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Last updated: April 11, 2010 9:47 pm

Branson attacks watchdog over BA-AA pact

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Sir Richard Branson has lashed out at competition authorities in Brussels for what he claims is the “lazy” and “misguided” way they are treating a planned alliance between British Airways and American Airlines.

Sir Richard, founder of the rival Virgin Atlantic airline, has long criticised the proposed tie-up, which would deepen transatlantic co-operation between the two carriers, as well as Iberia, of Spain.

But now he has turned his attention to Brussels, saying he will look at some form of “legal process” if the European Commission’s competition watchdog rules against him.

“We actually believe the Commission should just say: ‘No way BA-AA’,” he told the Financial Times in an interview. “The way the Commission is currently going about it is fundamentally flawed and misguided, and to be honest it’s rather a lazy approach.”

The Commission should be treating the planned tie-up, which has received tentative approval from regulators in Washington, as a merger like the one that BA and Iberia formally agreed last week, he said.

In that planned deal, BA shareholders would eventually own 56 per cent of a new holding company, with Iberia shareholders owning the rest.

Legal restrictions such as the 25 per cent foreign ownership limits on US carriers would probably prevent such a combination between BA and AA.

To skirt round such rules, the proposed BA-AA-Iberia alliance would see the airlines share revenues on transatlantic routes and jointly manage schedules, capacity and pricing. But no shares would change hands. “In every other way they’ll be behaving as a single entity,” said Sir Richard. “So we believe that the Commission should be treating it as they would treat any merger situation.”

A spokeswoman for the Commission said this could not be done. “The transatlantic alliance is an alliance not a merger and, therefore, did not qualify for review under the EU merger control law [a merger results in a change of the ownership structure],” she said.

Virgin Atlantic has long argued the alliance would give BA and American Airlines 47 per cent of slots at Heathrow, and dominance on some of the most profitable routes between the US and Heathrow, meaning higher prices and less choice – a claim BA and AA refute.

Anti-trust officials in Brussels have been probing the deal for more than a year and issued a lengthy statement of objections in September, warning the alliance was “likely to result in appreciable competitive harm” on seven Europe-US routes.

The airlines have since offered to give up a handful of landing and take-off slots in London and New York to win approval for the tie-up.

Last month the Commission asked interested parties to comment on these concessions, suggesting it was likely to approve the alliance.

Both the Commission and Washington authorities are expected to issue final decisions in coming months.

In a preliminary ruling from the US Department of Transportation in February, BA and AA were required to give up only a handful of landing slots at Heathrow, provoking Sir Richard’s ire.

BA and AA have twice filed for approval in the past 13 years, in 1997 and 2001. A transatlantic tie-up, they claim, would give passengers more access to discounted fares and more convenient connections. But some consumer groups fear the deal will mean higher fares and reduced service.

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