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Source: American, BA To Scrap Deal

July 29, 1999

WASHINGTON (AP) _ American Airlines and British Airways plan to withdraw their application to create a global aviation alliance, after reaching gridlock with British regulators, a U.S. government official says.

The official, speaking Wednesday on condition of anonymity, said the move came after the U.S. Department of Transportation indicated it was likely to dismiss the petition because talks between the airlines and Britain’s Office of Fair Trade have been deadlocked for many weeks.

The airlines are expected to make an announcement by the end of the week, ending their three-year effort to merge their organizations, the source said.

In London, a spokesman for British Airways insisted early today that the deal is still on. ``We are still in negotiations with the UK regulatory authorities about the competitive aspects of our proposed joint venture with American Airlines,″ said Iain Burns.

At issue is the Office of Fair Trade’s demand that British Airways give up hundreds of takeoff or landing spots at London’s Heathrow Airport, thus opening it up to competition. The airport is popular with business travelers and serves as an international gateway to Europe, Africa and the Middle East.

Access to Heathrow has also proved to be a sticking point in negotiations between the U.S. and U.K. governments over a new aviation agreement. The current treaty, called Bermuda II, allows access to Heathrow by only two U.S. carriers, currently American and United Airlines.

U.S. officials want more access for other carriers, with the aim of reducing airfares. The United States has already concluded 30 such ``open skies″ agreements around the world. U.K. officials have balked at the request and sought, in exchange, a drop in current prohibitions against foreigners owning U.S. airlines.

The Transportation Department has firmly stated that it would not approve the airline alliance without the concession of better access to Heathrow. Some U.S. airlines have accused the British government of protecting British Airways, a former state airline.

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