Transatlantic air war breaks out: Britain warns of retaliation after Washington slaps limit on BA's alliance with American carrier

A TRANSATLANTIC air war broke out last night after the British Government warned that it will impose sanctions on US carriers flying into Heathrow unless British Airways is allowed to extend its alliance with USAir.

Britain said United Airlines and American Airlines would be required to reduce flights to Heathrow from Washington and Chicago early next year if the Clinton administration did not grant BA further code-sharing rights with USAir.

This is the first time Britain has taken such drastic action against US carriers and shows how seriously the situation is viewed by the Government.

Code-sharing allows one airline to operate a service to a destination that it does not serve by linking up with another airline. BA is using the system to tap into USAir's huge domestic network.

The row could escalate into tit- for-tat reprisals against BA and wreck the delicate negotiations taking place to liberalise air services between Britain and the US.

It could also stall BA's dollars 750m alliance with USAir as well as affecting other link-ups between US and UK airlines such as British Midland and Virgin Atlantic.

Britain's retaliatory action follows an announcement last Friday by the US Transportation Secretary, Federico Pena, restricting BA's latest batch of code-sharing rights with USAir to 60 days instead of the usual year.

Lord Caithness, Minister for Aviation, last night described the US decision as 'a provocative act quite contrary to our agreement with the US government' and prejudicial to BA. Britain's retaliatory action was designed to be commensurate.

As from 12 January - the date the 60-day period expires - United's services between Washington and Heathrow and American's service from Chicago will be cut from seven to six a week.

What appears to have infuriated ministers as much as anything is the manner in which the US decision was announced. The first the Department of Transport knew of it was when its US counterpart issued a press notice last Friday.

Unless the dispute is settled rapidly it is certain to sour the next round of liberalisation talks between British and US officials due to start on 7 December in London.

Britain wants the rules restricting ownership of US airlines eased and ultimately abolished. The US wants greater access for its carriers to Heathrow, the world's busiest international airport.

Last March John MacGregor, Secretary of State for Transport, and Mr Pena set themselves a 12- month deadline to make headway on an open-skies policy between Britain and the US. The US action appears to be designed to force the pace of those negotiations, although last night it appeared to have backfired judging by Britain's stern response.

BA said it supported the Government's move, adding: 'We regret this step might prove necessary to protect the code-share rights negotiated in 1991. British Airways has noted that the US has repeatedly stressed that bilateral entitlements must be honoured.'

But American Airlines responded furiously. A spokesman said: 'We are appalled that the British government would adopt such an adversarial posture against American Airlines especially at a time when the US and UK are seemingly trying to agree on a new framework to govern aviation between the two countries.

BA paid dollars 300m for a 24.6 per cent stake in USAir last February with the option to pay a further dollars 450m to raise its shareholding to 44 per cent within five years subject to US government approval.

Under the so-called Heathrow Deal between Britain and the US in 1991, United and American were allowed into Heathrow and UK airlines were given code-sharing rights in the US.

BA received permission in March to begin code-sharing with USAir on 38 US destinations and applied for a further 27 destinations in August. Its aim was to have approval for more than 100 destinations by the end of the year.