The alliance threatens a substantial loss of competition, which would likely result in higher airfares and reduced service

US Justice Department

"The alliance threatens a substantial loss of competition, which would likely result in higher airfares and reduced service," the department said in a statement.

In August, the two airlines formally sought US antitrust immunity from the US Transportation department for a new marketing alliance.

This was their second attempt at cementing a relationship in three years.

Misgivings

But on Monday the Justice Department said the US government should reject the proposed alliance unless certain conditions were put in place.

These include granting rival American carriers at least nine daily round trips to London's Heathrow Airport from New York and Boston.

The statement from the Justice department said the alliance would give BA and AA more than 50% of the flights in many markets and an even higher share of the business travel market.

"If the Department of Transportation can secure meaningful access to Heathrow for new entrants, consumers will enjoy more choices for trans-Atlantic travel from more US cities at lower prices," the statement said.

Alliance details

Unsurprisingly, the two airlines saw things differently.

Forcing the them to give up flights would be "inappropriate," they said in a joint statement.

The DoJ "underestimated the commercial availability of slots at (London's) Heathrow (Airport) and the competitive advantages already being enjoyed by other global alliance networks," the statement said.

Under the alliance, American Airlines and BA are hoping to coordinate their schedules and jointly set ticket prices on flights between the US and the UK.

But the partnership between the two airlines is wrapped up in complex negotiations for an "open skies" agreement to liberalize trans-Atlantic aviation.

AA has argued for the new alliance by saying that the airline industry has changed greatly in five years.

In particular, AA said trans-Atlantic travel is less concentrated at Heathrow, where BA's operations are centred.

Decision due

The Transportation Department is expected to make a final decision on the alliance by early next year.

The issue of giving up take-off and landing slots at London's Heathrow airport was the stumbling block for previous attempts at an alliance in 1999.

The Justice Department also blocked a similar alliance request that AA made in 1996.