First, the airlines must give away 224 takeoff and landing slots for travel between U.S. cities and London's Heathrow Airport before they can get antitrust immunity for their alliance.
Transportation Department officials said the agreement would allow four new U.S. airlines to fly to and from Heathrow, increasing the number of flights, especially from the Northeast.
Officials of British Airways and American Airlines said they would review the decision. In the past, the two airlines had objected to giving up flights to other airlines.
They noted that fewer restrictions were imposed on Delta Air Lines' recent alliance with Air France, Alitalia and CSA Czech Airlines. The Transportation Department's only condition in that case was that the airlines could not jointly set fares for most flights between Paris and both Atlanta and Cincinnati.
"We believe our alliance will deliver more choice, better products and better prices for trans-Atlantic air travelers and will put both airlines on a level playing field with other alliances," American and British Airways officials said in a joint statement.
The two airlines have been seeking federal permission to form an alliance since 1996.
The department said that the new slots would go to Continental, Delta, Northwest and US Airways, and would provide three more daily roundtrips each from Kennedy Airport in New York and from Newark, and one more from Boston.
In all, there would be 6,200 new flights between U.S. cities and Heathrow Airport per year.
As part of the deal, the department also tentatively approved a marketing alliance between United Airlines and bmi british midland. The British airline would have to give up slots to allow United to fly roundtrip between Boston and Heathrow.
Final approval of the alliances depends on the outcome of negotiations to remove restrictions on airlines flying between the two countries.
Currently, only four airlines - American, British Airways, United Airlines and Virgin Atlantic - fly between the U.S. airports and Heathrow.
When the Transportation Department approved Delta's alliance, it noted that the United States had open skies agreements with France, Italy and the Czech Republic, allowing other airlines to offer flights between American cities and the three countries without first getting government approval.
Both the Justice Department and Congress' General Accounting Office said the proposed alliance could reduce competition and drive up fares.
The GAO said earlier this month that the alliance "could dominate markets between major U.S. cities and London." And the Justice Department said in December that the combination "would likely result in higher air fares and reduced service."
The Justice Department had said it would oppose the agreement unlesthe airlines gave up flights to enable competitors to offer roundtrip service between London and the East Coast cities of New York and Boston.
Interested parties were given 31 days to comment on the order before it becomes permanent.
By Jonathan D. Salant
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