(FORTUNE Magazine) – After months of transcontinental bickering among American, British, and European trade officials, the proposed alliance between British Airways and American Airlines looks all but dead. In Washington and Brussels, and among competing U.S. and European airlines, the two Bobs, as BA's chief executive Robert Ayling and AA's chairman Robert Crandall are known, now have too many enemies. The two Bobs say their two airlines would get along quite well, but none of their competitors want to let them find out if that's true: Doing so would give them an unprecedented 60% market share on flights between the U.S. and London's Heathrow--the world's busiest international airport. More important, perhaps, such a union threatens the long-standing industry moratorium on cross-border alliances. Yet the fiery debates over the past few months have gone a long way to breaking the industry's logjam on megamergers. Eventually, as the two Bobs are trying to point out, dropping passenger yields (the money an airline receives for every mile it carries a passenger) will make such maneuvers a necessity.

What's got everyone so upset? BA and AA are asking the Clinton Administration for antitrust immunity allowing them to share information on prices, schedules, and reservations and to offer joint flights and air-miles programs. The deal would create a global airline network powered by combined revenues of $29 billion and profits of $500 million, and a network stretching through South America, the U.S., Europe, and the Far East. But the Clinton Administration, which stalled preliminary "open skies" talks with the British government until mid-February, has made clear it will not approve antitrust immunity for the BA-AA alliance unless a larger deal is first struck allowing other U.S. carriers access to London. "I don't think [BA-AA] will make it, because neither the U.S. nor the British can agree what 'open skies' actually means," predicts Glenn Engel, an airline analyst with Goldman Sachs.

In December, British trade and industry secretary Ian Lang told the Bobs that their grand plan could go ahead only if they agreed to give up 168 highly prized transatlantic take-off and landing slots at Heathrow airport--which could be worth many millions. While Ayling and Crandall squealed over the figure, competing U.S. and European airlines complain that the number should be more like 400. Sir Freddie Laker, British aviation pioneer and former head of Laker Airways, has started a new advertising war condemning the deal as anticompetitive. Worst of all, the European Commission recently expressed "serious doubts" about the proposed marriage, and threatens to take the British government to court if it grants the duo final approval. "On 13 major routes, BA-AA will eliminate 100% of the competition," says EU competition commissioner Karel Van Miert. "An agreement would constitute an abuse of a dominant position."

While competitors and the regulators have tripped them up along the way, the two Bobs' greatest stumbling blocks are on a deeper, cultural level. "Governments have supported airlines as if they were local football teams," says Richard Hannah, airline analyst with UBS in London. "But there are just too many of them. This is the only industry I know that has lost money consistently and makes money infrequently."

European airlines cannot offer internal air flights in the U.S., nor can U.S. airlines offer any within European countries. Above all, foreign carriers are barred from buying majority stakes in one another's companies. "If you want to start up an automobile manufacturing business it doesn't matter where the capital comes from, but in this business it's different," complains BA chief Ayling. This, he insists, is a situation that cannot endure--especially with the industry's thinning profit margins. "The airline industry is going to normalize over the next ten or 20 years," he predicts.

Publicly, the two Bobs still express hope. "As long as it's making progress," says Crandall, "I'll wait." British Airways' Ayling remains optimistic but appears less patient, warning, "This is urgent, because you can only keep two competitors on the threshold of working together for so long."

--Richard Evans