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British Airways closes in on deal to establish alliance with American Airlines

Aug. 5, 2008 – British Airways, which is already in talks with Spain's
Iberia SA over a combination, said Monday it hopes to seal an alliance
with its U.S. partner American Airlines within weeks.

BA spokesman Euan Fordyce said the carrier expects final preparations
for a deal to be completed within two weeks, and an application to U.S.
regulators for antitrust immunity to be filed shortly afterward.

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

However, they are expected to argue the competitive situation has
changed since the 'open skies' agreement between the U.S. and the
European Union came into force in March, allowing airlines to fly to
and from any point in the U.S. and any point in the EU.

Fordyce said talks with American are running concurrently with BA's
discussions with Iberia over an all-share combination, a potential deal
that could also form the basis of a three-way transAtlantic combination.

Air Canada recently signed a framework agreement with Continental,
United Airlines and Lufthansa to create a transatlantic joint venture
to provide service to Africa, India, Europe and the Middle East.

It will replace a decade-old bilateral deal with the German carrier.

Strict airline ownership laws in the United States all but rule out a
full merger between BA and American Airlines. However, an exemption
from the anti-competition laws could allow the pair to run their
transAtlantic operations as a single company, with co-operation on
pricing and schedules – adding to the flight capacity and airline
facilities they already share.

The round of talks is being held against the backdrop of soaring oil
prices and falling passenger demand because of the global economic
slowdown, conditions that BA chief executive Willie Walsh last week
said presented "the worst trading environment the industry has ever
faced.''

British Airways' first quarter pretax profit plunged 88 per cent,
prompting the carrier to cut its winter flight schedule and trim its
full-year forecast for revenue growth.

Some 25 airlines around the world have ceased flying this year, while
the International Air Transport Association has forecast US$2.3 billion
in industry losses this year.