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The US Department of Transportation has proposed granting antitrust immunity to American Airlines and its global "oneworld" alliance partners including British Airways.
The department said overnight the proposed alliance would enhance competition in the airline industry "by creating competition with the existing Star Alliance and the SkyTeam alliance, which already have been granted immunity".
If approval is granted, American and "oneworld" alliance partners British Airways, Qantas, Iberia Airlines, Finnair and Royal Jordanian Airlines "would be able to more closely coordinate international operations in transatlantic markets", the DOT said in a statement.
The department acknowledged that immunity could harm competition on select routes between the United States and London's Heathrow Airport, because landing and takeoff slots were limited there.
"As a condition of approval, the Department is proposing in its show-cause order that the applicants make four pairs of slots available to competitors for new US-Heathrow service," the department said.
The US Justice Department said late last year that a tie-up of British Airways and American Airlines for transatlantic flights would lead to "competitive harm" and called for restrictions on the deal.
The Justice Department's antitrust division made its recommendation to the DOT, that still has to make the final ruling on the matter.
The request for antitrust immunity "would result in competitive harm on certain transatlantic routes serving 2.5 million passengers annually", the Justice Department said in December.
It concluded that fares between six transatlantic routes "could increase up to 15 per cent under the proposed agreements".
"The applicants claim substantial benefits will flow from an expanded alliance, but they have not shown that immunity is necessary to achieve these benefits," the review said.
The report recommended that the department "impose conditions" including removal of some slots for the affected carriers "to protect the public interest in competition".
It said any immunity might also include a "carve out" of some routes that would not be included in any cooperation.
"A joint venture is likely to harm competition if it would increase the participants' ability or incentive to raise price or reduce output in any relevant market," the Justice Department concluded.
Routes where competition might be hurt would be Boston-London, Chicago-London, Dallas-London, Miami-London, and New York-London, the department said.
Last year, American Airlines, British Airways and Iberia of Spain signed an agreement to cooperate on flights between North America and Europe to help them overcome soaring fuel costs and other industry woes.
