(Corrects company name to Virgin Atlantic from Virgin America in paragraphs 2 and 4)
* Richard Branson says BA/AMR tie would create monopoly
* Branson calls on government to reject application
CHICAGO, May 14 (Reuters) - A proposed alliance between AMR Corp's AMR.N American Airlines and British Airways BAY.L would create a "monster monopoly," British entrepreneur Richard Branson said on Thursday.
Branson, whose Virgin Group [VA.UL] controls BA rival Virgin Atlantic, said in a statement that an alliance between BA and American would strangle airline competition on routes between London's Heathrow Airport and the United States.
"If the proposed merger between BA and American Airlines is allowed to go ahead, then the result for passengers, employees, communities and for fair and healthy competition, would be disastrous," Branson said.
Virgin Atlantic has asked the U.S. Department of Transportation to reject the proposed alliance, which would allow BA and American Airlines to cooperate on schedules, fares and cost-cutting.
Before it can approve the alliance, which includes other airlines in the oneworld alliance, the Obama administration will accept public comment on the joint business arrangement.
The application seeks an exemption from certain antitrust provisions. A final decision is expected within six months.
"As usual, Virgin seems to be trotting out old, outdated arguments that do not reflect the current environment and trying to sensationalize the matter," an AMR spokesman said.
AMR argues that there is no risk of a monopoly because more than 40 airlines fly between Europe and the United States. The company also said travelers will have greater access to cheap fares and smoother connections.
The application, the second attempt by American and British Airways to expand their long-standing marketing ties, was submitted last August.
The previous attempt failed in 2002 on questions over access to Heathrow. BA is the dominant carrier at Heathrow, where American also has a key presence. (Reporting by Kyle Peterson; Editing by Maureen Bavdek)