American, BA Score Big For The Oneworld Alliance
By CAROLYN HENSON

BRUSSELS—British Airways PLC received a significant boost Wednesday after Europe's antitrust regulator cleared its merger with Spain's Iberia Líneas Aéreas de España SA and allowed much closer cooperation with Oneworld alliance partner AMR Corp.'s American Airlines on profitable trans-Atlantic routes.

BA's merger with Iberia, which would create Europe's third-largest airline by revenue, moved a step closer after the European Commission, the European Union's regulatory and executive arm, approved the deal. It was a rare approval of an airline merger without a requirement that the companies concerned divest assets.

Competition Commissioner Joaquin Almunia said Wednesday in Brussels the decision balances "the interests of the industry and of passengers."

BA and Iberia are still working on the final terms of the deal, with the Spanish airline looking at BA's plans to address its £3.7 billion ($5.61 billion) pension deficit. Iberia has until September to decide whether to agree to the merger.

The commission also cleared a pact allowing three partners in the Oneworld alliance—a group of 11 airlines—to work more closely together. The European clearance means American, BA and Iberia are immune from usual antitrust rules that forbid collusion between companies in the interest of providing more frequent services and lower prices for travelers.

The deal means the three airlines can proceed with plans to cooperate more closely on trans-Atlantic routes, which are BA's most profitable. They plan to share revenue, combine their marketing and flight planning, and collaborate on pricing.

However, the deal came at a price, with the airlines having to give up some of their coveted landing and takeoff slots at London's busy Heathrow Airport, allowing competing airlines to fly more routes between London and New York, Boston, Dallas and Miami.

The airlines will make seven takeoff and landing slots in London available each day to competing airlines.

These include three on the London-to-New York route, two on the London-to-Boston route, one between London and Miami and another one between London and Dallas.

If a rival airline taking up one of the Oneworld London-New York slots at Heathrow can't get a matching slot at John F. Kennedy International Airport, the airlines must make one available at JFK as well.

They will also allow rival airlines flying passengers on one leg of a trans-Atlantic route to sell tickets on BA, AA or Iberia flights for the return leg. Rivals could also sell tickets combining their own trans-Atlantic flight with an internal flight to another airport operated by one of the three Oneworld carriers.

These undertakings by the airlines are legally binding for 10 years.

The clearance ends a 10-month investigation by the European Commission, the EU's antitrust regulator, who feared the collaboration could give the carriers a dominance on transatlantic that could translate into higher airfares for passengers.

The EU's competition commissioner, Joaquin Almunia, said European policy over past years has been to accept joint ventures between airlines that bring advantages to an industry that has suffered disruption from terrorist threats and lately volcanic ash clouds.

"We think this decision strikes the right balance between the interests of the industry and of passengers" who will benefit from "more choice and more competitive airfares," he said.
Around 50 million people travel between the EU and the U.S. annually, a quarter of them via Heathrow.

The commission It had already given similar antitrust immunity to Oneworld's rivals—the SkyTeam alliance, including Air France-KLM SA and Delta Air Lines Inc., and the Star Alliance, including UAL Corp.'s United Airlines, Continental Airlines Inc. and Germany's Deutsche Lufthansa AG.

AMR Chief Executive Gerard Arpey and BA CEO Willie Walsh noted that the pact still needs a final decision from the U.S. Department of Transportation, but Mr. Walsh said the European clearance was "an important and vital step forward."

The airlines plan to launch their expanded trans-Atlantic joint business this autumn, he added.
BA said it expected U.S. regulators to make their final ruling on the expanded Oneworld pact "soon." The Department of Transportation in February gave tentative approval to the partners' request for antitrust immunity in return for Oneworld giving up four daily pairs of Heathrow slots. It also eschewed "carving out" any routes from the alliance, a remedy suggested by the U.S. Justice Department.

Long-term BA rival Virgin Atlantic Airways Ltd. described the commission's decision and remedies package as "woefully inadequate." The slot remedies are too few and are offered on a lease-hold basis for only a limited period, it said, which it said would put off any new airlines wanting to enter the market.

"We have fought this monster monopoly for the past 13 years and are still resolute in our belief that this decision is shameful and consumers will suffer greatly as a result of this deal," said Virgin Atlantic President Richard Branson.

BA has had a difficult year so far due to a protracted disagreement with cabin crew over working conditions. Cabin crew have held 22 days of strikes so far as they protest changes to working conditions on long-haul flights from Heathrow that the airline says are essential to cut costs and compete with industry rivals.

With most airline stocks lower in Europe Wednesday amid a wider market decline, shares of BA rose 0.4% in London, while Iberia gained 0.6% in Madrid. —Kaveri Niththyananthan in London, David Tidmarsh and Alessandro Torello in Brussels and Doug Cameron in Chicago contributed to the article.

Write to Carolyn Henson at carolyn.henson@dowjones.com