BA and American seek fresh approval for transatlantic link

British Airways and American Airlines resurrected plans yesterday to merge their transatlantic services in a far-reaching move which would open Heathrow airport to rival airlines.

The two carriers will file for approval of their alliance next week with competition authorities in London, Brussels and Washington. If they receive anti-trust immunity, BA and American will be able to pool schedules, revenues and profits on their key routes across the Atlantic, code-share with one another and operate a joint frequent flyer programme.

At the same time, the US and UK governments would need to strike an "open skies" agreement on transatlantic air services, resulting in an increase in the number of carriers allowed access to Heathrow.

BA's chief executive, Rod Eddington, and his opposite number at American, Don Carty, pledged that the tie-up would mean lower air fares and more competition and put their Oneworld alliance on an equal footing with airline groupings such as the Star Alliance.

But the plan is certain to face objections from other airlines, such as British Midland and Virgin Atlantic, because of the dominant market position it will give BA and American.

BA and American last attempted a transatlantic merger five years ago but gave up after a two-year struggle against US and European regulators who demanded the surrender of 267 take-off and landing slots at Heathrow. The two airlines expressed optimism last night that regulatory approval would be forthcoming this time.

Andrew Cahn, BA's director of industry and government affairs, said: "We have been talking informally to regulators in the last few weeks and there is a will on all sides to move quickly. I think the regulators will want to deal with this expeditiously."

Mr Carty and Mr Eddington briefed the new US Transportation Secretary, Norman Mineta, in June and Mr Eddington held discussions with Britain's new Transport Secretary, Stephen Byers, last month.

Executives from the two airlines said that since their last merger attempt in 1996 there had been significant changes in the airline market. International alliances had grown in size and there had been a decline in Heathrow's dominant position relative to other European airports such as Paris, Frankfurt and Amsterdam.

The Star Alliance, which is led by Lufthansa and United Airlines and includes British Midland among its 13 members, had also decided to create a "hub" at Heathrow.

BA and its Oneworld partners hold 47 per cent of slots at Heathrow while the Star Alliance has 27 per cent. By comparison, KLM and Northwest, partners in the Wings alliance, have 70 per cent of slots at Amsterdam while Lufthansa and United have a similar proportion at Frankfurt.

BA and American hope to get away with minimal slot disposals. But a spokesman for British Midland, which wants to start services to four US destinations next year, said: "There has to be slot divestment. It is impossible for the deal to go ahead without that."

The current air services agreement between the US and UK, Bermuda 2, allows only four airlines to fly direct from Heathrow and restricts the number of American cities which may be served to just 12.