The slipping timescale for British Airways' proposed alliance with American Airlines could accelerate the introduction of a slot trading system in Europe. But while the latter move would get widespread support, the deal itself looks in more and more trouble.

While BA and American publicly concede they can no longer meet the planned April 1997 startup date, the cost of a deal to their corporate strategies and respective governments continues to rise.

The collapse of US-UK bilateral talks in early September continues to be viewed as posturing by the two governments, but those close to the talks reject that suggestion. 'The UK will have to make up its mind that if it wants BA to have the opportunity it will have to move forward with the 11-point [open skies] agreement pretty much on US terms,' says American chairman Bob Crandall. And negotiators on both sides of the Atlantic insist that an impasse has been reached. 'The US is absolutely in cement on its model open skies agreement,' says one US government source. 'Any movement away will precipitate a major firestorm.' Similarly, UK sources insist that Heathrow access will not be sacrificed in a US-Germany-style deal.

BA and American have tried to deflect attention from the bilateral issue by conceding they would give up Heathrow slots on a voluntary basis to allow the deal to progress.

BA chief executive Bob Ayling has revived the idea of slot trading to meet competition concerns at a time when the European Commission is expected to issue new proposals of its own. BA is seeking to preempt any conditions which may be issued by any of the regulators examining the deal - the Commission, the UK Office of Fair Trading and the US Departments of Transportation and Justice.

The Commission favours a move to the trading of slots and one official believes a system could be in place by late 1997, perhaps even before BA and American launch any alliance. Brussels may then launch its trading system with slots taken from the two carriers in return for approval.

The DOJ's demands revolve around the elimination of overlapping routes but BA insists that compulsory withdrawal from any markets would make the alliance uneconomic. 'If either regulator does this the price has to be too high,' claims Jeffrey Shane, the former DOT official representing Virgin Atlantic. 'BA and/or American will walk.'

BA concedes that its focus on alliance matters comes at a price and its recent financial results have persuaded many analysts that the carrier has reached the top of the profit cycle. Reports suggest that the 'step change' restructuring being planned could see 10,000 of the airline's 55,000 jobs shed by selling off operations, such as engineering, in an attempt to shave $1.5 billion from costs over the next three years.

Meanwhile, USAir has sought to strengthen its bargaining position by agreeing to drop a lawsuit against BA and American in return for Heathrow slots to relaunch its own transatlantic services. The carrier has applied to launch twice daily services from Philadelphia and daily flights from Boston, Charlotte and Pittsburgh. US carriers have now filed requests for 40 daily slots to launch new Heathrow services. USAir insists it can damage BA by withdrawing feed from US points and operating the services in competition with its UK partner.

Doug Cameron

Source: Airline Business