BA set to accept tougher conditions

BRITISH AIRWAYS' two-year battle with the European Commission to win approval for its alliance with American Airlines is expected to end in the next two weeks with the UK airline accepting a compromise deal.

The Commission is this week expected to agree a plan which would require British Airways to sell off about 250 landing slots at Heathrow in order to obtain regulatory clearance for the alliance. The proposal will be formally submitted for approval at the Commission's council meeting on 1 July.

The compromise is believed to have been brokered on Friday by Neil Kinnock, the European transport commissioner, at a meeting with Karel van Miert, his counterpart at the competition directorate. BA is likely to accept the deal, even though its conditions are tougher than those proposed by the Office of Fair Trading when it looked into the case. The OFT suggested that BA be forced to give up 168 landing slots.

Crucial to the deal will be whether BA is required to give up the slots immediately, or whether it is allowed to surrender them over a two or three-year period. The terms of payment, if any, will also be important in determining whether BA accepts the agreement. Nevertheless, the Commission's proposal is likely to be a lot softer than originally envisaged.

Mr van Miert's first proposal was that the two airlines be forced to give up 350 slots in order to win clearance. But BA made it clear that it would rather walk away from the deal than submit to those conditions.

The company has drawn up contingency plans in case the Commission's proposals prove to onerous. They include a less far-reaching alliance with American Airlines as well as potential partnerships with other carriers.

The softening in the Commission's stance is thought to be the result of Mr Kinnock's involvement. The former leader of the Labour party has pointed out that, since BA announced its deal with AA two years ago, it has been overtaken by other airlines which have signed similar alliances.

BA may well be able to reduce the conditions even further. Although the Commission is responsible for the proposals, Margaret Beckett, the Trade and Industry Secretary, is responsible for implementing them. As a result, the UK government may be able to give BA some leeway in the implementation of the proposals.

However, the airline still faces a dogfight with US regulators, who have yet to give the alliance their blessing.