American Airlines and British Airways are finding they could have
 rowed across the Atlantic faster than it's taking them to seal a
 deal to fly over it.
     First proposed in June 1996, the alliance between British and
 American Airlines, an AMR unit, has been stalled by regulators on
 both sides of the ocean. American and European authorities have
 turned the deal into a battleground to decide the future of compe-
 tition at the London's Heathrow Airport, arguably the most impor-
 tant international hub in Europe.
     The planned rollout date of April 1997 has long passed and the
 airlines are now hoping to have their alliance in place by the second
 anniversary of their announcement.
     On its face, this deal looked like a basic agreement that many
 airlines use to boost their business. The code-sharing agreement
 would allow each airline to offer the other's flights as its own.
 Passengers would only have to check in once if they connect from an
 American to a British flight or vice versa. The airlines would share
 their frequent-flyer programs and some profits.
     But this alliance, more so than many other international airline
 deals, could trigger international fare wars as new players gain
 access to Heathrow.
                    Heathrow's Heavyweights
     Right now, only American Airlines and United Airlines have access
 to Heathrow Airport, the most sought-after gateway to Europe because
 of its size and its proximity to London. BA and AA together have 40
 percent of the slots - landing and takeoff spots - at Heathrow. The
 combined muscle of British Airways and American would control 60 per-
 cent of the overall U.S.-U.K. market and have a near-monoploy on some
 routes, according to the airlines and their competitors.
     U.S. regulators want to change that by attaching a variety of
 conditions to promote competition and allow more airlines into Heath-
 row. Flyers would have more choices of airlines and a greater selec-
 tion of flights. As a result, consumer groups say consumers will see
 ticket prices drop
     The U.S. government won't approve the alliance unless the U.K.
 frees up its restrictions on U.S. carriers. The U.S. wants an open
 skies agreement with the U.K., like it has with other European coun-
 tries. Open skies would give greater access to the U.K. to AA com-
 petitors such as Continental Airlines and Northwest Airlines.
                            Giving Up Slots
     But meaningful access to London also means access to Heathrow. As
 a result, other airlines and all three regulators want BA and AA to
 give up a certain number of their Heathrow slots to other airlines.
     The lowest number of slots suggested that the two should give up
 was offered by the U.K. government, which proposed giving 24 daily
 BA-AA slots to other carriers.
     The Commissioner of the European Community said in preliminary
 recommendations that the alliance would have to give up 50 daily
 slots. In his formal recommendations expected in the next few weeks,
 Commissioner Karel Van Miert is expected to lower that number be-
 cause the two airlines have said they would rather scuttle the deal
 than endure that kind of penalty.
     The U.K. government has indicated that it will enter into talks
 on open skies with the U.S. after the EC weighs in. That could final-
 ly bring on a round of meaningful negotiations. And that is good news
 for the major American carriers, who are feeling the push of
 globalization, and American Airlines in particular.
                         Congressman Weighs In
     "At this point, it is progressing rather than not," says American
 Airlines spokesman Chris Chiames. "The EC has indicated that sometime
 in the next few weeks they'll come out with their formal recommenda-
 tions. We're hopeful that it will be approved sometime next spring."
     Enter Rep. William Lipinski, a Democrat from Illinois, who is
 pushing a scorched-earth solution that, if nothing else, has things
 churning again on both sides of the Atlantic.
     In a draft letter to the U.S. and European regulatory bodies,
 Lipinski is pushing increased competition into Heathrow, his spokes-
 woman said. Lipinski, a member of the Transportation and Infrastruc-
 ture Committee and ranking Democrat on the Aviation subcommittee,
 sent a letter to the same people in October outlining the U.S.
 government's position. He has been actively following the would-be
 alliance because of the committee's oversight responsibilities.
     Although the letter hasn't been sent, and may not be, there is
 some indication that sporadic contact between the parties will soon
 lead to meaningful negotiations.
                             Talks To Drag On
     Analyst Tom Schreier at CS First Boston, doesn't expect a resol-
 ution in the near future. But he says in order to thrive, American
 and British "have to work themselves into a global
 network." Why? "Because BA is such an important part of air travel
 in Europe and in the UK, the alliance is very important for American
 from a bottom line point of view and for future competitiveness."
     With so many actors involved, analysts don't expect the alliance
 to win approval in the near future. But it is likely that the most
 controversial code-sharing agreement of the past two years will be
 in place for the summer's key vacation flyers. If not, expect Con-
 gressman Lipinski to try to spark some activity with another letter.
 =====
--- DB 1.39/004487
---------------