American, British Air End Merger

AMR Corp.’s American Airlines and British Airways said Sunday that they have called off a proposed alliance after U.S. regulators demanded that the carriers give rivals 16 daily transatlantic flights.

A Department of Transportation order issued Friday required the carriers to surrender flights between the U.S. and London’s Heathrow Airport, barred the carriers from sharing pricing data and revenue on some routes and put the alliance up for review in three years instead of the five the airlines sought.

The British government, which backs antitrust immunity for its carriers, followed the carriers’ announcement by canceling talks with the U.S. set for today on expanding air access between the countries through an “open skies” agreement, Transportation Department spokesman Bill Mosley said.

“The regulatory price was too high,” AMR Chairman Don Carty and British Airways Chief Executive Rod Eddington said. “The conditions laid down by the U.S. government do not make sense for either company. We will not acquiesce to unrealistic and, in our view, unnecessary demands.”

The AMR-British Airways announcement is the second time in 21/2 years that their proposed alliance evaporated after regulators raised concerns about the carriers’ dominance on routes between Heathrow and U.S. cities such as Chicago and New York.

The postponement of “open skies” talks means the U.S. and Britain keep operating under a 1977 treaty that lets only British Airways, Virgin Atlantic Airways, American and UAL Corp.’s United Airlines fly between the U.S. and Heathrow. Airlines consider the airport a valuable destination for high-paying business passengers.