agreement. Without such a pact, the US side is unlikely to offer the immunity from anti-trust regulations that a BA-American deal would need.

While neither BA nor American are commenting on the rumours, Business Week magazine yesterday quoted Patrick Murphy, a US assistant secretary for transportation, saying that executives feel that a deal "is reasonably close". The magazine reported also that BA and American were considering bolstering any agreement with equity swaps of up to 20 per cent.

The ingestion of USAir by American might seem logical on at least two fronts. Last week, Stephen Wolf, USAir's chief executive, told an annual general meeting that retaining the status quo was not an option for the company, which has the highest cost structure of any US carrier.

Wall Street analysts yesterday emphasised the scale of such a deal were it to happen. BA and American alone account for roughly half the passenger traffic between New York and London and 75 per cent of traffic between Miami and London.

John Maldutis of Salomon Brothers said: "[The deal] would raise very serious anti-trust concerns on the part of the US government ... it would trigger the last merger movement in the aviation industry and TWA, Northwest, Continental would all be participants."

Separately, BA was reported to be close to sealing a $4.2bn purchase of aircraft from Boeing involving some 30 models of its new 777 wide- body airliner, as well as a number of 747s. Boeing was also understood to be close to signing a similarly large deal with United Airlines.