A proposed tie-up between AMR Corp.'s (NYSE: AMR) American Airlines, British Airways PLC (OTC: BAIRY), and Spain's Iberia Lineas Aereas de Espana SA (PINK: IBRLY) is catching flak from both sides of the Atlantic as U.S. and European regulators have raised antitrust concerns.
The three carriers last year applied for permission to cooperate more closely on transatlantic flights. They claimed a joint venture would be necessary to facilitate their so-called "Oneworld" partnership. Oneworld is a cooperation agreement between 10 of the world's biggest airlines.
The partnership would include routes between London's Heathrow Airport and the Spanish cities of Madrid and Barcelona, as well as flights between the United States, Mexico and Canada, to fend off growing competition from the Star Alliance and SkyTeam groups.
However, the airlines on Friday received statements of objections from the European Commission - the European Union's (EU) antitrust authority - claiming that the deal may a "breach of European rules on restrictive business practices."
British Airways responded in a statement saying the concerns were expected that it is "looking forward to the opportunity to address and overcome the EU's concerns."
The collective will also have to secure antitrust clearance from U.S. regulators, but that effort was recently complicated when two senior U.S. transport chiefs ruled themselves out of the decision making process because of conflicting interests.
Deputy U.S. Transportation Secretary John Porcari was recused from examining the group's antitrust application after it was revealed that he had previously supported the merger as Maryland Transportation Secretary. In that role, Porcari suggested the deal would boost traffic through Baltimore Washington International Airport.
Porcari joined U.S. Transportation Secretary Ray LaHood on the sidelines of the high-profile case. LaHood had exempted himself after earlier saying "these alliances are life-savers for airlines."
Indeed, airlines worldwide may lose a combined $11 billion this year, according to the International Air Transport Association.
Many analysts believe the joint venture ultimately will clear regulators, but it may require concessions.
"The odds are in favor of a successful application if other alliances have been granted it," Douglas McNeill, an analyst at Astaire Securities in London, told Bloomberg News. "That's not to say there won't be conditions attached, as in the past the regulators have asked for slots to be given up."
However, such concessions have been major stumbling blocks in the past. Nearly a decade ago, in 1999, British Airways and American Airlines failed to obtain acceptable terms for antitrust immunity. And in January 2002, the two carriers retracted their second application for antitrust immunity after regulators demanded they surrender 224 weekly slots at London Heathrow Airport.
News and Related Story Links:
- Bloomberg News:
EU Sends Complaints Against American, BA, Iberia Deal