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American, British Airways Plan Alliance

Aviation: The wide-ranging deal will face regulatory hurdles on both sides of the Atlantic.

June 11, 1996|From Bloomberg Business News

FORT WORTH — American Airlines and British Airways are expected to announce today a wide-ranging alliance that would face close regulatory scrutiny.

Competitors are already lining up against any alliance between the carriers, which dominate the transatlantic market with two-thirds of the traffic between the U.S. and Britain.

The accord would combine the worldwide reach of British Airways, the biggest international carrier, with American's unparalleled route network in the U.S. and Latin America.

If it occurs, that is.

Analysts, who think British Airways and American have been discussing an alliance for a year, said approval could take months. Regulators in the U.S. and Britain could also force them to give up so many routes that it would scuttle the agreement, they said.

"There's a hell of a long way to go yet," said Keith McMullan, director of Avmark International, an aviation consulting firm in London. "The whole thing could still fall apart."

American's chairman, Robert Crandall, called a news conference for 7 a.m. PDT today in New York. An executive with American's parent company, AMR Corp. of Fort Worth, declined to elaborate.

The New York Times said the two airlines plan to link their frequent-flier programs, share marketing costs and sell seats on each other's planes.

Virgin Atlantic Airways, the No. 3 carrier between the U.S. and Britain, promised "open warfare" against the alliance.

Delta Air Lines Inc. said it would oppose the alliance unless Britain and the U.S. signed an "open skies" agreement that gives the No. 3 U.S. carrier long-coveted access to London's Heathrow Airport. Other U.S. carriers are certain to make the same demand, analysts said.

American and UAL Corp.'s United Airlines are now the only carriers allowed into Heathrow under a nearly 20-year-old treaty between the nations.

AMR stock, which closed down 62.5 cents at $94 on the New York Stock Exchange, has risen about 26% this year. British Airways' American depositary receipts were unchanged at $85.625 on the New York Stock Exchange.

Shares in both carriers have risen on the expectation of a wide-ranging alliance, said Guy Kekwick, an equity analyst with Lehman Bros. in London.

"If it's just a run-of-the-mill code-sharing agreement, there could be scope for disappointment," Kekwick said.

McMullan said he believes British Airways and American are in talks to form a holding company that would pool their North Atlantic operations, allowing them to share costs and marketing.

AMR may also agree to provide computer services to British Airways through its Sabre division, said Michael Boyd, president of Aviations Systems Research, a consulting firm in Golden, Colo. Such an arrangement would go beyond the simple code-sharing agreements that allow carriers to links flights in computer reservation systems and extend their route networks.

It would also require the U.S. and Britain to end a years-long impasse over their bilateral air treaty, signed in July 1977.

U.S. airlines have long complained that the agreement doesn't give them enough access to Heathrow, the world's biggest airport for international passengers, or sufficient rights to markets such as Asia and Africa.

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