August 14, 2008 / 12:52 PM / in 10 years

BA, American, Iberia sign transatlantic deal

LONDON/CHICAGO (Reuters) - British Airways Plc BAY.L, AMR Corp’s AMR.N American Airlines and Spain’s Iberia IBLA.MC said on Thursday they have agreed to a transatlantic tie-up designed to make the partners more competitive in an increasingly global air travel market.

The trio said it would file for antitrust immunity from the U.S. Transportation Department later in the day and also planned to notify EU regulators.

American, BA and Iberia intend to cooperate commercially on flights between the United States, Mexico and Canada and the European Union, Norway and Switzerland.

BA Chief Executive Willie Walsh told reporters the agreement includes deals on revenue sharing, as well as pricing and schedule co-ordination. He said he is confident of approval.

“I firmly believe that the regulators will approve our application for antitrust immunity,” he told a conference call, adding that the U.S./EU “Open Skies” agreement earlier in the year would help their bid.

“Open Skies” allows airlines to access any U.S. city from any point in the European Union and vice versa, meaning previously restricted airlines can now access London’s Heathrow airport. BA and American had an application for antitrust immunity rejected in 2001 due to a shared dominance of the London airport.

“We are applying in a world very different from the world when we last applied in 2001,” Walsh said, adding that immunity would allow the airline to compete more effectively with other transatlantic alliances already granted immunity.

Among these are the Star Alliance, which includes Germany’s Lufthansa (LHAG.DE) and U.S.-based UAL Corp’s UAUA.O United Airlines; and SkyTeam, which includes BA rival Air France-KLM (AIRF.PA) and U.S.-based Delta Air Lines Inc (DAL.N).

Alliances allow airlines to share routes and resources and cut back on capacity without going through a merger.

A Transportation Department spokesman could not immediately be reached for comment.

Gerard Arpey, chief executive of American, told Reuters in an interview that the alliance would not create a monopoly.

“This is as competitive a market as exists across the Atlantic,” Arpey said.

“Oneworld” alliance, which also includes BA, American and Iberia, will be part of the application.

Robert Mann, an airline consultant at R.W. Mann & Co in the U.S., said a successful application is not a foregone conclusion.

“BA continues to hold the vast majority of Heathrow slots (over 40 percent) and while it indicates it is willing to relinquish some, these slots have been trading for as much as $60 million per pair,” he told Reuters.

“So, relinquishing 100 slot pairs would be a $6 billion asset disposal, for which BA presumably wishes to receive fair value. The devil is in the details,” he added.

    Shares in BA, which is also in all-share merger talks with Iberia, initially rose but closed down 0.7 percent, valuing the company at just under 3 billion pounds ($5.62 billion).

    AMR shares were up nearly 3 percent at $11.40 on the New York Stock Exchange, and Iberia closed little-changed.

    Walsh denied the deal would mean increased fares for passengers, a claim made by Virgin Atlantic VA.UL President Richard Branson.

    He called the argument “a broken record,” but did not deny that prices would rise. He said that scenario was likely to be driven by high oil prices.

    “This strategic relationship strengthens competition by providing consumers with easier journeys to more destinations,” he added.

    Strategic alliances between major airlines are expected to become increasingly common after a wave of consolidation among U.S. airlines failed to materialize this year. U.S. carriers are grappling with skyrocketing fuel costs that threaten to undo the progress the companies made through years of painful restructuring.

    AMR’s Arpey declined to say what the company had to gain in terms of cost savings and revenue improvements from an alliance with BA and Iberia.

    “It’s a significant development speaking from American’s standpoint,” he said. “We need to be able to compete globally on a level playing field.”

    Editing by Gerald E. McCormick

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