American, BA, Iberia Seek Alliance

American Airlines said yesterday it is seeking immunity from U.S. antitrust laws to enter into an alliance with British Airways and Spanish carrier Iberia on trans-Atlantic routes. However, a major rival immediately denounced the deal, saying it would give the airlines dominance over competitors.

Officials with American, British Airways and Iberia said a partnership would benefit customers through combined route networks with as many as 443 destinations, reciprocal frequent flyer arrangements and airport lounge access. The venture would also give the airlines a new way to boost revenue as they scramble to offset high fuel costs.

Willie Walsh, British Airways chief executive, said the deal represents "new competition and better choice for consumers and wider access to enhanced network" of the combined carriers.

Fernando Conte, Iberia chairman and chief executive, also said customers would benefit from the partnership. "They will have better connections to more destinations around the world," he said.

In a statement, Gerald Arpey, chairman and chief executive of American Airlines and its parent, AMR, called the deal "an important step towards ensuring that we can compete effectively with rival alliances and manage through the challenges of record fuel prices and growing economic concerns."

The tie-up drew Virgin Atlantic's opposition. "Because the industry is hurting, that should not be an excuse to nod through a grouping that is not in the public interest," said Virgin Atlantic chief executive Steve Ridgway.

Ridgway said the deal would give British Airways and American Airlines too much clout in trans-Atlantic routes, among the most profitable in the industry. For example, Ridgway said the combination would give British Airways and American Airlines 62 percent of passengers traveling between New York's John F. Kennedy International Airport and London's Heathrow Airport.

Virgin plans to spend $5.6 million to fight the venture. Virgin is also planning to paint up to 38 planes with the phrase "No Way, AA/BA."

Without antitrust immunity approval, the airlines would be breaking laws that forbid them from sharing information on schedules, costs or the prices they plan to charge.

The proposal comes as European governments are arguing that U.S. laws that prohibit foreign ownership of airlines are impeding necessary consolidation in the industry. U.S. law forbids foreigners from holding more than 25 percent of the voting stock in an U.S. carrier.

The United States and European Union are negotiating a so-called "open skies" treaty that would liberalize cross-border flying rules.

Walsh said British Airways is a big supporter of industry consolidation.

"Our industry needs consolidation, but I recognize there are significant barriers. The biggest are ownership and control restriction," he said.

However, he said the new American Airlines partnership was not "a prelude to a merger."

Past attempts by British Airways and American Airlines to link up have been scuttled by regulators over concerns about potential dominance of trans-Atlantic routes. The airlines believe Bush administration and European Union efforts to break down cross-border route barriers have diminished the power of past objections.

Analysts say European and Asian airlines haven't been hit as hard this year by the spike in oil prices as U.S. carriers have. Foreign airlines have benefited from stronger currencies in their home countries and better hedging on the price of oil, which could make them natural sources of capital -- and perhaps potential owners of weak U.S. carriers.

Under the immunity application, which was filed with the U.S. Department of Transportation, the three airlines would cooperate commercially on flights between the United States, Mexico and Canada and the European Union, Switzerland and Norway. Regulatory authorities in the European Union have also been notified, the companies said.