BA and American seek skies pact

High fliers: A code-sharing agreement would create one of the biggest airline alliances in aviation history

RUSSELL HOTTEN

British Airways is negotiating with American Airlines about a code- sharing deal that would create one of the biggest alliances in aviation history.

The talks, which started last April, have been given a new impetus by the replacement of BA's strong-willed chief executive, Sir Colin Marshall, by Robert Ayling.

A personality clash between Sir Colin and American's equally tough chairman, Robert Crandall, was said to be a potential stumbling block to any agreement. "A deal with Sir Colin would not be impossible, but Crandall is an admirer of Ayling and likes what he is doing at BA," said an American source close to American. "An agreement with BA would be Crandall's swan song."

Code sharing involves the merger of two airlines' flights on one ticket, allowing them to book passengers with each other. The talks centre on how BA would benefit from access to America's services to South America. American would want to be able to books its passengers onto BA's Heathrow and European network.

The two airlines have discussed possible equity stakes, though there is said to be much hard negotiating still to do. A broad outline agreement is close, but a formal announcement may take up to 12 months, the Independent has been told.

A big hurdle to a deal is the implications for USAir, with which BA has a code-share agreement, and 24.6 per cent stake. American Airline sources said US transport officials have indicated that any deal that threatened the future of USAir would be resisted.

USAir has been the subject of takeover talk, with United Airlines a likely bidder. American also said it might enter the bidding if a rival made a formal offer. But on Monday United said it was no longer interested in buying USAir.

BA has admitted that the question of USAir ownership opened up several options, including links with other US carriers. Sources confirmed last night yesterday that talks with American began long before United's interest in USAir was announced. BA refused to comment on any talks with American.

Industry experts remained sceptical about any such agreement being reached because of the complexity of bringing together two of the world's largest airlines. Keith McMullan, of analysts Avmark International, said American had held talks with European airlines before, but they had come to nothing. "Robert Crandall has been a critic of code sharing," he said. But it is understood Mr Crandall and the American board now accept that as the industry moves towards greater code sharing, it must move with it.

American is the world's largest airline, with 647 aircraft and sales of $14bn (pounds 9bn), and there are few operators that could provide the sort of reciprocal benefits it would find attractive through code sharing.

But the company would dearly like to offer its US passengers onward flights to Europe and beyond by using BA's Heathrow services as the hub. In return, BA would like an entry into the growing South American passenger market, which has be largely untapped by European carriers, except by Spain's Iberia.

An executive at a rival airline said yesterday he would expect America's rivals in the US to protest loudly against any deal as anti-competitive.