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American entering 3-member allianceBritish Airways, Iberia also on teamBy Julie Johnsson | Chicago Tribune reporterAugust 15, 2008In another sign that globalization is taking wing within the airline

industry, American Airlines, British Airways and Iberia have formeda venture to closely coordinate flying between North America andEurope.

The virtual merger, announced Thursday, would bring together the twobiggest players in the North Atlantic market, American Airlines andBritish Airways.

They currently dominate travel on key business routes between the U.S.and United Kingdom, accounting for 66 percent of the current capacitybetween Chicago and London Heathrow Airport, for example.

How to deal with consolidation will pose a thorny policy question for thenext U.S. president. That person will likely have to approve the newAmerican venture as well as one proposed by Chicago-based UnitedAirlines while determining the role U.S. carriers will play in the emergingglobal networks.

"It's an interesting play," said Brian Havel, director of DePaul University'sInternational Aviation Law Institute. "It puts pressure on the U.S.government to think about the next generation of airlines."

Carriers that belong to the three major global marketing alliancesincreasingly are seeking closer ties that will allow them to formworldwide networks while sidestepping rules that limit foreign carriers tosmall ownership stakes in U.S. airlines.

Six members ofSkyTeam, which includes Delta Air Lines and NorthwestAirlines, already have antitrust immunity to synchronize flying acrossthe North Atlantic, as do nine members of the Star Alliance, co-foundedby United Airlines.

United is forming a separate North Atlantic venture with two overseas

carriers and Continental, which is joining the Star Alliance. The pactwould allow them to share schedules, gates, lounges and frequent-flierprograms.

"All we are trying to do with British Airways and Iberia is to be able tocompete on a level playing field with SkyTeam and the Star Alliance,"Gerard Arpey, chairman and chief executive of American Airlines, toldthe Tribune. "We think the regulators will see it way."

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British Airways is in talks to acquire Iberia. American had earlier soughtantitrust approval to partner with Iberia.

The clash of the titans could leave little place on lucrative routes for

independent carriers like Virgin Atlantic Airways, which has opted not tojoin one of the major alliances.

Steve Ridgway, CEO of Virgin Atlantic, a vocal critic of the latest venture,told the Tribune that American and British Airways already areformidable competitors, with the latter controlling more than half of thelanding slots at capacity-constrained Heathrow.

"British Airways on its own out of Heathrow is already bigger than theStar Alliance in Frankfurt and SkyTeam in Parisand that's before youget American in there with them," he said. "Consolidation needs to be

intelligently done because you harm the ability of airlines to competewith each other."

Branson objectsVirgin's founder and chairman, Richard Branson, has already asked bothpresidential hopefuls to block the British-American deal. "We are notagainst consolidation, but this alliance is on a scale never seen before,"he said in a statement Thursday.

This marks the third time that American and British Airways have tried

to form a closer relationship. They were forced to abandon earlier effortswhen it became clear that British Airways would have to divest holdingsat Heathrow to overcome antitrust concerns.

Arpey believes they will be able to team up this time without suchrequirements because of a new treaty between the U.S. and EuropeanUnion, which took effect this spring, and opens Heathrow to newentrants and is designed to spur competition across the Atlantic.

"The world has changed quite a bit from our last attempt back in late2001, 2002," Arpey said.

Arpey and his would-be partners Thursday asked the U.S. Department ofTransportation for antitrust immunity across the Atlantic, along withOneworld alliance partners Finnair and Royal Jordanian.

Arpey said he was optimistic the application would be reviewed beforePresident Bush leaves office. But others said the process might take sixto nine months, longer than the five months remaining in Bush's term.

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The Department of Justice will have to weigh in on the competitiveimpact as will the EU.

"It's unlikely to be resolved by the Bush administration," said Havel, aninternational law expert. "This is the critical issue: Will British Airways

accept the termsand there will be terms. British Airways-AmericanAirlines is far too strong on the trans-Atlantic. And Heathrow, for good orbad, remains the priority No. 1 business hub."