Airlines defy US on some alliance restrictions Tuesday January 21, 2:14 PM EST (updates with details of airline response, government order) By John Crawley WASHINGTON, Jan 21 (Reuters) - Three big U.S. airlines on Tuesday objected to some government conditions on their proposal to sell seats on each others' flights, but said they would proceed with their marketing alliance anyway. Northwest (NWAC), Continental (CAL) and Delta (DAL) airlines took an unusually defiant stance in rejecting some Transportation Department restrictions imposed on Friday in exchange for government clearance of their codesharing partnership. Worried about the deal's potential impact on industry competition, regulators sought to limit the number of codeshare flights and curb joint marketing efforts for frequent fliers and corporate travel customers. The government also wanted the airlines' to give up gates and airport facilities to boost access for new entrants and low-cost carriers. A Transportation Department spokesman said the agency was reviewing the airlines' response but would have no further comment. Federal regulators have the options of taking no additional action -- which would permit the deal to go through -- seeking to negotiate a resolution to the objections, or attempting to block the alliance in court. Delta, Continental and Northwest called the Transportation Department restrictions, which were unprecedented in scope for a domestic alliance, unnecessary and unfair but reluctantly agreed to most of them. TAKING A STAND They also agreed to Justice Department restrictions to not codeshare on certain routes, which has been a more common approach by the government to address the competition concerns of codesharing deals. But the airlines left no doubt about what they were not prepared to do. "Some of DOT's conditions are unacceptable and we will not agree to them," they said in a joint statement. Specifically, the they challenged requirements that could make them yield more gates than the 13 they would be willing to part with at four hub airports. They also oppose a plan to permanently cap the number of codeshare flights, and objected to limits on marketing to corporations and travel agents. "These proposed conditions would undermine the value of the marketing agreement to consumers, and, therefore, to the participating airlines," the carriers said. These conditions strike at the center of how Delta, Continental and Northwest would make money from their alliance. Codesharing allows airlines to sell seats on each others' flights. Rather than each running a flight half full, two carriers could offer a single flight near capacity. This reduces costs and builds revenue. Many codesharing deals traditionally sell extended route networks as a primary benefit, but this one would rely more heavily on an aggressive marketing strategy to win business contracts and lure frequent fliers from competitors. (Additional reporting Meredith Grossman Dubner in Chicago) Roger EWROPS