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U.S rejects AA-BA link
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July 30, 1999: 4:10 p.m. ET
U.S. DOT denies full alliance between American and British carriers
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NEW YORK (CNNfn) - In a widely expected move, the U.S. Department of Transportation Friday rejected a proposed full-blown alliance between AMR Corp.'s American Airlines and British Airways. And analysts say the two carriers are unlikely to make any drastic changes to their current relationship.
Transportation Secretary Rodney Slater gave no explicit reason for the decision, but the United States had always conditioned antitrust immunity, which is the key to an all-encompassing alliance, on reaching a fully liberalized aviation trade pact with Britain.
So far, some 15 years of negotiations have yielded no progress from the current pact, which allows only two carriers from each country access to London's main Heathrow airport, the busiest international hub in the world.
The two carriers already scaled back the alliance after they decided that demands by the European regulator were too excessive. The U.S. decision, which has taken 3 years to deliver, won't change the current relationship.
"We remain committed to developing our alliance with American Airlines . . . in ways that don't require antitrust immunity," a British Airways spokesman told CNNfn.com.
"This decision has been how many years? The fact that there had been no decision at all was the same to BA-AA as an outright rejection," Glenn Engel, airline analysts at Goldman Sachs in New York, told CNNfn.com.
Slater stressed his department's decision didn't remove the objective of achieving so-called "open skies" with the U.K.
"Our goal remains a commitment to establish an open skies agreement with the United Kingdom," he said. "I urge U.K. aviation officials to work with us to make this goal a reality."
A DOT spokesman couldn't tell CNNfn.com when the next round of aviation talks is scheduled. The last ones back in May failed to produce any progress.
A BA spokesman also called on the two governments "to resolve the outstanding issues and re-launch the process of working toward open skies."
But privately, the airline is quite happy to keep access to Heathrow restricted in the current climate.
Airlines are cutting back drastically on planned capacity expansion, and as the dominant carrier at Heathrow airport, BA doesn't want new, aggressive U.S. entrants coming in to attack its market share in the transatlantic market. Engel believes any progress on a new aviation pact is over two years away.
BA recently cut its growth plans back from around 10 percent a year to closer to 1 percent. "When BA starts growing aggressively again, then [the U.K. government] will be more willing to open up Heathrow," Engel said. "Why flood the market with supply now?"
American Airlines also will be content to maintain the status quo at Heathrow, where it is one of the incumbent U.S. carriers. The U.K. market earns American over half its transatlantic revenues.
American couldn't be reached for comment.
The decision, though anticipated, still will deal a blow to the "oneworld" global alliance grouping led by BA and American (AMR).
Two other major alliance groupings, one led by United Airlines (UAL) and Germany's Lufthansa, the other by Northwest Airlines (NWAC) and KLM of the Netherlands, already have the antitrust immunity. And both are competing aggressively with BA and American across the Atlantic.
Investors were unfazed by the decision. Shares of AMR were down 1 to 65-3/16 in afternoon trading on the New York Stock Exchange in a falling market. United and Northwest shares also were slightly lower. 
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