As British Airways and American Airlines continue their behind-the-scenes efforts to obtain approval for their controversial transatlantic alliance, the US major is intensifying efforts to secure its dominance in South America through further linkups.

Ian Lang, the president of the UK's Board of Trade, is delaying his pronouncement on the Office of Fair Trading's report on the proposed BA/AA deal, which landed on his desk in mid-October, while he negotiates a package of concessions with BA over Heathrow access. A senior BA source confirms Lang is looking for concessions, which are aimed at averting a full inquiry by the UK's Monopolies and Mergers Commission (MMC). Any delay caused by an MMC review could be enough to scupper the alliance.

The US Department of Transportation is set to receive a torrent of complaints unless a deal includes enough Heathrow traffic rights and slots to satisfy the other US majors. The BA source is confident the package under discussion will satisfy the DOT.

At the same time, the UK and US aviation authorities returned to the negotiating table on 6 November for two days of talks in Washington. The meeting was held without industry representatives present, which United Airlines' vice-president international affairs Cyril Murphy takes as a sign that the two sides mean business. A further meeting is scheduled for the first week of December in London, this time with airline participation.

Jeffrey Shane of Wilmer, Cutler and Pickering, who represents BA/American opponent Virgin Atlantic, believes the US may offer the UK franchise rights, under which US regionals would be allowed to operate as franchisees of UK carriers (ie Virgin) - albeit without the right to control them. This would go some way towards accommodating the UK's demands for domestic US rights in exchange for the holy grail of a more open Heathrow, but is unlikely to salve Virgin's opposition.

Shane, however, says the UK could not make enough slots available to enable a carrier like Virgin to compete with BA/American's proposed London-New York shuttle, and also says that such a deal would do nothing to ease concerns over market domination, citing such issues as CRS and override commissions.

Meanwhile, American Airlines is moving closer to its goal of tying up at least one major Latin American carrier in an alliance. Aerolineas Argentinas may announce a major alliance with American by the end of November, sources say. The US Department of Transportation would demand an open skies deal between the two countries before approving such a deal. However an American/ Aerolineas combination would dominate the market between the two countries; the two carriers currently account for 21 out of the 28 weekly Buenos Aires-Miami nonstop flights, for example.

American is believed to be talking with LanChile about a similar deal, and also has initiated discussions with Varig. The Brazilian major's alliance with Delta is understood to be on the verge of collapse because Delta's Atlanta hub is incompatible with Varig's needs; the majority of the Brazil-US market is to Miami, New York and Los Angeles. Varig is believed also to be talking to United. While a United alliance would be consistent with Varig's association with Lufthansa and SAS, American's Miami hub would makes it the more attractive proposition.

Richard Whitaker

Source: Airline Business