- Associated Press - Wednesday, July 14, 2010

BRUSSELS (AP) — British Airways and Iberia on Wednesday won the European Union’s regulatory approval to merge and to team up with American Airlines to share more of their lucrative trans-Atlantic routes.

The companies say the two deals will help them cut costs and survive a tough business climate as they struggle with falling passenger numbers and industrial unrest.

British Airways‘ merger with Iberia will create Europe’s third-largest airline with a market value of around $7.5 billion. They will keep their existing brand identities and claim the deal will create savings of 400 million euros ($530 million) a year by the fifth year.

The two loss-making airlines are among many struggling to survive after a fall in demand from both business and leisure travelers in the wake of the global credit squeeze. Those who are still traveling increasingly have turned to the cheaper fares of no-frills carriers.

BA and Iberia also plan to expand their Oneworld alliance with American Airlines, which currently coordinates how they sell and operate flights between the 27-nation European Union and the United States. They now will manage schedules, capacity and pricing jointly on flights from Canada, Mexico, Puerto Rico, Norway and Switzerland as well.

BA and Iberia said they expect the U.S. Department of Transportation to clear the deal shortly, allowing the airlines to start the joint business in the fall.

Bob Atkinson of travel Web site travelsupermarket.com said the deal potentially could create “more affordable fares, better connections and improved service” — but warned that savings may be hard for the companies to secure. BA currently is warring with workers over cutbacks.

The European Commission said it saw no antitrust worries with BA and Iberia merging since they don’t compete directly on many routes and would continue to face rivalry where they do — on flights from London to Madrid and Barcelona.

The tie-up will give them greater economies of scale as they lag behind other major airlines in Europe, following Air France’s tie-up with KLM, which made them second to Germany’s Lufthansa as the largest European airline by revenue.

Regulators did see more problems with the Oneworld deal and only cleared it after the three airlines made a binding promise to cede valuable takeoff and landing slots to rivals to help them start new routes between London and New York, Boston, Dallas and Miami from next year.

Some 2.5 million people fly these routes every year.

The commitment to satisfy the EU requirements will last 10 years, and the companies can be fined up to 10 percent of yearly global turnover if they don’t stick to their commitments. Regulators may review it after five years.

The three airlines will have to cede slots — but can demand payment for them — at New York’s John F. Kennedy International Airport and at London’s Gatwick and Heathrow airports only if rivals wanting to start new services to the four U.S. cities can’t buy the slots easily, which is usually the case.

Slots can cost up to 30 million pounds ($45.79 million) a pair at Heathrow, one of the world’s most congested airports.

BA says the three daily London-New York slots will be made available only if the number of airlines flying the route falls below “currently announced levels.”

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