British Airways is set to capitalise on the new readiness by regulators to allow airline consolidation in the wake of 11 September by finally clinching a partnership deal with American Airlines, according to reports.

According to the Observer newspaper American is predicting hundreds of millions of dollars in additional revenue from the alliance.

The sticking point during previous talks has always been demands by regulators to give up landing slots for transatlantic flights.

BA and Virgin are the only airlines with slots at Heathrow for the route between the UK and the US East Coast, and the European Commission has long been keen to free up the market.

New rules

Now, as airlines around the world totter thanks to the slump hitting the industry since 11 September, American and BA could have an easier ride.

The US carrier's chief executive, Don Carty, told the Observer he was "95% certain" that the deal will be carried through by the end of this year.

The paper said sources in Brussels told it that the pair would have to give up less than half the landing slots and departures demanded by the EC the last time the issue was raised.

Both airlines have huge financial difficulties.

Without $500m in federal bailout money, American would have lost almost $1bn in the three months from July to September. As it is, it has laid off 20,000 staff and still faces tough times.

As for BA, the company is losing �2m a day, and its strategy of concentrating on the transatlantic routes and capitalising on its strong showing in the business class market is in tatters as Americans refuse to fly.

Its own profits for July-September fell to �5m from last year's �200m.