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British Airways In Talks With 2 Airlines

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The Associated Press

Published: May 2, 2008

LONDON - British Airways PLC shares jumped more than 7 percent Thursday amid speculation about what kind of deal it might ink with American Airlines and Continental Airlines and the possibility of wider consolidation among European major carriers.

BA announced late Wednesday that it was "exploring opportunities for cooperation" with the two U.S. airlines, leading to suggestions that it would extend its oneworld alliance with American Airlines to include Continental.

Analysts said the expanded alliance also could seek exemption from antitrust provisions that bar setting prices and schedules together.

U.S. airlines have been scrambling to combine or form new alliances since Delta Air Lines announced plans to buy Northwest Airlines Corp. last month, and analysts said the consolidation push could now spread further afield.

"Consolidation moves in the U.S. could precipitate a scramble for talks amongst the European majors," said Collins Stewart analyst Andrew Fitchie. "We believe BA's position at Heathrow will make it a sought-after partner and provide leverage in any situation."

The British carrier's shares closed 7.5 percent higher at $4.80 on the London Stock Exchange.

The three carriers have declined to elaborate further on the talks.

Continental said over the weekend that it would not pursue a combination with another carrier right away, a surprising move after weeks of growing speculation that it would join with United Airlines to create the world's biggest airline.

UAL Corp.-owned United and US Airways Group are now in advanced talks on joining their businesses to create what could be the world's largest carrier.

With U.S. law prohibiting combinations with foreign airlines, analysts said that attaining antitrust immunity would be at the top of the list of the trio's talks.

"Antitrust immunity would create significant revenue and cost benefits and strengthen the product offering," Panmure Gordon brokerage said in a note.

BA and American, a unit of AMR Corp., have failed in the past to win an exemption from U.S. antitrust laws to work more closely together because of their dominance at London's Heathrow Airport, where the pair have more than half the capacity to and from the United States.

BA Chief Executive Officer Willie Walsh has balked at proposals from regulators that they would provide antitrust immunity in return for the carrier surrendering some valuable takeoff and landing slots at Heathrow, Europe's busiest airport.

The "open skies" agreement that took effect in March, which allows more airlines to serve Heathrow if they can find slots, could potentially ease regulatory objections to a new BA-American agreement.

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