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US set to approve BA/AA (Wall Street Journal)

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US set to approve BA/AA (Wall Street Journal)

Old 25th Jan 2002, 14:36
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Post US set to approve BA/AA (Wall Street Journal)


January 25, 2002 . .British Airways, AMR Alliance to Receive. .Tentative Approval From U.S. Regulators. .By STEPHEN POWER . .Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- The Bush administration is set to end five years of rancorous debate and feverish lobbying by granting tentative approval Friday to British Airways' bid to team up with AMR Corp.'s American Airlines, creating a competitive behemoth for trans-Atlantic travel.

In giving the two carriers antitrust immunity to coordinate pricing, schedules and profits, the U.S. Department of Transportation will insist on conditions that make the deal's future uncertain, according to people familiar with the administration's plans.

Government-required restraints, such as giving a large number of takeoff and landing slots at London's Heathrow Airport to competing airlines, sank the planned alliance once before. While the Bush administration's conditions are likely to be far less onerous than those that the Clinton administration required in 1998, the competitive landscape for air travel between the U.S. and Europe has changed greatly since then.

American and British Airways have acknowledged some remedies will be acceptable, but if the price is too high, they will walk away a second time, officials say.

One person familiar with the DOT's thinking said tentative approval of the alliance would come with "a host of conditions." The person declined to describe the conditions, but they are expected to center on the number of takeoff and landing slots the carriers would have to give up at London's crowded Heathrow Airport to allow for more competition.

In addition, restraints will likely be placed on American and British Airways in markets where together they would have a monopoly, such as Dallas-to-London.

Competing airlines -- Continental Airlines, Delta Air Lines, Northwest Airlines and Virgin Atlantic Airways -- have argued that pairing American, the world's biggest airline, with British Airways, the biggest in Europe, will make it difficult for others to win the loyalty of business travelers and corporate accounts across the Atlantic. Together, American and British Air will control more than 50% of the travel between the U.S. and London.

Nevertheless, with competing airline alliances growing and rivals such as UAL Corp.'s United Airlines gaining greater access to Heathrow, the American and British Air deal has been moving toward approval.

On Friday, regulators in the United Kingdom are also expected to give a tentative blessing to the deal. Both governments faced a deadline of Monday, when talks resume between the U.S. and U.K. on a new aviation treaty between the two nations.

The U.S. and U.K. have been trying to agree on an "open skies" treaty that will strip away restrictions on air service between the nations. Open skies is a necessity for approval of antitrust immunity for American and British Air so that other airlines will be able to add competition. At the same time, the alliance has driven the open-skies talks, with the British government unwilling to open its skies unless British Airways gets its alliance.

American and British Airways first tried to link up in 1996, but dropped the effort in 1999. Since then, rival carriers have developed and deepened alliances across the Atlantic and gathered strength at Heathrow, prompting American and British Airways to complain that they are now at a strategic disadvantage. United, for example, added British Midland to its Star Alliance, giving it greater access to Heathrow. United also has a powerful trans-Atlantic alliance with Germany's Lufthansa, and Delta has a strong link with Air France.

An alliance is a cooperative relationship between individual airlines in which they are allowed to function as one without having to actually merge. Carriers that participate are given immunity from antitrust laws so that they can make joint decisions on issues ranging from prices to marketing to available seats in a given market.

Last month, the U.S. Justice Department, in advisory comments, suggested scaling back the American-British Air deal to preserve competition. But the Justice Department's proposed conditions for approving the alliance were more lenient than in 1998, when the agency last commented on the pair's attempt at an alliance. The agency proposed that the carriers have to divest themselves of at least 126 weekly slots -- enough for nine round-trip flights a day. That was far fewer than the 336 weekly slots, or 24 flights a day, the agency recommended for divestiture in 1998.

Transportation officials are likely to give the deal's supporters and critics time to comment on the agency's decision before it becomes official. But how much time remains unclear.
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