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BA, American Air defend tie
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July 29, 1999: 9:57 a.m. ET
British Air, AMR unit mull alliance's future as U.S. regulators near decision
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LONDON (CNNfn) - British Airways shrugged off reports Thursday that U.S. regulators will block its application for an expanded alliance with American Airlines in a move that would damage their plans for an enlarged global airline group.
The U.S. Department of Transportation is scheduled to rule on the carrier's three-year-old application Friday, according to its U.K. counterpart.
The Financial Times reported Thursday that U.S. authorities will turn down the application, a move widely expected by analysts. U.S. transport officials were unavailable for comment.
Market observers said the key question would be whether this will derail plans to liberalize the U.S.-U.K. aviation market and also harm "oneworld", the global alliance grouping led by BA and American.
BA insists its application remains with U.S. authorities and it will continue to develop existing ties with American and other oneworld partners that don't require antitrust clearance. These include joint marketing and frequent flyer programs.
Alliance strategy
"The demise of oneworld is a bit of an overreaction, but [the members] are at a significant strategic disadvantage to other airline groupings," said Matthew Stainer. airline analyst at Crédit Lyonnais Securities in London.
The global airline business has evolved into four large groups. The most developed are the Star Alliance, led by Lufthansa and United Airlines (UAL), and Wings, led by Northwest Airlines (NWAC) and KLM of the Netherlands.
All four of these carriers have secured antitrust immunity from U.S. regulators, allowing them to cooperate in setting prices, combine their schedules and share transatlantic revenue.
BA and American hoped to do the same, and expand the deal to include oneworld partners such as Cathay Pacific, Qantas of Australia, Canadian International Airlines, Spain's Iberia and Finnair. Ireland's Aer Lingus also was expected to join.
However, an expanded deal already had been put out of reach by U.K. regulators and the European Commission. "[U.S. rejection] would not be unexpected as every other regulator has forbidden the deal unless BA gives away it's right arm," said Stainer.
The Commission wanted BA and American (AMR) to give up 267 valuable takeoff and landing slots at Heathrow airport in London.
BA's shares climbed 1 percent on expectations that the airline will be able to hold on to the slots at the world's busiest international airport.
Heavy congestion at Heathrow makes BA's large share of existing slots an even greater competitive advantage. "It's not a bad booby prize," said Stainer.
One possibility is that American Airlines could decide to sideline BA as its main European partner. It recently signed a deal with Swissair to cooperate on U.S. Switzerland routes, but the Swiss carrier heads Qualiflyer, the fourth of the global alliance groups.
American said Thursday it is committed to its BA partnership.
Swissair said earlier this week that it had no interest in joining oneworld.
Open skies clouded?
The U.S. Department of Transportation has in the pasty linked its approval of expanded BA-American ties to a so-called "open skies" deal with Britain, which would liberalize airline schedules and pricing and market access between the countries.
U.K. and U.S. negotiators have been at odds for over 15 years in trying to ink a new aviation treaty between the countries. Analysts believe this will push back any resolution even further.
This would be a blow to airlines such as British Midland, which wanted to start transatlantic service of its own but is barred by the current treaty. Some U.S. airlines could also suffer: Delta Air Lines (DAL) wants to start service to Heathrow but is also barred by the current deal.
However, British Midland Chairman Michael Bishop remained confident that the two countries will reach a deal by the end of the year. This would allow his airline, which controls the second-largest number of slots at Heathrow, to begin U.S. service next year.
"We had two very successful forays to [U.S. regulators]," Bishop told CNNfn.com. "We perceive that the U.S. negotiating position has changed and that they are prepared to decouple the two issues."
Bishop said that while it was natural for BA to protect its competitive advantage, the interests of one company should not be allowed to block a new U.S.-U.K. aviation pact.
Virgin Atlantic, the most vehement critic of the BA-American alliance, declined to comment before an official decision is made by U.S. regulators. United Airlines, which led U.S. opposition, also declined comment. 
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