'Open skies' rift widens as US takes tough stance

The US Government yesterday cast a further shadow over the planned alliance between British Airways and American Airlines, after officials intimated that the breakdown in UK-US talks aimed at securing an open skies agreement could be permanent.

The latest round of negotiations, due to start in Washington yesterday, were postponed by the US team, who said a draft agreement drawn up by the UK Department of Transport was "miles away from a true open skies" deal.

Yesterday the US insisted talks could not resume unless Britain substantially shifted its negotiating stance. "The ball is in their court," senior officials said. "This is not just a negotiating tactic. At the moment we are miles apart. We are on two different wavelengths," they added.

The open skies talks are aimed at liberalising airline traffic between the US and UK, which is tightly controlled under a bilateral treaty dating from the 1970s. The US has said it will not give the BA-American tie-up regulatory approval unless a deal is agreed, opening up access to Heathrow Airport, the world's busiest.

Today BA's chief executive, Bob Ayling, is expected to back the UK government's position, telling an industry conference in London that an agreement is still achievable, even with a step-by-step approach rather than the bonfire of controls advocated by the Americans.

BA's official position is that the breakdown is "temporary" and "some complications were inevitable". However, the two companies, which would jointly control 60 per cent of UK-US flights, have insisted they must get regulatory approval by November to be ready to start combined services from next April.

Yesterday's planned talks, at the suggestion of the British team, were due to discuss a mechanism to settle disputes over possible abuses of competition. US negotiators claimed the proposals, which ran into several pages including a detailed blueprint for a dispute resolution board, amounted to a side issue "of interest to the British, not to us".

The US insisted an open skies agreement must embody similar principles to the deal agreed with Germany earlier this year, with no Government interference over ticket prices or services. The US has also agreed such deals with The Netherlands and Canada.

Apart from the dispute resolution panel there are understood to be "many" other areas of contention. The main disagreement is over the issue of so-called "beyond rights" giving US carriers the ability to fly on from Heathrow or Gatwick to other European cities.