This article from NYTimes.com has been sent to you by psa188@juno.com. /-------------------- advertisement -----------------------\ Share the spirit with a gift from Starbucks. Our coffee brewers & espresso machines at special holiday prices. http://www.starbucks.com/shop/subcategory.asp?catalogFname=Starbucks&categoryFname=SaleFClearance&ci=274 \----------------------------------------------------------/ U.S. Criticizes Trans-Atlantic Air Alliance December 18, 2001 By STEPHEN LABATON WASHINGTON, Dec. 17 - The Justice Department urged transportation officials today to reject a proposed alliance between American Airlines and British Airways (news/quote) unless the two carriers sell some landing and takeoff rights to increase competition on routes between the United States and London. The proposed alliance has put the Bush administration in a difficult position as it tries to sort out a fight over routes that are among the most profitable in the industry. On one side are two of the world's largest airlines, one of which has close connections to President Bush, and the British government. Prime Minister Tony Blair has lobbied the White House on behalf of the alliance. On the other side is most of the rest of the industry, which has been largely shut out of the market. Antitrust prosecutors at the Justice Department strongly recommended the rejection of the deal unless there were divestitures of the rights to at least 126 trans-Atlantic flights each week. They concluded that the proposed combination would give the two airlines well over 50 percent of the flights between many American cities and Heathrow Airport in London, and significantly more than that for the even more lucrative market for business travelers. "The alliance threatens a substantial loss of competition which would likely result in higher air fares and reduced service," the Justice Department said in comments filed with the Transportation Department, which makes the ultimate decision about whether to approve, reject or modify the deal. "Unless D.O.T. requires divestiture of enough slots for new entrants to offer nine daily round trips to London from New York and Boston, as well as substantial new air service from other U.S. cities, the department would oppose the transaction." It is unknown how today's analysis will affect the outcome of a ferocious lobbying and regulatory battle between the two carriers and their rivals. In a joint statement tonight, British Airways and American Airlines, a unit of the AMR Corporation (news/quote), suggested that they would be unwilling to give up the slots that the Justice Department said would, at a minimum, be necessary to avoid antitrust problems. Still, some analysts and rivals suggested that the Justice Department's analysis could nonetheless clear the way for a deal that would gain the approval of transportation officials. Other rivals said that the report's analysis and its skepticism on the competitive landscape of the industry was an unexpected blow to the two carriers. Trans-Atlantic flights to Heathrow Airport are the most profitable in the industry, in large part because only four airlines provide such service, with the majority of flights from American and British Airways. The other two to provide trans-Atlantic service to Heathrow are Virgin Atlantic Airways and United Airlines, a subsidiary of the UAL Corporation (news/quote). Delta Air Lines (news/quote), Continental Airlines (news/quote), Northwest Airlines (news/quote) and Virgin have led the opposition to the proposed alliance. In a joint statement issued after the report was filed, British Airways and American commended the Justice Department for supporting a new so-called open skies agreement between the United States and Britain to liberalize restrictions on routes and increase competition. But they criticized the recommendation that they be forced to sell slots to win antitrust immunity. "We believe the D.O.J.-proposed divestiture of 126 weekly slots is inappropriate," the carriers said. "D.O.J. underestimated the commercial availability of slots at Heathrow and the competitive advantages already being enjoyed by other global alliance networks. Most significantly, D.O.J. did not consider the potential benefits of a new U.S.- U.K. Open Skies agreement." Critics of the alliance applauded the report and recommendations today. "The Department of Justice really in our judgment has corroborated the assertions" made by the primary opponents of the antitrust immunity application, said Douglas M. Steenland, president of Northwest Airlines. "They find that Heathrow is slot-constrained and absent divestiture of significant new slots there is no way new entrants can fly to Heathrow. They come up with a proposed remedy with specific number of slots for New York and Boston. Then they say the Department of Transportation has to come up with an additional number of slots and needs to provide additional remedies." The Justice Department report surprised some rivals of the two airlines, who for weeks have raised concerns that the Bush administration, and in particular, the Justice Department, would buckle under intense pressure from the British government to grant antitrust immunity to American and British Airways, the largest carrier in the world and in Europe, respectively. While the Justice Department report is not the final word, it puts significant pressure on the Transportation Department, which has the final say over the alliance. In a visit to the United States earlier this fall, Mr. Blair pressed President Bush and his senior advisers to approve the request by British Airways and American. At the time, the White House was presenting its own wish list to the British government for assistance in the war in Afghanistan. Mr. Blair's request prompted concerns that the Justice Department, which traditionally provides antitrust analysis for such alliances to the Transportation Department, would bow out of the process, or water down its recommendations. A senior antitrust official said today that the division had received no guidance from other quarters of the administration or the White House about the report. The two airlines have tried for years to consummate an alliance to share revenue and coordinate schedules and fares. Three years ago, the Justice Department urged that the deal be rejected after it came under heavy criticism from rivals. Some critics of the alliance today noted that the Clinton administration had recommended the divestiture of at least 336 weekly flights, which killed an earlier joint venture proposal, and that the antitrust division at the Justice Department should have made a similar proposal today. "The Justice Department's analysis is terrific, but the solution is not," said Kenneth S. Levine, a lawyer representing Virgin Atlantic. "The solution should be substantially more slots divested from American and British Airways." But Mr. Steenland, president of Northwest, said that a close reading of the report strongly suggested that a similar divestiture would be needed to satisfy the anticompetitive concerns expressed today. http://www.nytimes.com/2001/12/18/business/18AIR.html?ex=1009694155&ei=1&en=dc450172fb8ebfed HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact Alyson Racer at alyson@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2001 The New York Times Company