Bilateral aviation deal could help sweeten US-UK airlines merger

Date: 16/01/1997

By Chris Johnstone

A BILATERAL aviation alliance between the US and UK would make a deal between British Airways and American Airlines more acceptable to the European Commission but would not eliminate all its concerns, according to competition sources.

Their comments come in the wake of Competition Commissioner Karel van Miert's warning to the UK government this week that he would take it to the European Court of Justice if London cleared the BA/AA alliance on its proposed terms.

In his letter, Van Miert said that a liberalising accord would be an important step in watering down the allies' dominance of UK-US routes one of the Commission's main concerns about the mega-alliance.

The British government had asked the Commission to take account of the market-opening effects of a new bilateral deal when assessing the partnership. But it refused, saying it had to deal with the situation as it was and not include hypothetical changes.

The UK and US will resume their long drawn-out negotiations on a bilateral agreement between 4 and 6 February in the knowledge that a deal would help the prospects for the threatened alliance.

The faltering transatlantic talks are focusing on UK attempts to win rights for its airlines to fly within the US, and American demands for increased opportunities for its aircraft to fly into the congested London Heathrow Airport.

But sources close to the Commissioner have made it clear that BA and AA would have to go further, even if a new bilateral agreement boosted competition.

They say the airlines would have to prove that their alliance would offer passengers benefits on its own account. “Consumer benefits must come from the companies,” said an official.

This could be difficult. Van Miert has warned that the current deal would boost the airlines' existing dominant position and has complained that they have not provided evidence about how the alliance would cut their costs.

BA immediately attacked the Commission's treatment of the proposed alliance, saying it appeared to have “read 148 pages of submission and reached a conclusion within a matter of hours”.

A spokesman for the airline added that its link-up with AA was a response to transatlantic deals already agreed by other European carriers and insisted that the Commission should give similarly tough treatment to rival airlines as part of its current review of all transatlantic aviation agreements.