British Airways pulls out of merger with US rival in new blow to Byers

British Airways last night abandoned its transatlantic merger with American Airlines after the US Government imposed unacceptable restrictions on the link-up.

The move is a blow to Stephen Byers, the Transport Secretary, who had hoped approval for the alliance would pave the way for the signing of an "open skies" deal next week to liberalise air services between the UK and the US.

BA and AA said they had decided to scrap the merger because of concessions demanded by the US Department of Transportation. The DoT ruled that the alliance could only go ahead if the two airlines surrendered 224 take-off and landing slots a week at Heathrow.

Rod Eddington, BA's chief executive and Don Carty, his opposite number at AA, said: "We made it clear from the start that we would not conclude the deal if the regulatory price was too high. Regrettably, this has proved to be the case." The airlines said the conditions were unrealistic, unnecessary and did not make sense.

The decision is also a personal setback for Tony Blair who had lobbied President George W Bush for the BA alliance to be approved.

It is also a severe blow for BA which stood to generate an extra £200m a year in profits from the alliance. The link-up would have given the two airlines a 60 per cent share of all direct flights between London and the US and a virtual monopoly on some routes.

The concessions demanded by the US Government would have forced BA to surrender eight round trips a day between Heathrow and the US.

Rival airlines welcomed the decision, arguing that the BA-AA link would have dealt a devastating blow to competition.

The collapse of the alliance means that talks on the open skies agreement, which were due to resume on Monday, may now have to be abandoned. It would have allowed an extra four US carriers into Heathrow and also given them the right to start short-haul European services from UK airports.